17 ms·

Pricing low-touch SaaS

655 points by davidw 9y ago

lettergram 9y ago
I actually found just two options: monthly and annual provide the best conversion. I've done it across multiple websites, and combined with a half-decent call to action and a quick signup (just 3 fields) you can convert pretty easily. Personally, my website conversion is ~2% which is pretty good: https://projectpiglet.com/ https://projectpiglet.com/ Prior, when I had two options the conversion rate was ~1.5%. Now the sample size is only ~25k (12k for each) so take from it what you will...
- dantheman0207 9y ago
  Cool service! When I try to visit your blog, I get a certificate error in Chrome. A little frustrating, cause I'd love to read more about your techniques! Check out https://whatsmychaincert.com/?blog.projectpiglet.com https://whatsmychaincert.com/?blog.projectpiglet.com
- ApolloRising 9y ago
  Nice site, one suggestion you may want to allow users to search for something in their domain expertise so they can trust it more rather than the canned examples. Just a thought.
- trevyn 9y ago
  FYI, on iOS/Chrome, tapping the “start trial” button without filling in the fields leads to a confusing Stripe error page.
  - lettergram 9y ago
    Thanks for the heads up!
methyl 9y ago
Great article, I love it analyses real-world cases. A small nitpick: there is a section called "Selling to undifferentiated SMBs", but there is no explanation what SMB is and it's pretty tough to google that.
- quaffapint 9y ago
  SMB = small and medium size businesses
- deleted 9y ago
  [deleted]
- gk1 9y ago
  > it's pretty tough to google that Next time you see an unfamiliar acronym, google "define [acronym]" and you'll get the most common definition. For example, "define smb" shows the correct meaning: A small and midsize business (SMB).
  - avip 9y ago
    Not to be confused with `define: thing`, which should result in a by-dictionary description, but in this case, gives me "server message block", a term I've never heard of.
    - JetSpiegel 9y ago
      Server Message Block is the Microsoft file sharing protocol. Implemented in a FLOSS way by the Samba project.
- deleted 9y ago
  [deleted]
cronjobma 9y ago
The single best advice Patio11 has given is "charge more". Seriously. It's been one of the scariest thing to do in the beginning, but I've now 4X'd my pricing (from 3 figures to 4 figures a month!) and the customers got 10X better, complain less, I work less and earn more. Please! If you read this, double your prices today. See what happens in the next 3-4 weeks.
- patio11 9y ago
  Thanks, that made my day.
- citilife 9y ago
  One thing I enjoy about charging more is the retention rate, it might be counter intuitive, but if you have a product worth keeping people will pay for it. Those customers will likely stay on longer, wont complain (as you pointed out), etc. When you go for the lower price point, you're getting people less in your niche and thus want more bang for their buck, or really want a different product entirely.
  - cronjobma 9y ago
    This. I once ran a SaaS for $7/mo. Churn rate was horrible. People never stayed longer than 3mo. Now I do something with a 4 figure / mo price tag and people stick around for 7/mo on avg. it’s totally counterintuitive
    - nikanj 9y ago
      4 figures per month I need to justify to my boss. After that, cutting the service means admitting I was wrong. You’d be surprised to learn how much someone else’s money people are willing to burn, to save face.
      - disiplus 9y ago
        that's true but also it depends on the customer is it b2b or b2c, something for 7$ could be something trivial, like a premium package for a note taking app, but something like a 1000$ is probably a b2b that the company needs.
encoderer 9y ago
As always, great work from Patrick. An excellent question! Net on net, removing the CC required upfront decreases conversions in the early life of startup, until you’re sophisticated with regards to onboarding, in-app messaging, lifecycle email, and reachout by a customer success team. I would not suggest you remove the CC required from this free trial. This was exactly our experience as a pretty unsophisticated team with Cronitor. Our 3 month experience in 2015 with no-card-up-front free trials was a total failure, dropping conversion and arpu in that cohort. Name pricing plans to sell them to the right users This is something that does work well for us. For us that means Business, Teams and Solo. We do a bit of feature packaging to add value and more or less you get everything you need at your size by buying one of those 3 packages.
- avip 9y ago
  I was very surprised by this one. I will never, ever, under any circumstances, put my CC details in a form hosted on a domain I'm not 100% confident with (s.a apple/amazon). I can't believe I'm an outlier on this one. Maybe it's because I belong to the nowhere-dense set of developers?
  - agwa 9y ago
    But if it's not your credit card, it's your employer's, you've got a job to do, and you know there's an accounting department whose job it is to make sure the bank refunds the charges in the unlikely event there's any funny business? Most people in that situation will not be deterred by having to enter a credit card for a free trial. And those are the customers you want.
    - user5994461 9y ago
      Business don't get refunded when crazy things happen on their cards. That's one of the major difference between being a consumer and a business. You have zero protection as a business.
      - chasedehan 9y ago
hartator 9y ago
> $X.99 pricing is not generally used in B2B or prosumer (professional consumers) services because it communicates cheapness; I’d suggest you drop the 0.99 accordingly here, for aesthetic reasons. (No series of A/B tests I’ve ever done generated as many strong opinions as whether it was better to price a product at $49, $49.99, or $50. Despite bikeshedding this to death at several clients, I’ve yet to see it really matter, so aesthetics win the day. If your data says differently, trust the data.) Interesting, I would have said $X.87 is still the best strategy when talking pricing/extracting value, even for B2B.
- winslow 9y ago
  Why $X.87 ? I've seen $X.99 versus the $X but never $X.87
  - alexeldeib 9y ago
    Hazard a guess: where .99 lowers the leading digit and feels "cheap", .87 feels more precise than a round number like X.00. Even if it's entirely arbitrary, it carries weight of apparent calculation behind it.
    - ttul 9y ago
      Does anyone have any science to hack this up?
      - tmnvix 9y ago
        > hack this up I had to chuckle a bit. So you want some science to discredit the idea?
      - ehnto 9y ago
        I will try and find the book, but their is research behind arbitrary pricing. Hardware stores for example often use exact sounding pricing because the consumer is making a rational purchase rather than an emotional one, and a price that seems calculated based on real value aligns well. The 478 dollar drill must cost that much because of the precise materials used to build it. Compared to the 199 dollar one which is obviously made of cheap materials and marked up.
giarc 9y ago
>it communicates cheapness; I’d suggest you drop the 0.99 accordingly here >I’d probably increase your pricing to $99 / $499 / $2,499 Would the argument that $X.99 implies cheapness not apply to $X99 as well? I feel like 99 anything is an old psychological trick to make the customer feel like they aren't really paying $500... they are paying $499.
- ttul 9y ago
  It works even though it looks cheesy.
- mandevil 9y ago
  No, it's aimed at business credit card authorization amounts. Many companies have policies like 'Tier 1 managers can authorize up to $100, Tier 2 managers can authorize up to $250, Tier 3 managers up to $5000' so you are trying to hit a number that makes the purchaser go 'I can get that purchase done without having to go too far up my chain of command' rather than 'I need to convince my grand-boss, who MIGHT know my name, to buy this software to solve my problem'
  - mkarnicki 9y ago
    While true, it really makes me wish the large companies would add 1 to all those tiers, so we wouldn't have to play along with pricing psychology - as someone else noted, you look at 499 and see 500, but there may be a difference in 500 tier authorization. So while I hate seeing 9's in prices, I understand that's a sensible way to go. At least in the higher range of prices.
- tmnvix 9y ago
  I think the idea that this practice signals cheapness is more theoretical than anything. Does a car priced at $54,990 signal cheapness? Certainly not for me. The practice is just too ubiquitous at this point.
- dangerboysteve 9y ago
  >they aren't really paying $500... they are paying $499. I think most, if not all, business customers know the x99 pricing is a psychological gimmick and since it's well known is it really a gimmick any longer? When I see $499 I immediately think $500
danenania 9y ago
I've been trying to figure out the ideal pricing structure for EnvKey[1], a saas configuration and secrets manager. I want something that is affordable for indie devs and smaller teams, but then scales up for larger companies who face this problem to a greater degree and tend to see more value in solving it. The pricing is currently per user, since I've envisioned it as a tool that you'd invite all your developers onto. For the most part, this has been the case, but there are some companies using it heavily on the server-side and only inviting a small number of users. To account for this, I've considered charging a small amount per access key (say $2/mo for a base plan) instead of per user. A typical app has an access key for each developer working on it, plus one per server, so for a team of 5 this would work out to ~16/app/month (assuming test, staging, and production server environments; some have more). Most teams seem to have at least a few apps; some have as many as 10. The good thing is this would scale up with usage, starting very low and then getting pretty substantial as you get more and more use out of the product. The bad thing is... it would scale up with usage, and therefore might disincentive heavy use. Any thoughts? 1 - https://www.envkey.com https://www.envkey.com
- ttul 9y ago
  Don’t fall into the cost-plus trap. Figure out typical usage sizes and then provide tiered pricing. Don’t underestimate what people will pay, and don’t try to capture the $2 user. They will not make you rich unless you have mega capital to find millions of them.
  - ttul 9y ago
    And by tiered, I mean $49/mo for up to 10 keys, $249.99/mo for up to 50 keys, etc... and gate features at each tier.
    - gingerlime 9y ago
      Per key feels greedy and potentially insecure to me. “Damn. We reached our limit. Ok, let me hard code this key for now...” I think per developer is more fair and still a good approximation of buying power and utility.
ericabiz 9y ago
Nice, Patrick. I love this! Can you do an article on reaching out to SMB's and selling them a SaaS? I know most SaaS that sell to SMB's actually do a lot of sales over the phone, but I'd rather not spend my whole day on the phone. (I am thinking about creating a SMB SaaS that solves problems for the retail stores we run now.)
- mlevental 9y ago
  read zero to one by Peter theil. mostly garbage but in it he makes a good point: smbs are nearly impossible to sell to because there's no SMB marketing channel (as opposed to radio/TV/fb for consumers). you're only option is cold calling.
  - pedalpete 9y ago
    I have a horrible memory about reading, so don't recall this from Zero to One, but I'd suggest saying there is "no SMB marketing channel" means you haven't defined who your customer is. Is there really an "enterprise" channel where you can go and find all enterprise businesses? Or s single "consumer" channel. Look at all the SaaS companies that sell to SMBs. The marketing channels are there, but you have to find the channel that suits your market.
    - mlevental 9y ago
      tell me one smb marketing channel? email isn't one (no different from cold calls)
      - BartBoch 9y ago
        LinkedIn, for example, would be one in my opinion. The channels for SMB are smaller and harder to see for businesses with IPO in their minds, but forum boards and business groups are amazing for this. I was testing once an idea and proposed a free package to all SMB's in a certain community. I mentioned, that I was doing this to help the community and give back. Majority of requests (and I have got few dozens of them) wanted to go for the paid plan right away, which was few hundred bucks and took few hours of my time to complete. The SMB marketing channels are surely there, but they are small and distributed, so they require much more manual work than regular channels.
nathan_f77 9y ago
Hey, that's me! (FormAPI: https://formapi.io https://formapi.io) The screenshot in the article is actually the updated pricing, after I followed advice from @patio11. Here's a screenshot of the original pricing: https://imgur.com/a/3JtUU https://imgur.com/a/3JtUU That was definitely too many plans. I also really like the copy suggestions, and have started using that in some AdWords campaigns: "Save weeks of development work on PDF generation; fits easily in the budget for any project." Thanks a lot for the help!
- Moter8 9y ago
  Not sure if 49$ is really fair (didn't read what the product is), but eliminating that huge list of plans was a very good choice.
  - nathan_f77 9y ago
    I was also a bit worried about the price change, but people have still been signing up! The service saves a lot of development time, so I think it's very affordable when compared to a developer's salary.
- duncanawoods 9y ago
  Given they are all usage tiered, why have plans at all? You could just have one metered plan and show how usage gets cheaper the more you use it.
  - nathan_f77 9y ago
    That’s a great question. I’ve been trying to decide if that’s the best way to go. I’ve built a metered plan internally that has the following tiers: • 0 - 100 PDFs: $0.20 per PDF • 100 - 1,000 PDFs: $0.10 per PDF • 1,000 - 10,000 PDFs: $0.05 per PDF • 10,000 - 100,000 PDFs: $0.02 per PDF • 100,000+ PDFs: $0.01 per PDF I don’t like that the customer is invoiced at the end of the month, instead of paying at the beginning. I was worried that someone would generate a lot of PDFs, and then their card would be declined. I might have spent a lot of money on hosting and wouldn’t be able to collect payment. For brand-new customers, I could also collect payments at certain intervals (E.g. $50, $100, $500, $1000, $5000.) After 2 months, I could trust them more and just have one charge at the end of the month. I could continue to have monthly plans with quotas, and add the pricing tiers based on usage. If a customer knows that they will generate at least 100 PDFs per month, then they could pay a discounted rate at the beginning of the month, and save 30% on the first 100 PDFs. I was also thinking that customers could buy “credit packages” at a discounted rate. This would useful if they are running a one-time batch job, and wanted to get a discount for the next 1,000 PDFs. The credits would also roll over to the next month, and I don’t think I would set an expiry date. I paid for some credits on KeyCDN, and it was really annoying when they expired after a year. I’ll continue to think about this and A/B test different pricing over the coming months.
grantlmiller 9y ago
Providing different product packages that are usage and featured gated in order to enable SMBs to use the basic version while giving enterprises the functionality they need in the enterprise version is a core concept in going up market with SaaS. We called it "product assortment" based on a talk that Michael Dearing gave several years ago about pricing. An overview of the concept with some examples can be found here https://www.enterpriseready.io/features/product-assortment/ https://www.enterpriseready.io/features/product-assortment/
yread 9y ago
Great article! I have a question though: when you have a Call us tier, what do you actually talk about when they do? I guess you need to judge value they will get from your service, but how? And then what, charge them half of that? What if they don't know what they want or whether they want on premise or not? Should you travel to meet them? What if they want you to sign ndas or other stuff first? How much effort to spend on it if it's just a request for quote?
- mikeokner 9y ago
  Don't think of it as a call for a quote, think of it as an initial sales contact. An unsolicited inbound phone inquiry is about the strongest possible lead you can possibly get. The potential customer typically won't expect you to provide a full quote on the spot, but will expect to have a brief conversation and either a follow-up email with pricing details or a follow-up formal sales/demo call scheduled. In terms of pricing/value, you should already have estimates of value for different customer sizes/use-cases and put together prices based on those estimates. On the call, it's your job to learn as much as you can about their problem so that you can determine how best to solve it with the products you offer and where it falls on your pricing scale. Don't do on-prem unless they pay you a boat-load more and SaaS isn't an option they're willing to consider. It's way more of a headache. NDAs are usually fine, but better to pay a lawyer a couple bucks to throw together one for you and try and use that one all the time rather than having to review a bunch of different ones coming from other companies. Travel is case-by-case. Definitely not necessary for just a quote, and not strictly necessary for sales if your video demos/sales calls are on point, especially if your customers are tech-inclined.
- prawn 9y ago
  No experience in the area, but I'd ask as many questions as possible and try to avoid providing an indication of price while on the call. Try to give yourself an opportunity to think over what you've learnt and then get them a proposal soon after. Or call back with a ballpark so you can gauge from their reaction whether you're around the mark or miles off.
KeepTalking 9y ago
Related advice given by Marc Andressen: What do you recommend for pricing in SaaS before reaching product market fit? Pricing is highly specific to the product and the market, so it is hard to give general advice. But if I were to give general advice, I’d say that we see far more SAAS startups underpricing their product than overpricing. The problem with overpricing seems obvious—we in our daily lives as consumers are more likely to buy products if they are cheaper, and so pricing higher is presumed to reduce sales. But that’s not how business markets tend to work—in business markets, where customers make what’s called a considered purchase, the result of a reasonably objective and rigorous analysis of options, startups that underprice tend to have the problem I call “too hungry to eat”—by pricing too low, they can’t generate enough revenue per deal to justify the sales and marketing investment required to get the deal at all. In contrast, by pricing higher, the startup can afford to invest in a serious sales and marketing effort that will tend to win a lot more details than a competitor selling a cut-rate product on a shoestring go-to-market budget. TLDR: When in doubt, double prices. :-)
- danenania 9y ago
  This is great advice. Especially for larger companies, price is a minor factor compared to whether a product really solves a problem and solves it well. Often, when people complain about price, it actually means they just aren't that interested and are looking for something to use as an excuse.
- sytse 9y ago
  Totally agree. At GitLab we doubled pricing and then introduced two tiers with higher pricing. Or highest tier is 50x what we started with. Turns out it is very expensive to market and sell to the enterprise. SDR, pre sales engineers, technical account managers, and strategic account executives are all involved.
KeepTalking 9y ago
Very interestingly on a similar topic here is Netflix's pricing strategy. https://www.priceintelligently.com/blog/netflix-pricing-strategy https://www.priceintelligently.com/blog/netflix-pricing-stra...
chasedehan 9y ago
Anyone have recommendations for SaaS sales? I have done a lot of reading of generic sales books, but they don't seem to align much with specifics of selling in tech.
- dfee 9y ago
  Jason Lemkin has a site dedicated to this: Saastr.com I should also add that it’s a conference and a community. I’ve found the reading there to be pretty good for quick reference (I don’t really hit the site anymore) but there are some good SaaS pricing references that come up through there, too.
deleted 9y ago
[deleted]
statictype 9y ago
Unrelated - Our product is a high touch SaaS that requires some handholding - is there any benefit in online advertising or marketing for this kind of product?
antoniuschan99 9y ago
Anyone have advice on pricing strategy on hardware/iot startup?
AnabeeKnox 9y ago
"$50 per month is not an appropriate maximum price for this product ... the best customers of Humble Dot would spend more on coffee discussing buying it than they would on actually buying it; that seems like a poor allocation of value." Great quote and great article!
tommikaikkonen 9y ago
I did my MSc thesis on SaaS pricing pages. I'll share what I found, since I think many people in this thread may find it useful. I tested how Mechanical Turkers (N=~400) chose plans on pricing pages with 4-tiered subscriptions plans, for both a file sharing service and a payroll software service. Each respondent was randomly assigned to one of 4 conditions, where the presented pricing page was slightly different. The scenario was framed as choosing a SaaS plan for a company they're employed at. The first variable I varied was plan order. Half the respondents saw a pricing page with plans in increasing price order (cheapest first), the other half in decreasing price order (most expensive first). There was a statistically significant difference between the plan choices for these groups; respondents in the most expensive plan first condition chose a more expensive plan. This phenomenon has been seen before outside SaaS, and it's called the price order effect. Another variable I tested was exchanging the cheapest ($5) plan for a free plan. Half the respondents saw a free plan, the other half a $5 plan. There was no statistically significant difference in the plan choice for these groups. Getting familiar with previous literature, I would surface a couple of general thoughts: - The most expensive plan first approach may give the visitor a more expensive image of the product, a higher "reference price". If a prospective customer is comparing two products from two different companies, they may favor the one that seems cheaper (has a lower "reference price") even if the offerings may provide similar value. - The hypothesized mechanism for the price order effect is that you don't look at all the options as a whole, but you begin by assessing the first option, which is the leftmost one for us reading left-to-right, and then judge the next option by comparing it to the previous one, and so on. You compare added (more features/less cost) and lost (less features/more cost) value. Because we weigh losses heavier than benefits, there's an inertia toward the initial options. Only options with benefits that greatly outweigh losses combat that inertia. Hence respondents tended to choose plans more on the left.
- samet 9y ago
  thanks for such beautiful insights. It's nice to see that there is no significant difference between free and almost-free plans. Is that somehow possible to share your your thesis? I'd love to read end to end.
  - 9y ago
biot 9y ago
One part I'm not sure how to read: "I would probably use the fact of the call and concierge onboarding to tell everyone that of course you charge for your services, just like they charge for their services, but that as a limited time offer you’ll retroactively waive one month of fees if they can commit to a 15 minute conversation about why the software didn’t work for your needs." What is the "why the software didn't work for your needs" part? Is this meant to be a call with users who are canceling and offer to waive a month of fees if they explain why? It seems out of place under the "To demo or not to demo?" heading.
xstartup 9y ago
We went from $100 to $1000. The first month, people were all angry. Within 3 months, we quadrupled our revenue. Some guys said, yea we looked at your product initially but we thought you guys weren't serious. Our design, sales pitch were not changed. So, how we started appearing more serious?
- mkarnicki 9y ago
  It's quite amazing (and I've read that before) that increasing prices usually increases perceived value of the product. If you charge too low, users may consider it as "it can't be good if it's that cheap".
xstartup 9y ago
There is no fair in a market. If you've survived in a market for over a year, you are already at the probabilistic impossibility. You price your product by looking at the resources you consume. We did that initially too but it's a wrong way to price a product. You are not taking into account that resources are available to everyone, you are simply not factoring the "luck". Don't devalue your luck, I attribute 99% of the prize we charge to luck. Customers pay for the luck. We've made impossible possible, those who do not agree can choose a different supplier.

655 points by davidw 9y ago

I actually found just two options: monthly and annual provide the best conversion. I've done it across multiple websites, and combined with a half-decent call to action and a quick signup (just 3 fields) you can convert pretty easily. Personally, my website conversion is ~2% which is pretty good: https://projectpiglet.com/ https://projectpiglet.com/ Prior, when I had two options the conversion rate was ~1.5%. Now the sample size is only ~25k (12k for each) so take from it what you will...

dantheman0207 9y ago
Cool service! When I try to visit your blog, I get a certificate error in Chrome. A little frustrating, cause I'd love to read more about your techniques! Check out https://whatsmychaincert.com/?blog.projectpiglet.com https://whatsmychaincert.com/?blog.projectpiglet.com
ApolloRising 9y ago
Nice site, one suggestion you may want to allow users to search for something in their domain expertise so they can trust it more rather than the canned examples. Just a thought.
trevyn 9y ago
FYI, on iOS/Chrome, tapping the “start trial” button without filling in the fields leads to a confusing Stripe error page.
- lettergram 9y ago
  Thanks for the heads up!

methyl 9y ago

Great article, I love it analyses real-world cases. A small nitpick: there is a section called "Selling to undifferentiated SMBs", but there is no explanation what SMB is and it's pretty tough to google that.

quaffapint 9y ago
SMB = small and medium size businesses
deleted 9y ago
[deleted]
gk1 9y ago
> it's pretty tough to google that Next time you see an unfamiliar acronym, google "define [acronym]" and you'll get the most common definition. For example, "define smb" shows the correct meaning: A small and midsize business (SMB).
- avip 9y ago
  Not to be confused with `define: thing`, which should result in a by-dictionary description, but in this case, gives me "server message block", a term I've never heard of.
  - JetSpiegel 9y ago
    Server Message Block is the Microsoft file sharing protocol. Implemented in a FLOSS way by the Samba project.
deleted 9y ago
[deleted]

cronjobma 9y ago

The single best advice Patio11 has given is "charge more". Seriously. It's been one of the scariest thing to do in the beginning, but I've now 4X'd my pricing (from 3 figures to 4 figures a month!) and the customers got 10X better, complain less, I work less and earn more. Please! If you read this, double your prices today. See what happens in the next 3-4 weeks.

patio11 9y ago
Thanks, that made my day.
citilife 9y ago
One thing I enjoy about charging more is the retention rate, it might be counter intuitive, but if you have a product worth keeping people will pay for it. Those customers will likely stay on longer, wont complain (as you pointed out), etc. When you go for the lower price point, you're getting people less in your niche and thus want more bang for their buck, or really want a different product entirely.
- cronjobma 9y ago
  This. I once ran a SaaS for $7/mo. Churn rate was horrible. People never stayed longer than 3mo. Now I do something with a 4 figure / mo price tag and people stick around for 7/mo on avg. it’s totally counterintuitive
  - nikanj 9y ago
    4 figures per month I need to justify to my boss. After that, cutting the service means admitting I was wrong. You’d be surprised to learn how much someone else’s money people are willing to burn, to save face.
    - disiplus 9y ago
      that's true but also it depends on the customer is it b2b or b2c, something for 7$ could be something trivial, like a premium package for a note taking app, but something like a 1000$ is probably a b2b that the company needs.

encoderer 9y ago

As always, great work from Patrick. An excellent question! Net on net, removing the CC required upfront decreases conversions in the early life of startup, until you’re sophisticated with regards to onboarding, in-app messaging, lifecycle email, and reachout by a customer success team. I would not suggest you remove the CC required from this free trial. This was exactly our experience as a pretty unsophisticated team with Cronitor. Our 3 month experience in 2015 with no-card-up-front free trials was a total failure, dropping conversion and arpu in that cohort. Name pricing plans to sell them to the right users This is something that does work well for us. For us that means Business, Teams and Solo. We do a bit of feature packaging to add value and more or less you get everything you need at your size by buying one of those 3 packages.

avip 9y ago
I was very surprised by this one. I will never, ever, under any circumstances, put my CC details in a form hosted on a domain I'm not 100% confident with (s.a apple/amazon). I can't believe I'm an outlier on this one. Maybe it's because I belong to the nowhere-dense set of developers?
- agwa 9y ago
  But if it's not your credit card, it's your employer's, you've got a job to do, and you know there's an accounting department whose job it is to make sure the bank refunds the charges in the unlikely event there's any funny business? Most people in that situation will not be deterred by having to enter a credit card for a free trial. And those are the customers you want.
  - user5994461 9y ago
    Business don't get refunded when crazy things happen on their cards. That's one of the major difference between being a consumer and a business. You have zero protection as a business.
    - chasedehan 9y ago

hartator 9y ago

> $X.99 pricing is not generally used in B2B or prosumer (professional consumers) services because it communicates cheapness; I’d suggest you drop the 0.99 accordingly here, for aesthetic reasons. (No series of A/B tests I’ve ever done generated as many strong opinions as whether it was better to price a product at $49, $49.99, or $50. Despite bikeshedding this to death at several clients, I’ve yet to see it really matter, so aesthetics win the day. If your data says differently, trust the data.) Interesting, I would have said $X.87 is still the best strategy when talking pricing/extracting value, even for B2B.

winslow 9y ago
Why $X.87 ? I've seen $X.99 versus the $X but never $X.87
- alexeldeib 9y ago
  Hazard a guess: where .99 lowers the leading digit and feels "cheap", .87 feels more precise than a round number like X.00. Even if it's entirely arbitrary, it carries weight of apparent calculation behind it.
  - ttul 9y ago
    Does anyone have any science to hack this up?
    - tmnvix 9y ago
      > hack this up I had to chuckle a bit. So you want some science to discredit the idea?
    - ehnto 9y ago
      I will try and find the book, but their is research behind arbitrary pricing. Hardware stores for example often use exact sounding pricing because the consumer is making a rational purchase rather than an emotional one, and a price that seems calculated based on real value aligns well. The 478 dollar drill must cost that much because of the precise materials used to build it. Compared to the 199 dollar one which is obviously made of cheap materials and marked up.

giarc 9y ago

>it communicates cheapness; I’d suggest you drop the 0.99 accordingly here >I’d probably increase your pricing to $99 / $499 / $2,499 Would the argument that $X.99 implies cheapness not apply to $X99 as well? I feel like 99 anything is an old psychological trick to make the customer feel like they aren't really paying $500... they are paying $499.

ttul 9y ago
It works even though it looks cheesy.
mandevil 9y ago
No, it's aimed at business credit card authorization amounts. Many companies have policies like 'Tier 1 managers can authorize up to $100, Tier 2 managers can authorize up to $250, Tier 3 managers up to $5000' so you are trying to hit a number that makes the purchaser go 'I can get that purchase done without having to go too far up my chain of command' rather than 'I need to convince my grand-boss, who MIGHT know my name, to buy this software to solve my problem'
- mkarnicki 9y ago
  While true, it really makes me wish the large companies would add 1 to all those tiers, so we wouldn't have to play along with pricing psychology - as someone else noted, you look at 499 and see 500, but there may be a difference in 500 tier authorization. So while I hate seeing 9's in prices, I understand that's a sensible way to go. At least in the higher range of prices.
tmnvix 9y ago
I think the idea that this practice signals cheapness is more theoretical than anything. Does a car priced at $54,990 signal cheapness? Certainly not for me. The practice is just too ubiquitous at this point.
dangerboysteve 9y ago
>they aren't really paying $500... they are paying $499. I think most, if not all, business customers know the x99 pricing is a psychological gimmick and since it's well known is it really a gimmick any longer? When I see $499 I immediately think $500

danenania 9y ago

I've been trying to figure out the ideal pricing structure for EnvKey[1], a saas configuration and secrets manager. I want something that is affordable for indie devs and smaller teams, but then scales up for larger companies who face this problem to a greater degree and tend to see more value in solving it. The pricing is currently per user, since I've envisioned it as a tool that you'd invite all your developers onto. For the most part, this has been the case, but there are some companies using it heavily on the server-side and only inviting a small number of users. To account for this, I've considered charging a small amount per access key (say $2/mo for a base plan) instead of per user. A typical app has an access key for each developer working on it, plus one per server, so for a team of 5 this would work out to ~16/app/month (assuming test, staging, and production server environments; some have more). Most teams seem to have at least a few apps; some have as many as 10. The good thing is this would scale up with usage, starting very low and then getting pretty substantial as you get more and more use out of the product. The bad thing is... it would scale up with usage, and therefore might disincentive heavy use. Any thoughts? 1 - https://www.envkey.com https://www.envkey.com

ttul 9y ago
Don’t fall into the cost-plus trap. Figure out typical usage sizes and then provide tiered pricing. Don’t underestimate what people will pay, and don’t try to capture the $2 user. They will not make you rich unless you have mega capital to find millions of them.
- ttul 9y ago
  And by tiered, I mean $49/mo for up to 10 keys, $249.99/mo for up to 50 keys, etc... and gate features at each tier.
  - gingerlime 9y ago
    Per key feels greedy and potentially insecure to me. “Damn. We reached our limit. Ok, let me hard code this key for now...” I think per developer is more fair and still a good approximation of buying power and utility.

ericabiz 9y ago

Nice, Patrick. I love this! Can you do an article on reaching out to SMB's and selling them a SaaS? I know most SaaS that sell to SMB's actually do a lot of sales over the phone, but I'd rather not spend my whole day on the phone. (I am thinking about creating a SMB SaaS that solves problems for the retail stores we run now.)

mlevental 9y ago
read zero to one by Peter theil. mostly garbage but in it he makes a good point: smbs are nearly impossible to sell to because there's no SMB marketing channel (as opposed to radio/TV/fb for consumers). you're only option is cold calling.
- pedalpete 9y ago
  I have a horrible memory about reading, so don't recall this from Zero to One, but I'd suggest saying there is "no SMB marketing channel" means you haven't defined who your customer is. Is there really an "enterprise" channel where you can go and find all enterprise businesses? Or s single "consumer" channel. Look at all the SaaS companies that sell to SMBs. The marketing channels are there, but you have to find the channel that suits your market.
  - mlevental 9y ago
    tell me one smb marketing channel? email isn't one (no different from cold calls)
    - BartBoch 9y ago
      LinkedIn, for example, would be one in my opinion. The channels for SMB are smaller and harder to see for businesses with IPO in their minds, but forum boards and business groups are amazing for this. I was testing once an idea and proposed a free package to all SMB's in a certain community. I mentioned, that I was doing this to help the community and give back. Majority of requests (and I have got few dozens of them) wanted to go for the paid plan right away, which was few hundred bucks and took few hours of my time to complete. The SMB marketing channels are surely there, but they are small and distributed, so they require much more manual work than regular channels.

nathan_f77 9y ago

Hey, that's me! (FormAPI: https://formapi.io https://formapi.io) The screenshot in the article is actually the updated pricing, after I followed advice from @patio11. Here's a screenshot of the original pricing: https://imgur.com/a/3JtUU https://imgur.com/a/3JtUU That was definitely too many plans. I also really like the copy suggestions, and have started using that in some AdWords campaigns: "Save weeks of development work on PDF generation; fits easily in the budget for any project." Thanks a lot for the help!

Moter8 9y ago
Not sure if 49$ is really fair (didn't read what the product is), but eliminating that huge list of plans was a very good choice.
- nathan_f77 9y ago
  I was also a bit worried about the price change, but people have still been signing up! The service saves a lot of development time, so I think it's very affordable when compared to a developer's salary.
duncanawoods 9y ago
Given they are all usage tiered, why have plans at all? You could just have one metered plan and show how usage gets cheaper the more you use it.
- nathan_f77 9y ago
  That’s a great question. I’ve been trying to decide if that’s the best way to go. I’ve built a metered plan internally that has the following tiers: • 0 - 100 PDFs: $0.20 per PDF • 100 - 1,000 PDFs: $0.10 per PDF • 1,000 - 10,000 PDFs: $0.05 per PDF • 10,000 - 100,000 PDFs: $0.02 per PDF • 100,000+ PDFs: $0.01 per PDF I don’t like that the customer is invoiced at the end of the month, instead of paying at the beginning. I was worried that someone would generate a lot of PDFs, and then their card would be declined. I might have spent a lot of money on hosting and wouldn’t be able to collect payment. For brand-new customers, I could also collect payments at certain intervals (E.g. $50, $100, $500, $1000, $5000.) After 2 months, I could trust them more and just have one charge at the end of the month. I could continue to have monthly plans with quotas, and add the pricing tiers based on usage. If a customer knows that they will generate at least 100 PDFs per month, then they could pay a discounted rate at the beginning of the month, and save 30% on the first 100 PDFs. I was also thinking that customers could buy “credit packages” at a discounted rate. This would useful if they are running a one-time batch job, and wanted to get a discount for the next 1,000 PDFs. The credits would also roll over to the next month, and I don’t think I would set an expiry date. I paid for some credits on KeyCDN, and it was really annoying when they expired after a year. I’ll continue to think about this and A/B test different pricing over the coming months.

grantlmiller 9y ago

Providing different product packages that are usage and featured gated in order to enable SMBs to use the basic version while giving enterprises the functionality they need in the enterprise version is a core concept in going up market with SaaS. We called it "product assortment" based on a talk that Michael Dearing gave several years ago about pricing. An overview of the concept with some examples can be found here https://www.enterpriseready.io/features/product-assortment/ https://www.enterpriseready.io/features/product-assortment/

yread 9y ago

Great article! I have a question though: when you have a Call us tier, what do you actually talk about when they do? I guess you need to judge value they will get from your service, but how? And then what, charge them half of that? What if they don't know what they want or whether they want on premise or not? Should you travel to meet them? What if they want you to sign ndas or other stuff first? How much effort to spend on it if it's just a request for quote?

mikeokner 9y ago
Don't think of it as a call for a quote, think of it as an initial sales contact. An unsolicited inbound phone inquiry is about the strongest possible lead you can possibly get. The potential customer typically won't expect you to provide a full quote on the spot, but will expect to have a brief conversation and either a follow-up email with pricing details or a follow-up formal sales/demo call scheduled. In terms of pricing/value, you should already have estimates of value for different customer sizes/use-cases and put together prices based on those estimates. On the call, it's your job to learn as much as you can about their problem so that you can determine how best to solve it with the products you offer and where it falls on your pricing scale. Don't do on-prem unless they pay you a boat-load more and SaaS isn't an option they're willing to consider. It's way more of a headache. NDAs are usually fine, but better to pay a lawyer a couple bucks to throw together one for you and try and use that one all the time rather than having to review a bunch of different ones coming from other companies. Travel is case-by-case. Definitely not necessary for just a quote, and not strictly necessary for sales if your video demos/sales calls are on point, especially if your customers are tech-inclined.
prawn 9y ago
No experience in the area, but I'd ask as many questions as possible and try to avoid providing an indication of price while on the call. Try to give yourself an opportunity to think over what you've learnt and then get them a proposal soon after. Or call back with a ballpark so you can gauge from their reaction whether you're around the mark or miles off.

KeepTalking 9y ago

Related advice given by Marc Andressen: What do you recommend for pricing in SaaS before reaching product market fit? Pricing is highly specific to the product and the market, so it is hard to give general advice. But if I were to give general advice, I’d say that we see far more SAAS startups underpricing their product than overpricing. The problem with overpricing seems obvious—we in our daily lives as consumers are more likely to buy products if they are cheaper, and so pricing higher is presumed to reduce sales. But that’s not how business markets tend to work—in business markets, where customers make what’s called a considered purchase, the result of a reasonably objective and rigorous analysis of options, startups that underprice tend to have the problem I call “too hungry to eat”—by pricing too low, they can’t generate enough revenue per deal to justify the sales and marketing investment required to get the deal at all. In contrast, by pricing higher, the startup can afford to invest in a serious sales and marketing effort that will tend to win a lot more details than a competitor selling a cut-rate product on a shoestring go-to-market budget. TLDR: When in doubt, double prices. :-)

danenania 9y ago
This is great advice. Especially for larger companies, price is a minor factor compared to whether a product really solves a problem and solves it well. Often, when people complain about price, it actually means they just aren't that interested and are looking for something to use as an excuse.
sytse 9y ago
Totally agree. At GitLab we doubled pricing and then introduced two tiers with higher pricing. Or highest tier is 50x what we started with. Turns out it is very expensive to market and sell to the enterprise. SDR, pre sales engineers, technical account managers, and strategic account executives are all involved.

KeepTalking 9y ago

Very interestingly on a similar topic here is Netflix's pricing strategy. https://www.priceintelligently.com/blog/netflix-pricing-strategy https://www.priceintelligently.com/blog/netflix-pricing-stra...

chasedehan 9y ago

Anyone have recommendations for SaaS sales? I have done a lot of reading of generic sales books, but they don't seem to align much with specifics of selling in tech.

dfee 9y ago
Jason Lemkin has a site dedicated to this: Saastr.com I should also add that it’s a conference and a community. I’ve found the reading there to be pretty good for quick reference (I don’t really hit the site anymore) but there are some good SaaS pricing references that come up through there, too.

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statictype 9y ago

Unrelated - Our product is a high touch SaaS that requires some handholding - is there any benefit in online advertising or marketing for this kind of product?

antoniuschan99 9y ago

Anyone have advice on pricing strategy on hardware/iot startup?

AnabeeKnox 9y ago

"$50 per month is not an appropriate maximum price for this product ... the best customers of Humble Dot would spend more on coffee discussing buying it than they would on actually buying it; that seems like a poor allocation of value." Great quote and great article!

tommikaikkonen 9y ago

I did my MSc thesis on SaaS pricing pages. I'll share what I found, since I think many people in this thread may find it useful. I tested how Mechanical Turkers (N=~400) chose plans on pricing pages with 4-tiered subscriptions plans, for both a file sharing service and a payroll software service. Each respondent was randomly assigned to one of 4 conditions, where the presented pricing page was slightly different. The scenario was framed as choosing a SaaS plan for a company they're employed at. The first variable I varied was plan order. Half the respondents saw a pricing page with plans in increasing price order (cheapest first), the other half in decreasing price order (most expensive first). There was a statistically significant difference between the plan choices for these groups; respondents in the most expensive plan first condition chose a more expensive plan. This phenomenon has been seen before outside SaaS, and it's called the price order effect. Another variable I tested was exchanging the cheapest ($5) plan for a free plan. Half the respondents saw a free plan, the other half a $5 plan. There was no statistically significant difference in the plan choice for these groups. Getting familiar with previous literature, I would surface a couple of general thoughts: - The most expensive plan first approach may give the visitor a more expensive image of the product, a higher "reference price". If a prospective customer is comparing two products from two different companies, they may favor the one that seems cheaper (has a lower "reference price") even if the offerings may provide similar value. - The hypothesized mechanism for the price order effect is that you don't look at all the options as a whole, but you begin by assessing the first option, which is the leftmost one for us reading left-to-right, and then judge the next option by comparing it to the previous one, and so on. You compare added (more features/less cost) and lost (less features/more cost) value. Because we weigh losses heavier than benefits, there's an inertia toward the initial options. Only options with benefits that greatly outweigh losses combat that inertia. Hence respondents tended to choose plans more on the left.

samet 9y ago
thanks for such beautiful insights. It's nice to see that there is no significant difference between free and almost-free plans. Is that somehow possible to share your your thesis? I'd love to read end to end.
- 9y ago

biot 9y ago

One part I'm not sure how to read: "I would probably use the fact of the call and concierge onboarding to tell everyone that of course you charge for your services, just like they charge for their services, but that as a limited time offer you’ll retroactively waive one month of fees if they can commit to a 15 minute conversation about why the software didn’t work for your needs." What is the "why the software didn't work for your needs" part? Is this meant to be a call with users who are canceling and offer to waive a month of fees if they explain why? It seems out of place under the "To demo or not to demo?" heading.

xstartup 9y ago

We went from $100 to $1000. The first month, people were all angry. Within 3 months, we quadrupled our revenue. Some guys said, yea we looked at your product initially but we thought you guys weren't serious. Our design, sales pitch were not changed. So, how we started appearing more serious?

mkarnicki 9y ago
It's quite amazing (and I've read that before) that increasing prices usually increases perceived value of the product. If you charge too low, users may consider it as "it can't be good if it's that cheap".

xstartup 9y ago

There is no fair in a market. If you've survived in a market for over a year, you are already at the probabilistic impossibility. You price your product by looking at the resources you consume. We did that initially too but it's a wrong way to price a product. You are not taking into account that resources are available to everyone, you are simply not factoring the "luck". Don't devalue your luck, I attribute 99% of the prize we charge to luck. Customers pay for the luck. We've made impossible possible, those who do not agree can choose a different supplier.