When it comes to establishing pricing for your SaaS product, there are many different examples of pricing models in market and a overload of online recommendations and complex calculations. Pricing quickly becomes a much bigger task than expected and can often result in a pricing decision that can have a negative result on your target market.
In my experience the best approach is to first determine your guiding pricing principles. These principles are focused on what the business needs its pricing model to achieve, and should include input from all areas of the business; sales, marketing, product & finance.
Start with the principles you would consider to be 'common sense' and obvious:
- Simple to understand
- Avoids complex calculations
- Suits all business sizes
- Allows customers to upgrade/downgrade easily
- Appears competitive in market
Then identify the guiding principles that offer more complexity and support your business strategy:
- Can be forecasted
- Offers customer up-sell opportunity
- Encourages natural product behaviour
- Encourages sharing and viral adoption
- Encourages long term retention
Once you have established your list of guiding principles (I have found that 20 is a good amount), you need to prioritise them as a business to ensure that the pricing model you chose now (and any pricing changes made later on) are clearly aligned to your chosen guidelines. These guidelines should also be reviewed on a regular basis as your business needs change.
It then simply comes down to which pricing model (there are currently at least 30 different variations of price models for SaaS in market) ranks highest against your determined principles. Keep in mind that at this point you are wanting to focus purely on the price model; such as pay per user, pay per company, freemium etc. The actual price can be set later, it is the model that will dictate your user behaviour and customer adoption.
Once you have determined your price model, ensure that you continually refer back to your guidelines as as you progress through getting your pricing established and live. The guidelines should apply throughout the entire process, from establishing the dollar price, to choosing the currencies your offer, to your refund policy and for the design on your pricing pages.
Following a process like the above may not be the fastest, but it will result in a better pricing experience for your customer, and a better outcome for your business.
Amy Walker - Specialist in SaaS Strategy & Business Execution
I work with SaaS companies to develop their key strategies, and assist them to get the right tools in place to be able to execute seamlessly in market. I believe that the only thing preventing a great idea from scaling globally is a clear strategy supported by strong execution.