Category: pricing

Posts

map[]
19 February / pricing / product / best practices
Startups are innovation machines. They identify market opportunities, develop novel products and go out to change the world. Some companies want to change the world in one dimension: a better product or a disruptive go-to-market. Others want to innovate in every dimension and re-invent every discipline from pricing to marketing to support to customer success. Brad Birnbaum, founder and CEO of Kustomer, discussed the challenges of innovating on two dimensions simultaneously on the [Saastr podcast]().
map[]
10 July / saas / management / pricing / books
Over the weekend, I read Tien Tzuo’s book, Subscribed. Tien is the founder and CEO of Zuora, and former CSO/CMO at Salesforce, where he started in 1999. He has been working in SaaS for nearly 20 years. He’s a thought leader in the world of subscriptions, and I learned a tremendous amount from his book. There were three key themes that resonated with me. First, the shift to a subscription business model reinforces customer centricity.
map[]
17 January / pricing
Last week, I shared a presentation with an executive team at a large public SaaS company on everything I’ve learned about pricing. Here’s a summary of the frameworks and theory that I’ve aggregated over a decade of investing in startups. Why do we set prices? Setting aside the important reasons of generating revenue and maintaining solvency for a business, there are many other reasons to set price. Price reinforces brand because price telegraphs whether a product is a premium product or a value product.
map[]
09 May / pricing
A founder emailed me last week to raise the question of whether performance pricing for SaaS companies is an effective technique. Performance pricing means explicitly pricing of product in terms of the customers’ revenue gained or cost reduced from its use. Conceptually, performance pricing is very rational. The buyer should be willing to pay between 10 to 15% of the revenue or cost savings for the use of the product.
map[]
21 April / saas / sales / pricing
A founder asked me recently if a dead zone in ACVs (average contract value) exist around the $10k price point. Yesterday, I listened to a podcast in which an executive asserted that infrastructure software priced lower than $250k in ACV threatens the viability of the company. What does the data show? I’ve plotted the distribution of ACV at IPO for all public software companies. There are no yawning gaps but a smooth progression from $87 to $780,000.
map[]
01 August / pricing
There are three pricing strategies for startups. Maximization dominates SaaS products in the mid-market and enterprise markets; penetration is synonymous with freemium in the SMB market. Once you’ve decided on the right strategy for your company, what is the best way to price? By seat? By minute? With or without a platform fee? Modern behavioral economics study three different pricing structures. Let’s contrast them for a hypothetical web analytics vendor.
map[]
22 April / pricing
Pricing. Is there any word that confers some whisper of dark arts than pricing? Or any question that instills less confidence than, “How did you derive your pricing strategy?” Many times, startups replicate and tune competitors’ pricing strategies. If everyone else prices per seat, then so should we… Is this the right thought process? Madhavan Ramanujam is a pricing expert. A partner at Simon-Kucher partners, the pre-eminent pricing consultancy, he argues in Monetizing Innovation that there are only three pricing strategies startups should pursue: Maximization, Penetration and Skimming.
map[]
07 December / pricing / saas
SaaS Enabled Marketplaces employ elegant business models. They are verticalized SaaS companies that manage a marketplace to create winner-take-all market dynamics. SEMs can generate revenue in four ways: charge the buyer and/or supplier a software fee & charge the buyer and/or supplier a marketplace fee. In addition, a startup must determine what rake to charge. At Redpoint, we’ve invested in more than 15 marketplaces and have evaluated dozens more, including more than 20 SEMs in the past year.
map[]
05 January / saas / data analysis / sales / pricing
One of the most important forces in SaaS today is the Consumerization of IT. Instead of a centralized IT organization deciding which products to buy, product managers and marketers and engineers and data scientists determine which products they think would serve them best and buy them directly, often using a credit card. This movement is transformative and its impact is immediate. The chart above plots the median Average Revenue per Customer by Year of IPO for the 50 SaaS companies that have gone public in the past five years.
map[]
05 November / pricing / saas / startups
Most startups play defense when discussing pricing with customers. They dance between asking for too little, leaving money on the table, and asking for too much, only to lose the customer’s interest. The very best companies lead their customers in that dance. They use pricing as an offensive tool to reinforce their product’s value and underscore the company’s core marketing message. For many founding teams, pricing is one of the most difficult and complex decisions for the business.
map[]
23 October / saas / pricing
Startups struggle to set the right price for their products because pricing dynamics in the field don’t obey the laws taught in the classroom. The standard supply and demand curves, drawn above, imply that as price increases demand decreases; that buyers act rationally and that this law is immutable. But this simply isn’t the case. Buyers in the market place violate the traditional supply and demand model all the time.
map[]
22 May / saas / pricing
I’m a perpetual freeloader. Like a houseguest who has overstayed his welcome with hundreds of people, I depend upon the generosity of strangers - in particular, software teams. I’ve used HelloFax to sign documents for years, but I haven’t paid them a nickel. The same is true for GMail, Google Docs, TripIt, TypeKit, UberConference, LogMeIn, Evernote, the list goes on. For all of these companies and products, harboring freeloaders like me is part of their growth strategy.
map[]
21 April / startups / pricing
Pricing is one of the hardest things for startups to get right because there is no universal and constant price optimum. As a SaaS startup’s product evolves and offers more features, the product’s price points should increase. As a sales team or marketing team engages different customer segments, price points may vary wildly. The contract for a F500 should have very different pricing than a startup, because of the stark contrast in the different companies’ willingness to pay and value associated with buying the product.
map[]
11 June / pricing / startups / sales
Pricing is one of the most challenging decisions for any startup. One of the simplest ways of discovering customer willingness to pay is simply to ask them. At first blush, that might seem a reasonable and effective solution, it is prone to wild inaccuracy. Absolute pricing judgments are hard without reference points. For example: How much would you be willing to pay for a new iPhone? It’s a very challenging question to answer in the abstract.
map[]
28 May / pricing / channel
You have just launched your new software start up. The last webpage to go up on the website is the pricing page. Like many other SaaS startups, you decide to employ some version the three pane pricing plan: first the free version, second a paid upgrade costing between $5-$40 per month, and third an enterprise tier with a “Call for Quote” in place of the price. A few days after you launch, an enterprise customer contacts you asking for a quote.
map[]
23 April / pricing
Pricing is taxation. A pricing plan taxes some element of a product’s use. For a startup, choosing what to tax and how to tax it can be one of the most perplexing decisions because the tradeoffs between usage and revenue aren’t always clear. Activity based pricing or usage based pricing is one of the more common pricing plans in utility computing and software these days. Need to spin up another server immediately?
map[]
11 April / pricing / sales
Every SaaS business must decide how to charge for the service. Pricing plans are some of the most difficult decisions to make. Equally important to the price is determining the point at which the customer pays - the conversion point. There are four different models that I’ve experienced: up front payment, freemium, limited free trials, money back guarantee. Picking the right one depends on a number of different factors. Below is a table that summarizes these four approaches.
map[]
06 March / pricing
The three tier feature based pricing model is so common it’s almost a cliché. For some businesses it works well. But as Kenny van Zant explained to me, feature based pricing can slow growth in freemium businesses in two ways: first, feature based pricing creates incentives within a company to offer a subpar product and consequently creates unnecessary friction in the adoption process slowing growth. Both of these challenges arise when the pricing model is applied to end users, instead of the right target, the manager.