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Hey Everyone! Couple of things: I’m best for questions around: 1. SaaS Pricing (Price Intelligently), 2. SaaS Metrics/Unit Economics (ProfitWell by PI), and 3. Bootstrapping (We’re at 12 people now off $0 in funding and growing rapidly). We think about SaaS pricing and metrics more than anyone else out there. That being said, love to talk about all the fun things about SaaS startup-land. Biggest ask from you: Don’t let me get away with any b.s. answers. If I don’t give you something actionable or complete, follow up. Hopefully you won’t have to call me out though, because I will already have answered everything. :) Feel free to truly ask me anything. I’m a big believer in true transparency, meaning not just giving you revenue numbers and stuff like that, but actually fighting through any discomfort on the hard questions. You should follow us at @PriceIntel or me at @Patticus

  • PC

    Patrick Campbell

    over 2 years ago #

    Looks like I got everyone's questions. To contact me with anymore you can reach me at patrick@priceintelligently.com. Hopefully you get the impression from the below that we're more than happy to give away as much actionable feedback/advice as possible.

    Additionally if you want the most accurate SaaS/Subscription metrics on the market, check out profitwell.com. It's free and only requires a two minute sign up. :)

  • FH

    Farron Hicks

    over 2 years ago #

    Thanks for doing the AMA @patticus. My background's in econ and I'm fixated on this topic!

    How would you go about finding new optimal price points for existing customers who have already been invested in your product for some time as new product features are released? A/B test a small segment, then implement, refine, roll-out?

    • SE

      Sean Ellis

      over 2 years ago #

      Great question... To piggyback on it a bit. How do you overcome price anchoring and move the price up for a product that is way underpriced?

      • PC

        Patrick Campbell

        over 2 years ago #

        Boom - this is getting into some good stuff, @sean and @farronh.

        I'll start with your direct question Farron - The basic roll out you suggest makes sense, but here are some things to think about. When you're rolling out features, you should have already done your homework around relative preference analysis and maybe even a bit of price sensitivity analysis to determine where those features should go and the value you're going to be providing. We find companies that do this as a part of their product development/roadmapping monetize much more efficiently.

        That being said, I'd then collect this type of data from current customers, prospects, and target customers who have never heard of you (we call them market panelists) to figure out what the value truly is in this feature or set of features. You may find current customers are super biased because they love or loathe you so much that it taints the data pool. You may also find prospects don't care, but ultimately this data allows you to then figure out if you should: 1. raise the price, because the feature(s) boost value so much, 2. simply include the feature as a retention mechanism (it's ok for customers to be willing to pay more than prospects, because that means they're loving the product, or 3. not build the feature out at all because it's not going to provide proper value.

        In terms of roll-out, once you've done your homework, I'd launch the price change to a subset of NEW prospects first, because these are people who are the freshest and you have the lowest risk of aggravating. If it's successful, I'd then launch to the existing base based on your price change policy. Here's a really helpful post on changing your pricing and how to handle existing customers: http://www.priceintelligently.com/blog/bid/200161/A-Complete-Guide-to-Changing-Your-SaaS-Pricing

        Now to answer Sean's question - the short answer is don't underprice in the first place. Understandably though, that's not useful if you've already done it. :)

        Ghost is a good case study in this - they recently raised their prices and actually saw conversion and revenue double, because they were underpriced relative to their target customer personas. People still complained, especially the folks who were in the lower target and not the people they wanted to monetize, but that's the risk of not doing this upfront.

        If you read the article I put in this comment, we talk a bit more about how to soften the blow. You're going to aggravate some folks, but if you're truly underpriced, the people in your true target will say something along the lines of "I don't like paying more, but I know you're providing good value" We've actually seen this happen with Ghost, InsightSquared, Buildium, and others.

        Long story short - do your homework and don't be afraid to make changes. Because SaaS is a unit economics gold mine with compounding implications, the later you make a change, the worse off you'll be in the business.

  • PK

    Pam Kulik

    over 2 years ago #

    I counseled a stealth startup to not put their pricing info on their site (which is FREE) and keep the pricing conversations to private sales meetings until they have a biz/rev model to share with Seed investors. It's a powerful SaaS enterprise BI for the health space product that will require significant setup/implementation. Was I on target?

    • PC

      Patrick Campbell

      over 2 years ago #

      Hey @pamkulik - this is a bit tricky, because I think in the earlier stages this is ok, because you want to target those folks who are really caring about your product, but we really like transparency in pricing for a few reasons:

      1. You eliminate non-optimal leads from your funnel: If you look at our pricing page for Price Intelligently, you'll notice we have some ranges, because implementation/setup/scope of project can shift the price of our software pretty substantially. This allows us not to take up time on leads who are non-optimal and think this type of work should be $500. This can also have a bad impact, because some people who aren't necessarily our target right now, may be willing to pay us much more, but we're now anchoring them low. We solve both ends of the spectrum by saying in sales conversations - "80% of our implementations are between X and Y...some are higher...some are lower" which allows us to get out of any situations where we're too expensive or too cheap. Our pricing page: http://www.priceintelligently.com/plans-and-pricing

      2. Most people hate having to deal with a sales person to get proper information: We're constantly looking at different products or services for our business and we really want to be able to know within the first 5 minutes of being on a site: A. does this solve a problem I have and B. is it within my budget. Without ranges or any pricing information you cause this frustration.

      All that being said, I think you made a good decision and here's why:

      1. You don't know that range right now: As you do your cust dev, you'll get a better sense of that range and therefore will be abl to get to a point of public pricing or ranges to help with lead flow.

      2. You want the people who are willing to go through more work to deal with you: You'll get non-optimal leads right now, sure, but you want the folks who are banging down your door to get your product, because you're going to learn 100x more about your customer, the space, the product, etc. as you come out of beta.

      You'll eventually get to a point where some guardrails will be good for your pricing, but you may never do fully transparent pricing and that's ok, because it's a bit of a tradeoff, especially if you're using inside/outside sales and an inbound strategy. Here's more information on transparent pricing - excuse the click baity title :) - http://www.priceintelligently.com/blog/bid/180265/Why-Your-Secret-Pricing-Strategy-is-Overrated

      Let me know if you want to drill down further. Definitely an amazing topic/question.

  • MB

    Morgan Brown

    over 2 years ago #

    Hey Patrick,

    Thanks so much for doing this. I'll start - How do you test pricing without pissing people off?

  • SE

    Sean Ellis

    over 2 years ago #

    Excited for this AMA @patticus ! Thanks for doing it. My question is - When is the ideal time to decide on your pricing model/price if you plan to release a SaaS product with a waiting list Beta? Should you have a good idea of pricing up front or is it better to understand the target customers and how much value they receive first?

    • PC

      Patrick Campbell

      over 2 years ago #

      Great question, @sean.

      If you do your pricing homework upfront, your product, marketing, and monetization becomes 10x easier, because you'll quantify your buyer personas and know exactly what they want and how much they are willing to pay. Here's an example of a quantified buyer persona to give you context: http://cdn2.hubspot.net/hubfs/120299/Quantified_Buyer_Persona_Example.pdf

      That being said, if you're trying to continuously deploy and run the lean framework sometimes that homework, albeit important, can be taxing on not getting your beta list in a forced "will you put your credit card down and pay me those dolla dolla bills"

      As such, I'd suggest quantifying your buyer personas as much as possible within the scope of your standard customer development - just add the pricing and feature questions we talk about in these two articles ( pricing - http://www.priceintelligently.com/blog/bid/190607/Unlock-Price-Sensitivity-s-Profitable-Surprise and packaging preference - http://www.priceintelligently.com/blog/bid/191076/Feature-Value-Analysis-The-Supreme-Growth-Hack). You'll then get a good idea of where you should be - "Are we a $50/m product or a $5k/month product?", "what are the upper plan feature teeth?", etc.

      THEN, you need to re-evaluate your pricing every 3-6 months and absolutely make changes every 6-9 months as you're coming out of beta. If you think this is too quickly, then I ask you this: Is the product improving in that time period? Yes? Then your pricing should be improving too. It's heartbreaking seeing company's screw up their monetization for years. Remember that a 1% improvement in pricing equates to an 11% boost in profit. No other lever has that power. Keep that in mind when you're spending 10 hours on landing pages and 0 hours on your pricing. :)

  • AA

    Anuj Adhiya

    over 2 years ago #

    Hey @patticus Do you have framework or set of conditions around thinking about whether someone should go in the direction of "Pay What you Want" pricing or not?

    Thanks!

    • PC

      Patrick Campbell

      over 2 years ago #

      Hey @anujadhiya - this is actually a phenomenal question and realm. Most of the experiments we've seen have been failures ( in the sense that companies are no longer using this practice). The most telling was Disconnect.me who did a bit of a pay as you want model.

      I think the problem is that it's a lot harder to make people convert with this model, because you're forcing them to make two decisions: 1. do I value this product enough to pay for it, AND 2. how much should I pay for it.

      Ironically it actually comes off lazy on the side of the company, because you should be able to peg your value much more effectively than your customer, because you should know your customer.

      To answer your question directly though, I'd still run the value based pricing framework outlined in this article: http://www.priceintelligently.com/blog/bid/179505/A-No-Bull-Straightforward-Guide-to-Value-Based-Pricing-Strategy I would simply pay extremely close attention to the packaging work and asking customers if this is truly where they want the pricing strategy to go. This is because you may be in an industry where this makes sense. Let me know a specific product or space, and I'm happy to give more context.

  • VS

    Vishal Sunak

    over 2 years ago #

    When trying to obtain your first 10-20 customers in a B2B SaaS product, what is your feeling about a fixed cost model? Say $100/month flat for unlimited users? My thoughts are that its easier for billing and the pricing discount especially for large user counts for a product can create the early traction. Its always a fine line between acquiring a new customer vs. making money from them on the onset... and I'd love to hear your thoughts on this.

    • PC

      Patrick Campbell

      over 2 years ago #

      Hey @thesunak - phenomenal question.

      Per user models are the worst value metric pricing models to use on average. I'll explain where they make sense in a second, but overall you shouldn't be using them, because they limit your customer retention and typically you'll find that the value in your product isn't in the inclusion of each additional user, it's in pageviews, emails, etc.

      We wrote a lengthy, popular post on this here: http://www.priceintelligently.com/blog/bid/198499/Stop-Per-User-SaaS-pricing-You-re-Killing-Growth

      That being said, if you're a help desk, a CRM, or even some workflow tools per user pricing may make sense. It all comes down to what's called your value metric, which is what you charge for. SFDC charges per user, Mixpanel charges based on people or events, a dairy farmer charges per gallon of milk. The reason this is important is because if I don't see value in the value metric you're charging me, there's going to be a ton of dissonance around the purchasing process, which isn't great. Plus, you're going to kill your growth, because the customer may only need 2-5 users to keep the value in your product, even though they're a giant company using a ton of your product. Long story short, don't just do per user pricing without doing your research.

      Here's a lengthy post on finding your value metric. The TL;DR is that it needs to be easy to understand, grow with your customer's usage, and be where your customer sees value in your product. Plus, if you give unlimited users you may end up actually getting much better retention. Here's the article: http://www.priceintelligently.com/blog/bid/195287/The-Value-Metric-Optimize-Your-Pricing-Strategy-for-High-Growth

      All that being said, I think having "preliminary pricing" or "beta pricing" can help a lot to getting your customers in the door as quickly as possible. You just need to be certain you do your homework and don't shoot yourself in the foot by locking yourself into a pricing model that doesn't make sense.

  • SE

    Sean Ellis

    over 2 years ago #

    Are there any questions that you'd recommend asking prospects to help you determine the upper and lower bounds of pricing?

    • PC

      Patrick Campbell

      over 2 years ago #

      Phenomenal question @sean - because this gets at the heart of how price testing can be phenomenally helpful in the customer development process.

      You should be running a test on the following four questions:

      1. At what monthly price (per user) would [your product] be way too expensive that you'd never consider purchasing it?

      2. At what monthly price (per user) would [your product] be getting expensive, but you'd still consider purchasing it?

      3. At what monthly price (per user) would [your product] be such a good deal, you'd buy it right away?

      4. At what monthly price (per user) would [your product] be too cheap that you'd question the quality?

      You can exchange the model (monthly price (per user)) for whatever you want and even throw out those middle two questions, but this is the best way to get REAL data on where your customer personas are thinking about the value in your product.

      Keep them open ended too, meaning DO NOT anchor them with choices, because you may get a revelation around where you're actually worth. When we did this for our target customer personas in the early days, we actually discovered our value was 10x more than what we thought, which has allowed us to bootstrap the company well into profitability for 12+ people.

      Also, that last question is pretty important - you'll probably find it surprising that you just can't lower your price and get more customers. :)

      You can read more on the overall value based pricing process here: http://www.priceintelligently.com/blog/bid/179505/A-No-Bull-Straightforward-Guide-to-Value-Based-Pricing-Strategy

      Here's also how to take the answers to those questions and convert them into some phenomenally useful elasticity curves: http://www.priceintelligently.com/blog/bid/190607/Unlock-Price-Sensitivity-s-Profitable-Surprise

  • MB

    Morgan Brown

    over 2 years ago #

    Hey Patrick, here's another one.

    What are your thoughts on pricing relativity as a strategy to drive conversion? Is it over-hyped due to Dan Ariely and The Economist? Should it be something to test, something you should do out of the box, or something you shouldn't do?

    • PC

      Patrick Campbell

      over 2 years ago #

      Here we go @morgan - now you're talking nerdy to me. :)

      Pricing relativity is an amazing strategy if you can get it right. The Economist is a good example. For those that don't know, they charge $59 for a web subscription, $125 for a print subscription, and $125 for both. Seems weird right? Well, there's some amazing things happening from a behavioral standpoint that are off the charts in terms of conversion.

      To answer your question directly - it's overhyped if you think just following a similar model is going to solve all your problems. As I've said previously in the AMA, if your core/foundation sucks, no amount of what we call "last 5% tactics" are going to help you.

      As such, you need to make sure the foundation of your pricing is good and then test it as you suggested. An amazing SaaSy example is survey monkey. They're highest level plan is only a few bucks more than their second highest level plan, so users think "well, I might as well just grab this one because it's not that more expensive." It can work wonders, so I'd test it within your pricing process.

      Another similar concept is anchoring - sometimes having a plan that no one really buys but is super expensive looks good to customers and makes the next lowest plan look like a steal. We've found though that your anchor plan can not be much more than 100% more than the plan below it, because it loses the effect. Keep in mind though that all of this doesn't matter if your pricing foundation is sand.

      • TT

        Ted Truscott

        over 2 years ago #

        The Economist has changed its pricing structure now. It's £126 for print OR digital, £155 for print AND digital.

        • PC

          Patrick Campbell

          over 2 years ago #

          Good point @tedtruscott - a lot of the same concepts till apply here though. Still an anchoring effect where I'd presume the majority of signups come at the 155 level.

          • TT

            Ted Truscott

            over 2 years ago #

            Totally agree but for the Economist to have changed suggests that they found the old strategy sub-optimal

  • AA

    Anuj Adhiya

    over 2 years ago #

    During customer development and you're showing your potential customer the potential solution and they indicate they like it - is there a good/better/effective way to ask them what they would pay for it than just asking flat out asking them if or how much they would pay for it?

    The underlying question/concern is whether people feel like they're put on the spot in face to face interactions about pricing like this and would just say no simply based on how the question was asked in that situation.

    • PC

      Patrick Campbell

      over 2 years ago #

      Good question @anujadhiya - I put this a bit in my answer to @sean, but to expand - you should not be afraid to talk to your customer about pricing. It's not a secret you're going to charge them at some point, and acting like it is a secret is doing you and the customer a disservice, because they need you to stay in business if they're going to get long term value out of the business. (not saying you're saying this, just getting on my soap box :)).

      The other reason it's so important is that the ONLY data source that's going to tell you what your value is, is your customer. No one else, no formula, no workaround, is going to get you to this answer, so just go head first and ask them.

      The way you avoid the "on the spot" is with those ranged questions I put in my answer to Sean. Human beings cognitively don't think about value as a single point - it's a spectrum. For instance, the laptop I'm typing on is absolutely worth more than the water bottle I have next to me, which are both less expensive than the building I'm sitting in. Dramatic example, but it's the same with this world of Software. Asking the ranged question make this more comfortable and helps you triangulate your value across a sample of your target customers.

      If someone says "No" to your questions, then I don't know if they'd be the best customer in the first place. For context, we've sent 6M surveys to collect this type of data (our software uses a similar front end and an algorithm to calculate elasticity) and not a single respondent has been appalled we've asked about pricing. People get value is a two way, shared conversation.

  • AA

    Anuj Adhiya

    over 2 years ago #

    Question from @chbaudry:
    Prior to launching a product, how do you survey potential customers about price?

  • AA

    Anuj Adhiya

    over 2 years ago #

    Questions from @federicopascual:

    Looking forward to this AMA!

    A few pricing questions related to SaaS companies with multiple plans or subscriptions:

    - Besides testing, what is the best approach to figure out how many plans you should offer? Whats the best way to achieve this magic number?

    - Besides scaling on usage and/or killer features of your product, what other components companies should be using more in their pricing design? For example, customer support priority, number of ‘seats’, etc?

    - What are the big pricing DOs & DON’Ts in your experience for SaaS? Do you have a checklist or canvas you use when you design a pricing strategy?

    A question related to Price Intelligently: have you thought about a business model where you take a percentage of the additional revenue generated by using your software?

    Thanks in advance! Looking forward for your insights!

    • FP

      Federico Pascual

      over 2 years ago #

      Thanks for sharing :)

      • PC

        Patrick Campbell

        over 2 years ago #

        Let's do this, @federicopascual :)

        1. Number of plans you should offer

        This depends on the number of customer personas/customer variations you're targeting. Each persona should align to a respective tier, because then you ultimately have funnel-product-pricing alignment and your little SaaS machine should purr like a kitten.

        There isn't a magic number, but in this ebook we walk through what we see on average in the market - typically you're looking at 3-5, but we've seen people with 1, 2, or 6+ plans be super successful, too. Ebook: http://www.priceintelligently.com/saas-pricing-page-blueprint

        2. Seats/Features

        The most powerful SaaS companies out there in terms of monetization take advantage of expansion MRR/revenue. To do this you need to use a proper value metric, which is essentially what you charge for. Per seat is typically the worst value metric for you to use, because most SaaS products (exceptions include help desks, CRMS, etc.) don't have compounding value with each addtional user and likely don't need that many users. Here's a deeper article on this concept that I think you should check out further: http://www.priceintelligently.com/blog/bid/198499/Stop-Per-User-SaaS-pricing-You-re-Killing-Growth

        3. Dos and Do nots

        DO:

        1. DO price on value and make sure you're measuring value
        2. DO collect data on pricing/features directly from your customers/prospects - they're the only people who can give you the information you need.
        3. DO re-evaluate your pricing every 6 months and make changes every 9-12 months

        DO NOTs
        1. DO NOT do cost plus or competitive based pricing. Keep these in mind, but they're the worst way to price in SaaS
        2. DO NOT guess on pricing. It's too important and too easy to actually figure out value. It's just a process.
        3. DO NOT perform rampant discounts, because you're going to absolutely murder your LTV and probably train your customers to de-value your product

        4. Price Intelligently

        We absolutely have, but the problem is it's tough to measure at a granular level. Ultimately, when we make our customers more money, that's where our value exists. It really becomes tricky to measure exactly where we made the impact to granularly measure how much we should get in terms of payment though. For instance, we just double the growth rate of a company due to pricing, but of that 50%, we could probably equate 5-10% to a new marketing campaign and seasonality. As such, it's hard to figure out how much we should take exactly. I know we're underpriced because of this.

        As such, what we're doing in our new product, profitwell.com, will have more of these elements where we charge directly to value. Great question. :)

  • BN

    Babak Niroumand

    over 2 years ago #

    Hi @patticus and thanks for your time and doing this AMA. I have 2 questions:

    1. What’s your take on freemium model?
    2. How do you suggest closing the penny gap and encouraging people, especially those who are very skeptical, to sign up for a paid service?

    • PC

      Patrick Campbell

      over 2 years ago #

      Not a problem @babakniroumand - that's what we're here for :)

      1. Freemium

      This is tough, because freemium is an AMAZING tool when used correctly. This is something @hiten speaks about a lot. The problem is too many people think freemium is a revenue strategy, instead of an acquisition strategy. You need to think of a freemium tier as a really expensive e-book. I know that's a trite comparison, but when you think about it as lead-gen, then you're starting to think about it correctly.

      We've railed against freemium here: http://www.priceintelligently.com/blog/bid/159885/Forget-Freemium-Why-It-s-Killing-Your-Pricing-Strategy

      But we also released our own free product here, including a detailed explanation as to why we did: http://blog.profitwell.com/why-we-released-a-better-product-for-free-and-maybe-you-should-too

      Long story short - you need to absolutely have 1 FTE dedicated to not only acquiring free users, but also getting them converted to paid. It's not going to be a silver bullet, and your pricing strategy needs to consider the ramifications of your free acquisition strategy.

      2. The penny gap -GREAT question. Love me some penny gap commentary. We actually commented on this in that second article explaining why we released profitwell.com for free.

      I don't look at the penny gap as a bad thing, because for some companies it reduces the amount of crappy leads coming through their system. Look at Zendesk for instance - they charge $1/user for their base plan, which is essentially a free plan, but they don't want people who aren't willing to put their CC in to be using the product, because they're probably not great leads.

      To close that gap you need a few things though that we've all heard before:

      1. Good product
      2. Good path to monetization
      3. Good retention

      You can short circuit this gap through a number of ways, including a free trial, a freemium plan, demos, educational resources, etc. Essentially, you need to convince people that this is worth their time. Typically the cash to pay for a product is a secondary thing to convince them of.

  • AA

    Anuj Adhiya

    over 2 years ago #

    Questions from @aprildunford:

    1. If you have a sales team, how do get your sales team involved in a pricing test?

    2. Do you have any tips on testing the upper boundary on pricing in this scenario? (I’ve done massive price increases at a couple of startups – curious if you have and how you went about it)

    3. On enterprise pricing - Suppose you have done a price increase (where the pricing isn’t posted publically) – have you ever gone back to your older customers and moved them to a higher price? If so, how? (I’ve done this with packaging – i.e. tiered pricing or modules that cost extra). Curious if you have any creative ideas on that or if you think you should just leave those customers alone.

    • PC

      Patrick Campbell

      over 2 years ago #

      Bringing more of the noise @aprildunford :)

      1. Sales Teams

      Sales team should never be in charge of pricing, but they definitely need to be involved in tests, especially in enterprise scenarios. For medium to larger sales teams we typically see a need to segment part of the sales team to test out the new pricing (if your pricing isn't on your website). This allows you to properly segment your prospects out to see what the impact of a change would be. You need to keep in mind though that you should not just give the new pricing to all top performers or all low performers or else you'll potentially get false positives/negatives.

      2. Price Increases

      Do some of the homework we've spoken about above on where the points of no return are with pricing. You can then use the above methodology to get things moving on testing. Just be sure to make sure the sales folks are ok with comp structures if the pricing test fails.

      3. Moving people to higher prices

      ABSOLUTELY. Don't violate contracts of course (which is why you shouldn't do too long of multi-year contracts), but it's important to not kill your growth because you're too afraid of a potential tough conversation. Here's a good way to think about changing your saas pricing: http://www.priceintelligently.com/blog/bid/200161/A-Complete-Guide-to-Changing-Your-SaaS-Pricing

      Was that detailed enough? Where can I answer better?

  • LS

    Logan Stoneman

    over 2 years ago #

    Hey @patticus thanks for doing this! What core elements or philosophies from your economist work with Google/NSA have made the biggest impact in your pricing strategies?

    Would you advise others to follow in some of your same education footsteps or are there shortcuts to learn those philosophies?

    • PC

      Patrick Campbell

      over 2 years ago #

      Dayum @loganstoneman - that's an amazing question that I don't think I've thought about. I think my value modeling for the ol' US Intel Community and Google really pushed me to realize two things:

      1. Pricing isn't a 100% solvable problem (like most things in tech). It's a balance of iterating and hedging as much risk as possible, and the quantitative plane is constantly moving as your product and customer changes. For instance, if you're doing Intel things or trying to figure out the best way to upsell Ads, your targets are constantly shifting, as well, so the sooner you realize you're lopping off risk and trying to pinpoint wins and lurking variables, the better off you'll be. It's not a black box, you just need to have a process.

      2. The second biggest point is - cursive knowledge and qualitative "best practices" are bull shit. If the foundation of your strategy sucks, no amount of "end your prices in 9s" or "just add an annual plan" will solve your problems. Too many people rely on "best practices" that haven't been rooted in anything, but a lot of people saying they work. You need to test and collect data. If you're not doing this in pricing, you're leaving an extraordinary amount of cash on the table.

      To your second question, there's an extraordinary amount of shortcuts now that people are publishing more findings. For instance, we try to make sure every blog post on our blogs is actionable and when we find trneds in SaaS we share them - like the one where we found that the more team members connected to financials, the faster you grow: http://blog.profitwell.com/this-simple-hack-will-grow-your-revenue-34-share-your-financials

      As such, here's how I'd look at it: research as much as possible, but only trust articles/advice backed by actual data. If you're not convinced, call the author out on it and if they're worth the statements they've made, they'll be happy to share. Additionally, approach this world as a process. It is scientific and not a guessing game. You just need to approach it similar to how you approach other parts of the ol' funnel.

  • VS

    Vishal Sunak

    over 2 years ago #

    Hey @patticus... one observation I have from my time working in a B2B SaaS company for a few years is that we try to annualize all deals we do (getting the full contract value upfront)... and that works well when you have an established brand etc.

    What are your thoughts on how to shape this as an early stage customer... trying to lower churn and gain some revenue to support the business would suggest to try to annualize all deals. Also, what's your take on annualized discounts? Should that always be a consideration?

    • VS

      Vishal Sunak

      over 2 years ago #

      Typo in the sentence... "What are your thoughts on how to shape this as an early stage company".

      Thanks.

    • PC

      Patrick Campbell

      over 2 years ago #

      No matter your stage, you should have annual plans for cash upfront. There's an argument to be made around the product not quite being up to speed, but that's an argument you theoretically could always make.

      The reason annual is so important is that you get that cashflow as you mentioned, and we typically find annual plans have better active usage and retention than monthly plans, because those individuals are more invested in the product, because they on average have made a bigger decision involving the product.

      In terms of implementation, we find that saying "1 month free" or "2 months free" works 3x better than "10% or 20% off", because it's easier to conceptualize a free month or two than a percentage (this gets into "innumeracy", which is a whole additional commentary :)).

      All that being said, definitely something to test, because some companies optimize for annual sign ups and have 60-70% of their customers go after that plan (typically found in consumer or prosumer apps). Typical B2B saas you're looking for 20-30% on annual plans. If you have more than that I'd argue your price is too low. Less than that and there's some low hanging fruit somewhere. Of course, data wins out on analysing this.

      Read more we've written on this here: http://www.priceintelligently.com/blog/bid/194370/Boosting-MRR-Annual-Vs-Monthly-Subscriptions-in-Your-SaaS-Pricing-Strategy

  • AA

    Anuj Adhiya

    over 2 years ago #

    Question from @bonsaigardener
    Hi Patrick, I am also interested in the question how to test SAAS pricing. Especially in a B2B situation with small amounts of customers.
    Second question: Any idea how to raise prices in a new country when customers in existing countries are very price sensitive?

    • PC

      Patrick Campbell

      over 2 years ago #

      Hey @bonsaigardener - great questions. Let me know if I didn't answer enough on the testing element, but to answer your question on price localization:

      You absolutely should be localizing your prices and making sure you're testing willingness to pay and packaging preference on a region/country by country basis.

      The reason for this is because we typically see very different willingness to pay between places like the EU and the US just like you're finding. To solve this, you should easily localize your prices not only with different currency symbols, but potentially with different price points.

      Admittedly, you need to be exceptionally careful with people shopping between regions. For instance, you wouldn't want to do this amongst different states, because each state is hard to localize with IPs. Countries are much easier.

      In terms of impact, we've typically seen an 8% bump in growth when people localize pricing between the EU and the US. Definitely need to test and re-test though. :)

  • AA

    Anuj Adhiya

    over 2 years ago #

    Question from @daortega92:

    Really excited for this AMA!

    How should companies go about determining the number of pricing packages or tiers they offer?

    Follow up question by @ajgierer:
    Building on Dylan’s question, how often should a company readdress their pricing strategy or make changes and adjustments?

    • PC

      Patrick Campbell

      over 2 years ago #

      Hey @daortega92 that's a really good question.

      This really comes down to a couple of things, but the main one is you want to make sure you have price/persona alignment. This means that each of your tiers will align to each of your target customer personas. Of course, determining those number of personas is the tricky part (read some of the other answers for more insight), but overall a huge mistake we see with pricing pages is a lack of persona alignment or too many tiers.

      @ajgierer good question, as well. You should be re-evaluating your pricing's performance every 3 months, even if you're a giant company. In terms of changes, you should be making changes every 6-9 months with larger companies likely taking a little longer and smaller companies being a bit more nimble. Overall, if your product and target are improving, then your pricing should be improving.

  • AA

    Anuj Adhiya

    over 2 years ago #

    Question from @jorgebestard:

    Hi @patticus!
    I’d be curious to understand a bit better the psychological effects different pricing can have on a client. It is widely addressed in Dan Ariely’s books, but I’m curious if you have run testing of your own. What have you seen? Do price hacks like anchoring, decoy, 4′s etc. work in Saas, or are they too obvious?

    Thanks!

  • TI

    Tsuyoshi Ito

    over 2 years ago #

    Hi Patrick,

    I am not sure if this is a kind of questions you can help or not, but let me try:

    How do you know when you overcharged for your service/product?

    I am trying to get this online course off the ground. With a simple landing explaining the concept of the course, we got 150 people showed interest:

    http://onwardphoto.org/introducing-onward-global-mentorship-program

    While we were working on the details, we were engaging them with questions and get to know them. We even asked what other programs that they would be comparing this one to by asking: if this is not available, what would you do? We announced the price with all the details with a new landing page:

    http://onwardphoto.org/onward-global-mentorship-program-2015/

    We wanted to reach 24 students, but we had 10-11 people committed. 6-7% of conversion rate.

    This is B2C and it is not a $20 online course: it is something very specific. Obviously some people are completely priced out, but it was not total failure either.

    So, the actual signup number has a lot to do with the price, and I am debating how I could have optimized the price for something like this. The sample number is too small to make it anything conclusive, but I just want to have a framework as how to think about it.

    Let me know what your thought is.

    Thanks for your time in advance!

    • PC

      Patrick Campbell

      over 2 years ago #

      Hey @tsutu great question.

      Knowing when you're charging too much can actually be really tricky, because more often than not it's more of an issue with persona/price alignment. For instance, your course may have a market with a higher conversion rate, but you just may not be attacking the right segment. Additionally, there are a number of reasons your product could just not be a fit. One thing I'd think about is taking a look through your current prospect base and utilizing some of the questions I mentioned - you may find that the willingness to pay is where you've identified, but the liklihood to buy is so low, because there isn't an inherent need for the product.

      The result of this is that you may just need to go back to the drawing board product wise to boost the value for those customers.

      • TI

        Tsuyoshi Ito

        over 2 years ago #

        Patrick,

        Thanks for your answers. I do get that it is more persona/price alignment than charging too much.

        What we found is that a half of people who committed to the course chose more expensive option actually. So, that made even more confusing...

        So, when you say that we need to boost the value for those customers, you mean those who are slow to purchase?

        Thanks again though!

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