Pricing keeps many seed stage CEOs up at night. It represents the ultimate referendum on how much value your product has created for would-be users. And, unlike in other industries, software companies have nearly limitless possibilities when it comes to how and how much they can charge their customers. In fact, our research shows that public SaaS companies capture anywhere from $100 to $1.8M per year on average from their customers. Directly borrowing pricing practices from other software companies could have seriously detrimental effects on your growth potential. So, to help overcome the issues many CEOs and leaders face when pricing their software products, we recently surveyed over 1,000 SaaS executives, including more than 400 seed stage companies, about how they approach pricing. We learned that seed stage companies tend to treat pricing as a last minute, ad hoc decision handed down from company leadership rather than dedicating the time and effort required to getting it right. Consequently, seed stage companies are more likely to lowball their initial pricing and merely mimic competitors’ strategies rather than using pricing as a strategic differentiator. The survey results show that seed stage companies: » Wait until the last minute on pricing: Half of seed stage companies consider pricing either right before launching their product or as the product is getting ready to be launched. In the words of pricing and innovation guru Madhavan Ramanujam, “They embark on a long, costly journey of hoping they’ll make money rather than knowing they will.” Best-in-class companies take pricing into consideration extremely early in the development process to ensure they build something differentiated from alternatives and that people will actually pay for. » Treat pricing as an ad hoc decision for company leadership: 55% of seed stage companies say pricing is handled on an ad hoc basis and that no one is dedicated to pricing on either a part or full time basis. CEOs own pricing at 82% of seed stage companies, versus 70% of expansion stage and 48% of growth stage companies. » Fail to conduct adequate pricing research and testing: Given the lack of resources dedicated to pricing, particularly at seed stage companies, it’s not surprising that no one owns the testing or research that goes into ensuring its optimization. More than 40% of seed stage companies have never tested or piloted their pricing and a similar amount have never conducted market research to understand how much buyers would be willing to pay. Companies spend so much time on testing and continuous rapid improvement for other aspects of their business. Shouldn’t they do the same for pricing changes, which drive a far higher profit improvement than any other initiative? » Low ball their initial pricing: 54% of seed stage companies charge less than $5,000 per year for an average customer compared to only 30% of expansion and growth stage companies. Meanwhile, only 41% of seed stage companies take a value-based approach to their pricing, with the rest merely mimicking competitors (30%), making a gut-based judgement call (21%) or taking a cost-plus approach (7%). Pricing could and should be as much a part of your innovation as your product offering. Companies like x.ai and Meetup, for example, have had tremendous success with recent SaaS product launches by taking a thoughtful approach to their pricing. Even if you fail at pricing out of the gate, the good news is that as a seed stage company, you still have time to fix it. Seed stage companies have far more flexibility to rethink and experiment with their pricing compared to later stage companies. So what are you waiting for? OpenView’s Ultimate SaaS Pricing Guide for Seed Stage Companies walks you through important pricing and go-to market decisions at this vital stage so you can capture the full value from your innovation and set your company up for long-term success.
<p>Pricing is one of the original four Ps of Marketing. Your pricing model goes hand-in-hand with your growth engine. For example, if you plan to buy advertising to drive growth, you'll need a pricing model that generates a customer lifetime value that exceeds your customer acquisition cost. If, on the other hand, you are primarily driving growth through a viral invite system, you'll generally need a fairly low price to reduce purchase consideration friction in your customer acquisition funnel. Beyond supporting the growth engine, price is also a function of the value that customers receive from a product and the cost of alternative solutions.</p>
Join over 70,000 growth pros from companies like Uber, Pinterest & Twitter