November 6, 2019

Thoughts on Pricing SaaS Products in the Early Days

Your SaaS pricing strategy should provide value to each customer at the unique level of service that they can afford. Having multiple levels will help you get to profitability sooner without leaving $$ on the table.

Thoughts on Pricing SaaS Products in the Early Days

There are a million ways to price your software as a service business, and a million ways to eff it up. The key is to define a value ladder and stick to it.

I've talked before about setting your SaaS pricing to achieve your goals. That method should give you a rough idea about how much to charge. Think of that as your end goal.

I say end goal, because, in a perfect world, every customer will purchase your best, most expensive product or service. Unfortunately, it rarely works that way.

The key to getting that huge sale, is by providing value at each step of the buying process.

Freemium Model to Help Companies Grow

I'm sure you've heard of the "Freemium" model of SaaS. The model is simple:

Offer a free, base plan that provides value to the customer. Then up-sell as your users benefit from using your application.

Smart. With Sagenine, we're going to offer a free plan for our smaller customers. This makes sense, because we want to grow with our customers as they grow.

Here's a great example:
In my first SaaS business, we started using Intercom for messaging. Initially, the monthly fee was $49 / month. Now, we pay over $1,100 per month! (I'm not complaining... Intercom is highly useful, and something we would never get rid of). But, I wanted to highlight Intercom because they have nailed the "Freemium, get-you-in-the-door, then up-sell you model." (I know it wasn't free, but you get the idea).

So, on to my lawn service app: Sagenine. As I said, we're going t0 offer a free plan. That plan is based on total number of accounts.

You could follow every other SaaS out there and charge by the seat. However, it's highly possible you will be leaving $$ on the table.

The cool thing about charging based on number of accounts (or credits) is that a bigger company can give Sagenine a try, without committing their entire company. Remember, the goal to to provide value at each step of the way.

The free plan is essentially our MVP. The features in this plan will allow any lawn and landscape company to run their business on Sagenine. Of course, the free plan is capped at a certain number of accounts... Once you go over that number, you'll have to start paying.

Customer Buying Process & the Value Ladder

The free / base plan is there to help people get in the door. I want people using the software. I want them to see immediate value. I want them to get immediate wins.

Also, if they choose to stay with the free / base plan, that's perfectly fine as well. My highest level service might not be the best fit for all people. That's okay.

For everyone else, there will be value at each rung of the value ladder.

When I'm developing software, I'm constantly thinking: "How will this benefit the customer. How can the customer make money from this feature? How will this feature make their lives easier? Is this feature easy to understand and use? etc."

All of these features need to provide value to the customer. Period.

If you can nail the feature... If the feature IS beneficial to your customer... then guess what: You just created immense value for your value ladder.

Provide value to each customer at the unique level of service that they can afford.

If you continue providing more and more value, your customers will spend more and more money to keep using your software.

Here's a great example of a company that has nailed their pricing: Cloudinary. On their pricing page, they offer a free plan. And plans for higher usage. (Same thing we want to do with Sagenine's pricing).

What's really smart, is they offer "add-ons". (At the time of this writing, they have 23 add-ons). Brilliant!

So, follow Cloudinary's lead: Continue to create higher and higher level features, and you can keep charging more and more money.