Pricing low-touch SaaS

How to approach pricing and packaging a new SaaS app, by example.

“Priority” customer service.

This is an easy thing for any SaaS company to operationalize, by the way—all you need is a special email address that e.g. adds a label in your ticketing tool or gmail inbox, and then you read that label first every day while you’re answering email. That is all priority has to mean!

This is one of the easiest ways available to get price-insensitive customers to self-select as price-insensitive.

.. They are reaching back across their history of working with other firms and declining to use the cheapest available service because their experiences with commodity services have not been wonderful. 

Telling them that you have a premium service available gives them permission to adopt your service, which is in your mutual interest, and helps you subsidize the availability of 

.. Making it clear that you answer your emails is a differentiating feature in this space.

.. You should expose few decisions to your users at signup. Attempting to forecast their use in advance is challenging for many users, so you should have less gradations between usage and give plans names which help users bucket themselves.

..  I would recommend you condense to 3 plus “call us for enterprise pricing” 

.. Nothing here promises value to the user; it’s all about mechanics which only you care about. Instead, you should reiterate what FormAPI does and why the plan they pick will be right for them:

Save weeks of development work on PDF generation; fits easily in the budget for any project.

.. Your goal for the first 10 times you attempt to sell this to a large customer is not to get the price correct, it is to thoroughly understand what your users want out of this software and what it is worth to them. Charge based on that.

 

.. $50 per month is not an appropriate maximum price for this product, because it will be instituted at materially-sized businesses to manage teams of professionals, and no initiative worth the repeated effort of professionals caps out near $50 per month. The best customers of Humble Dot would spend more on coffee discussing buying it than they would on actually buying it; that seems like a poor allocation of value.

 

.. Humble Dot’s pricing page leads with:

Transparent and Flat Pricing

I would strongly encourage you to have the title of your pricing page act like a sales representative. You have a mental of the mind for someone who has arrived at this page, right? What is your one-thought encapsulation of why they would buy Humble Dot? It can’t be simply that you’re offering Transparent and Flat Pricing, because I can offer you Transparent and Flat Pricing for a tuba, and you are not particularly enthusiastic about buying a tuba today.

.. The impact of a relatively small business division missing its targets this quarter is hundreds of thousands or millions of dollars. That is the number you want to anchor enterprise sales against, not $50.

 

.. step into the reality of B2B sales, where the cheapest service you can conveniently describe— taking out trash so your employees don’t have to—starts at about $800 a month because it isn’t even worth discussing a number below that with a business large enough to afford an office.

.. I would probably have the $50 plan flat for companies up to 10 employees, after which point their minimum possible payroll is, what, $30k a month or so?

 

.. I would probably pitch your product for end-users and your product for accountants separately, on two separate pricing pages. You can link each page to each other in case someone ends up in the wrong place.

 

..  a channel strategy. (This is when a SaaS company sells to a party with a relationship with a pool of customers in return for that party selling their product through those relationships. Typically, this results in the channel taking a cut of the price the end-user pays.)

You do not explicitly make the case for it here, which is that it allows accountants to benefit from the upside of selling a high-margin software product in addition to their lower-margin services work.

 

.. Can I recommend that instead of the Free plan getting a column that you immediately demote it to text under the columns with similar visual weight to “No risk, 30 day money back guarantee” gets?

.. A perhaps better headline, in a style which I’ve used to effect in my own software companies, is: “Pays for itself with a single [CONCISELY ARTICULATE YOUR VALUE].”

.. SaaS entrepreneurs overestimate the benefit of low prices early

Many SaaS entrepreneurs describe their products as less mature than the incumbents and therefore they price far under the incumbents. This is almost always a mistake.

Your customers are not buying KitchenWhiz because it is bad but attractively priced. 

.. You already are a revenue-producing tool for your customers, and you’re going to quickly iterate on this product and make it even better than it is now. You should price a bit ahead of where you think your maturity is; this lets you “grow into” the new price as your customers discover and onboard with you, and prevents you from having to go back to them and ask them for more money in the near future.

.. Generous refund policies are to your advantage

I would generally encourage software sold on the low-touch model to offer refunds to customers who are dissatisfied. Refunds do cause a short-term cashflow hit, but dissatisfied customers are a much bigger threat to your business than that cashflow hit, because dissatisfaction that you don’t know about causes churn that is hard to control.

You should eagerly encourage customers who are very unhappy about your services to tell you why and with specificity; consider the refund a small consulting fee you’re giving them if it helps you.

..  I would maximize for learning right now: offer a call to literally everyone who starts using the software. Use it 80% for learning about their business and 20% for showing them the important parts of your software.

 

.. I would probably use the fact of the call and concierge onboarding to tell everyone that of course you charge for your services, just like they charge for their services, but that as a limited time offer you’ll retroactively waive one month of fees if they can commit to a 15 minute conversation about why the software didn’t work for your needs.

This is effectively a demo but puts the onus on the user to organize themselves to actually use the software or feel embarrassed, as opposed to the typical free trial, which is just “Try it, or don’t, either way really.”

 

.. If you do not project manage them in the adoption of your software and process, you can reasonably expect for them to not make effective use of your trial during the time limit, mooting any benefit of it being available.

 

.. Your business needs to be capable operationally of doing fairly sophisticated work to nurture customers to activation and then convince them to part with their credit card details later in the trials for it to win net here

 

.. Our plans have a lot of features, should we put them all on the pricing columns or only the ones that matter?

You should only include the most salient details on your pricing page. If there is a difference between plans which is not salient to your customers or to you, it should not be a difference between plans

.. We have different customers with different needs. Is it OK to have different pricing models for each? For example, for publishers we charge based on how many publications and users they have. Universities have many, many more publications by nature of how they operate; we only want to charge them based on the number of users.

.. Businesses buy benefits, not features, so “Unlock advanced features” is unlikely to convince someone to upgrade from Essential to Business.

I might position that as: Like having your own automated CRO agency, at a fraction of the cost.

.. new business owners don’t model the true cost of employees’ time correctly. Assume the total cost of a white collar employee is about 140% of their quoted salary; that’s a good enough approximation to price SaaS against their true fully-loaded cost rather than their salary.

.. Businesses have to budget for fully-loaded costs, inclusive of taxes, benefits, required contributions to social insurance schemes, and overhead.

.. Want a great way to increase your conversion rate to mid-tier plans like the one you described as Business? Offer free consulting services which are bundled in with the offering and focused on getting someone onboarded successfully; this is often called “concierge onboarding.” If you’re worried about the amount of time required, you can restrict them to companies which elect the annual plan. (You should have an annual plan.)

.. It also gives people who are less price sensitive a reason to hang their hat on your higher-tier offerings. What if I am making $500k a month of high-margin sales but simply am not sophisticated enough to know what multivariate testing is? Concierge onboarding helps me get into a detailed conversation with you, where you provide outstanding value by getting the plugin set up to start increasing my sales automatically

.. Free is not a compelling value proposition to well-monied buyers

Historically, companies have offered software for free or nearly free to benefit from the software spreading as wide as possible. This is of sharply limited utility in selling B2B services, because price is often a proxy for value, particularly among savvy customers who are in industries which are (to pardon a pun) gushing with money.

.. Does “free” communicate to an oil company that the data / analysis / etc produced by your report is reliable enough to place a $X00k capital investment or a $Y million mineral rights lease? Does free comport with the values of decisionmakers in mining companies? Do they expect to get accounting or legal or insurance free?

.. How to present yearly pricing

In the traditional SaaS pricing grid, there is a huge distinction between columns. Choosing between columns requires a Consequential Decision by your customer. You should minimize consequential decisions.

Monthly versus annual billing shouldn’t be a consequential decision.

The majority of your customers should not have strong cash-flow considerations dominating their software budget, because they’re highly-compensated professionals in a capital intensive industry which is happy to pay for engineering services. I would have the core offering be the yearly plan and have a toggle box to select monthly.

.. call your existing paying customers, ask if they pay more than $50k a year for any software, and if so ask what they would need from you to justify paying more than that ballpark for you.

Patholical Customers

I think this is part of my pathological customers thesis: you won’t simply have more headaches at $500 than $5k because the customers are more evil about $500 invoices. You’ll have more problems because _people who get into $500 consulting relationships are disproportionately flakes_. You get less flaky behavior from your $5k clients because people who buy $5k services are disproportionately not flakes; the $5k sticker price is kryptonite to flakes.

Bargain-seeking consulting consumers have irrational expectations for what $500 buys them. The $500 is likely coming out of a personal pocket or a pocket which they treat as personal, not out of a Budget which gets handled like an honest-to-God business. They are disproportionately likely to have overcommitted that $500 — it’s perhaps not their last $500, but your invoice is sitting with a number of other invoices and it may not be possible to settle them all simultaneously.

Many of my consulting friends move up-market and find that up-market consists of businesses run by disproportionately mentally healthy people who disproportionately have money in the bank and disproportionately conduct themselves with professional mien like paying invoices in a fashion that suggests their company has paid an invoice before.

.. Pathological customers: when you give them free stuff, they will demand more free stuff, and if you refuse them more free stuff, they will do their darndest to destroy your business.

..  “Pathological customers: they get things for free and then ask for their money back.” The more money a business has, the more professional it can afford to be (literally) in dealing with you.

.. But we occasionally do get the “pathological customers” that patio11 likes to talk about. In those cases having the ability to give a refund is really nice because it is an easy way to part ways and “fire” customers you don’t want to work with.

.. The worst customers, I call them pathological customers,
are attracted to things that dont have a lot of money.
Its amazing how many people have told me this. You raise
prices, and you deal with less crazy people. At 99 cents,
people have very unreasonable expectations.

.. folks who pay A WHOLE NINETY NINE CENTS OF MY MONEY have very shockingly high expectations of polish / quality / feature selection (but no desire to e.g. read what the software actually does), whereas if someone signs e.g. a contract for $X0,000 for enterprise software, it lacks a feature, and they ask for it, “Thanks for the feedback, we’ll consider adding that in a later release. In the meanwhile, I suggest … as a work around” makes them absurdly happy.