Mastering SaaS Pricing - The Top 5 Mistakes + How to Avoid Them
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This document discusses the importance of effective pricing strategies for SaaS companies and identifies common pricing mistakes, such as being too cheap and using the wrong value metric. It emphasizes the need for continuous iteration in pricing and packaging, comparing successful pricing evolution in companies like Salesforce. Key takeaways highlight the impact of appropriate pricing on revenue and customer retention, along with the roles of different departments in owning pricing decisions.
Mastering SaaS Pricing - The Top 5 Mistakes + How to Avoid Them
- 2. Speakers Brian Walsh CEO CodeScience Blake Bartlett Partner OpenView Kyle Poyar Senior Director Market Strategy OpenView
- 3. Who is CodeScience? ● Founding partner in the Salesforce Product Development Outsourcing (PDO) Program since 2008 ● PDO Program provides app development services to ISVs for Salesforce AppExchange ● Partnered with many clients in various industries to assist in building 175+ apps on the AppExchange ● Certified as PDO Master in 2017 ● Clients range from 3 person start-ups to a Fortune 3 company
- 4. Do you suck at pricing?
- 5. The only difference between companies that succeed and fail is that the winners figured out how to make money. The winners thought deeply through the revenue, price, and business model.“ Steve Ballmer CEO, Microsoft 2000 - 2014 “This thing called ‘price’ is really, really important.
- 6. We think deeply about pricing
- 7. Where are you in your journey? Early Expansion Growth Maturity
- 8. Founders who struggle to raise capital are… 3x More likely to say they monetized too late 2x More likely to say they picked the wrong business model 40% More likely to say their burn rate was too high Pricing can make or break your business Source: First Round Capital 2017 State of Startups
- 9. 1010 Top 5 pricing mistakes 1. You’re too cheap 2. You picked the wrong value metric 3. You make it hard to buy 4. Your upsell path is broken 5. Your pricing is static
- 12. ’13 ’14 ’15 ‘16 $400 $300 $200 $100 $0 Starter Plan Growth Plan StatusPage Pricing Evolution, 2013 - 2016 Source: Wayback Machine; “3 Steps to Increasing Our Average Revenue Per User by 2.4X” (Nov 27, 2015)
- 13. ’13 ’14 ’15 ‘16 $400 $300 $200 $100 $0 Starter Plan Growth Plan Corporate plan StatusPage Pricing Evolution, 2013 - 2016 Source: Wayback Machine; “3 Steps to Increasing Our Average Revenue Per User by 2.4X” (Nov 27, 2015)
- 14. ’13 ’14 ’15 ‘16 $1,500 $400 $300 $200 $100 $0 Starter Plan Growth Plan Corporate plan Enterprise plan StatusPage Pricing Evolution, 2013 - 2016 Source: Wayback Machine; “3 Steps to Increasing Our Average Revenue Per User by 2.4X” (Nov 27, 2015)
- 15. ’13 ’14 ’15 ‘16 $1,500 $400 $300 $200 $100 $0 Starter Plan Growth Plan Corporate plan Enterprise plan • Raised highest price point 30x • Grew ARPU by 2.4x • Minimal impact to conversion • Hit $2.5M ARR in 2 years • Acquired by Atlassian StatusPage Pricing Evolution, 2013 - 2016 Source: Wayback Machine; “3 Steps to Increasing Our Average Revenue Per User by 2.4X” (Nov 27, 2015)
- 16. Profit Impact of Different Growth Levers 3.3% 6.7% 12.7% Customer Acquisition Retention Pricing & Packaging Pricing is a Powerful Growth Lever Source: Price Intelligently study of 512 SaaS companies 4x More Powerful
- 17. 2 You picked the wrong value metric.
- 18. 32% 30% 54% 39% 41% 24% 6% 11% 3% 23% 19% 18% 0% 20% 40% 60% 80% 100% Infrastructure Vertical app Horizontal app User or seat-based Usage-based Total employees Other Source: openview.vc/saas-benchmarks-2017 Are seats the right metric for you?
- 19. The right value metric can help you differentiate against competitors and generate more revenue
- 21. Expensify differentiates with ’active user’ pricing
- 23. VTS: new value metric increased revenue Before – Per Building After – Per Square Foot Problem One-size-fits-all left money on the table Solution Price aligned with customer value
- 24. 3 You make it hard to buy.
- 25. 15 Months 10 Months 7 Months Slow (<30%) Moderate (30-99%) FAST (>100%) Self-reported CAC payback (Months) Source: openview.vc/saas-benchmarks-2017 Fastest growers seamlessly land new customers
- 27. 28
- 28. Clearly states their value proposition
- 29. Different messaging for teams vs. enterprise
- 30. Leverages psychology by highlighting the price when paid annually
- 31. Crystal clear about benefits, not just features
- 32. Puts lingering fears to rest
- 34. 0 50 100 150 200 Subscription PAYG Jan-14 Jan-15 Jan-16 Jan-17 Sell to your customers the way they want to buy
- 35. 4 Your upsell path is broken.
- 36. 82% 84% 89%90% 97% 109% Slow (<30%) Moderate (30-99%) FAST (>100%) Avg logo retention Avg net $ retention AnnualRetention Source: openview.vc/saas-benchmarks-2017 Fastest growers see net negative churn
- 38. Value metric & expansion: usage > seats 123% net retention
- 40. Packaging: use features to drive expansion Good
- 41. Packaging: use features to drive expansion Good Better
- 42. Packaging: use features to drive expansion Good Better Best
- 44. Pricing should evolve as your company evolves
- 46. Salesforce pricing evolution, 1999 - 2017 ’99 ’01 ’03 ’05 ’07 ’09 ’11 ’13 ’15 ’17 $300 $250 $200 $150 $100 $50 $0 Source: Wayback Machine; Salesforce.com; Salesforce press interviews *Price per user per month Pro
- 47. Salesforce pricing evolution, 1999 - 2017 ’99 ’01 ’03 ’05 ’07 ’09 ’11 ’13 ’15 ’17 $300 $250 $200 $150 $100 $50 $0 Pro Enterprise Unlimited Source: Wayback Machine; Salesforce.com; Salesforce press interviews *Price per user per month
- 48. Salesforce pricing evolution, 1999 - 2017 ’99 ’01 ’03 ’05 ’07 ’09 ’11 ’13 ’15 ’17 $300 $250 $200 $150 $100 $50 $0 • Top price point increased by 6x • Enterprise is now the most popular plan • Additional revenue from add-on features Source: Wayback Machine; Salesforce.com; Salesforce press interviews *Price per user per month Pro Enterprise Unlimited
- 49. The single most valuable lesson I’ve learned is that you have to be ready to constantly iterate on both your pricing and packaging. Successful companies are those that think of pricing in the same way they think about product development – their pricing is in a constant state of evolution. Monika Saha General Manager, Finance Product Line Zuora It’s never 100% done.
- 50. What now?
- 51. Pricing & packaging is super important.
- 52. But most people don’t take it seriously No, 45% Yes, cursory research, 48% Yes, in-depth research, 8% No, 64%Yes, 1 round, 15% Yes, 2+ rounds, 22% Have you done pricing research? Have you done price testing? Source: openview.vc/saas-pricing-study
- 53. The price is not material enough to be a factor in the decision. It is not even a blip on the radar. “ ”
- 56. Who should own pricing? Great for positioning and messaging Already own TOFU & website Best grasp of product and roadmap Already doing customer development May overly focus on features vs. value Analytical and data-driven Best handle on costs and profit Tend to take a cost plus vs. value-based approach Closest to the customer Constantly hearing about needs and pain points May be too close – want too many options Best grasp of the data Great at processes and technology Less customer-focused Marketing Product Finance Sales Operations
- 57. SaaS Pricing Takeaways 1. Don’t be too cheap 2. The right value metric helps you differentiate & sell more 3. Sell to customers the way they want to buy 4. Usage-based pricing & feature packaging drives net negative churn 5. Experiment and iterate on pricing
- 58. Thank you! sales@codescience.com codescience.com @codescience blake@ov.vc | kyle@ov.vc openviewpartners.com @openviewventure
- 59. See this deck: openview.vc/saastr-2018 Blake Bartlett | blake@ov.vc Kyle Poyar | kyle@ov.vc Thank You! Proprietary and Confidential ©2018 Copyright OpenView Venture Partners. All Rights Reserved.