Mastering SaaS Pricing
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The document provides essential insights into effective pricing strategies for SaaS companies, emphasizing the importance of a well-thought-out pricing model for business success. Key mistakes to avoid include setting prices too low, choosing inappropriate value metrics, and failing to adapt pricing as the company evolves. The authors advocate for continuous experimentation and iteration in pricing to optimize customer acquisition, retention, and revenue growth.
Mastering SaaS Pricing
- 1. Blake Bartlett and Kyle Poyar SaaStr Annual 2018 Mastering SaaS Pricing Proprietary and Confidential ©2017 Copyright OpenView Venture Partners. All Rights Reserved.
- 2. OV invests in expansion stage software companies Our Portfolio
- 3. Partner blake@ov.vc • Investments include: Expensify, Calendly, Logikcull, Optimizely and Glassdoor, among others. Blake Bartlett
- 4. Senior Director, Market Strategy kyle@ov.vc • Partners with portfolio leaders on growth & monetization • Author of Mastering SaaS Pricing • Previously with Simon-Kucher – leading pricing strategy consulting firm Kyle Poyar
- 6. 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
- 7. 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.
- 8. 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
- 9. Do you suck at pricing?
- 10. 1111 Top 5 pricing mistakes 1. You’re too cheap 2. You picked the wrong value metric 3. You can’t land new customers 4. You can’t expand existing customers 5. Your pricing is static
- 12. Businesses have low price sensitivity compared to consumers
- 13. ’13 ’14 ’15 ‘16 $1,500 $400 $300 $200 $100 $0 Starter Plan Growth Plan StatusPage.io 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 StatusPage.io 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 StatusPage.io Pricing Evolution, 2013 - 2016 Source: Wayback Machine; “3 Steps to Increasing Our Average Revenue Per User by 2.4X” (Nov 27, 2015)
- 16. ’13 ’14 ’15 ‘16 $1,500 $400 $300 $200 $100 $0 Starter Plan Growth Plan Corporate plan Enterprise plan From Co-Founder Steve Klein: • Raised highest price point by 30x • Grew ARPU by 2.4x • Minimal impact to conversion & churn • Hit $2.5M ARR in 2 years • Successful acquisition by Atlassian StatusPage.io Pricing Evolution, 2013 - 2016 Source: Wayback Machine; “3 Steps to Increasing Our Average Revenue Per User by 2.4X” (Nov 27, 2015)
- 17. What are your customers saying?
- 18. The price is not material enough to be a factor in the decision. It is not even a blip on the radar. “ ”
- 19. It’s so cheap now, I don’t see how they could be making any money. I am concerned for them. “ ”
- 20. 2 You picked the wrong value metric.
- 21. The unit that determines what your customers pay. Examples: • Users • Usage • Company size 22 What is a value metric? 2222
- 22. 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?
- 23. The right value metric can help you differentiate against competitors and generate more revenue
- 24. Expensify differentiates with ’active user’ pricing
- 25. 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
- 26. 3 You can’t land new customers.
- 27. 15 10 7 Slower growth (<30% YoY) Medium growth (30-99% YoY) Faster growth (100%+ YoY) Self-reported CAC payback (Months) Source: openview.vc/saas-benchmarks-2017 Fastest growers seamlessly land new customers
- 28. 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
- 29. How are you communicating your pricing?
- 30. Let’s look at a bad example
- 32. 33
- 33. Let’s look at a good example
- 34. Clearly states their value proposition
- 35. Different messaging for teams vs. enterprise
- 36. Leverages psychology by highlighting the price when paid annually
- 37. Crystal clear about benefits, not just features
- 38. Puts lingering fears to rest
- 39. 4 You can’t expand existing customers.
- 40. 82% 84% 89%90% 97% 109% Slower growth (<30% YoY) Medium growth (30-99% YoY) Faster growth (100%+ YoY) Avg logo retention Avg net $ retention AnnualRetention Source: openview.vc/saas-benchmarks-2017 Fastest growers see net negative churn
- 41. $- $2 $4 $6 $8 $10 $12 $14 $16 MRR (2.5% Churn) MRR (1% Churn) MRR (-2.5% Churn) Illustrative Example Company with $50k in new monthly bookings; new bookings increase by $10k each month Net negative churn compounds over time 0 6 12 18 24 30 36 Time (Months) MRR($M)
- 42. Value metric & expansion: usage > seats 123% net retention
- 43. Packaging: use features to drive expansion
- 45. 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 Pro Source: Wayback Machine; Salesforce.com; Salesforce press interviews *Price per user per month
- 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 Pro Enterprise Unlimited • 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
- 49. 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
- 52. 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
- 53. 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.
- 54. In Conclusion
- 55. SaaS Pricing Takeaways 1. Don’t be 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
- 56. See this deck: openview.vc/saastr-2018 Blake Bartlett | blake@ov.vc Kyle Poyar | kyle@ov.vc Thank You! Proprietary and Confidential ©2017 Copyright OpenView Venture Partners. All Rights Reserved.