Various aspects of pricing SAAS product

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Standard

Deciding pricing can be very difficult at early stage of your product/starup. There are various things to care about.

Profitability aspect:

This is very subjective. As a good SAAS business you are supposed to be making at least 30% profit. But you cannot decide pricing by how much profit you want. Because that way you may possibly price the product which is not affordable by your target customer base. So in my opinion pricing cannot be determined by taking percentage of profit into calculation.

Look at Competitor pricing:

This is one nice way to price your product. You can find out similar product as yours. And then compare with feature and advantage or disadvantage and the price accordingly. You can create your subscription plan considering you disadvantages and turn it into advantage. Ie. If you are missing core feature, you can define low-end subscription which is cheaper than competitors subscription plan which doesn’t include that feature.
If your product in unique and you don’t have competitor having very similar looking product, you can look for product providing similar lines of benefits to the same target customer base. I.e. If your product helps in digital marketing to online businesses, and you don’t have direct competitor, you can look for products that helps with online businesses in any other sales/marketing areas. In that way you will be able to get insight about actual value of your product for your target customer base.

Be lean on pricing changes

In my opinion it’s no big deal if you have to change pricing too many times in your early days. This happens and it should happen. You should keep getting feedback from different customer segments and keep tweaking the price. But at the same time you should also try to find out the right price as soon as possible. When you have to increase price, you can keep customer who you have already sold at lesser price to same price as long as they maintain account with your product. Or if you have sold them at higher price, you can apply new lower price to them.

Increase perceived value

Sometime despite the fact that product is worth x amount rationally ( because for example it saves x amount in operations or human resource for customer) , customer might not be able to really see that. Because not everyone will be able to calculate and judge that. There are two things you can do, increase the actual worth of product by adding more features or functionality that adds more value for customer or you increase perceived value.

Perceived value is something customer perceives when they listen, see or read about your product from your marketing material, your website, you demo vide or call. Here, it helps to create that brand image and improve your marketing material. You can polish marketing material to give it be top class brand image, highlight high level unique advantages, show customer testimonials etc.

Keep one very premium looking subscription which has very high pricing. This is not to earn premium profit but it is to increase perceived value of product to customer.

Show customers future potential

When your SAAS product is targeting SMEs and is long term need for them, chances are customer will feel your price to be high. This true especially in India where people are accustomed to one off payment rather than ongoing services payment. In early stage, you might have priced the product considering long term prospect of features and usefulness of product. Because you know there will be lots of things that will be added in product in couple years down the line. But customer can’t see that value at the time of purchase.

So what might help is to create subscription plans with futuristic features. And that way you have subscription with currently available feature and subscription with futuristic features. And that way you won’t lose customer who want product which you have but don’t want to pay for the product which you will have in future.

Long term value assessment

There are few product for which the scale is more valuable than short term (2-4 years) revenues. Especially for startups whose product can transform into platform which can form its own ecosystems around various solutions. In such scenario I think it’s not wrong to price the product lower if it is visible that you can get more customers on your product/platform. For example for startups which is aggregating some sort of data can consider the data collection by means of sale as a value in addition to monetary value they gained by sales transaction. In such case you will need to put in more capital but then you are creating more value for long term.

While there’s no standard formula to price the SAAS product, I tried to discuss about various aspects of pricing at early stage of SAAS startup.

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