There are learnings on established and emerging best practices in PLG monetization that we can uncover from analyzing these companies and apply to SaaS more broadly
Oct. 13, 2022
Author: Bryan Belanger
Bessemer Venture Partners (BVP) recently released its 2022 report Software powering the PLG era. In the report, BVP profiles about 80 vendors across 16 categories that the company defines as comprising the modern software stack required to power an end-to-end SaaS go-to-market (GTM) approach in the era of product-led growth (PLG).
Way back when we first started XaaS Pricing, we saw a similar post from the venture firm Together. We ended up using that post as the basis for an analysis of how established and emerging companies in the PLG technology stack are approaching pricing themselves.
Why is this important for us to analyze? PLG stack companies are purpose-built to help other SaaS companies successfully implement and manage PLG models. It is safe to hypothesize, then, that these companies would be on the forefront of leveraging PLG models for their own businesses. Monetization is a key foundation of a PLG strategy, so we believe there are learnings on established and emerging best practices in PLG monetization that we can uncover from analyzing these companies and apply to SaaS more broadly.
For that analysis, we scraped the pricing pages of each of the approximately 80 vendors BVP covered, looking specifically at the following elements of these companies’ pricing strategies. We chose these elements because they are typically considered foundational to a PLG monetization strategy:
- Availability of transparent information on pricing and packaging
- Availability of a “free forever” plan
- Primary pricing model(s) used by the company
Pricing transparency
Of the PLG companies analyzed, 51% have a pricing page with actual price points published, 13% publish details on product tiers only, and the remainder (just under 30%) have no pricing page or provide a general pricing landing page or form.
When we did this analysis about a year ago, we saw a higher incidence of companies that published pricing information on their website (64%).
The verdict: When it comes to pricing transparency, PLG stack companies aren’t particularly PLG.
We believe OpenView’s piece, A new era for PLG: Introducing the age of connected work, contains the most comprehensive current definition of PLG, particularly when it comes to defining the monetization principles that are foundational to a PLG motion. Here’s what OpenView says regarding principle No. 9, “Monetize after you deliver value,” “Pay special attention to ensuring that your pricing is transparent and clear. Part of monetizing after you deliver value is garnering trust with your prospective users. Users don’t want to sink hours and hours into your product only to later feel gouged by unexpected pricing.”
It’s true that there are valid reasons for not publishing pricing information on your product website. Companies that target enterprise customers typically avoid publishing pricing, as pricing is based on customer budget and requirements can be customized from client to client.
There are ways to be transparent about SaaS pricing and sell high annual contract value (ACV) deals to enterprises, however. Adam Schoenfeld at PeerSignal wrote a great thread about this recently on LinkedIn. Whether it’s a “starting at …” price, showing configurable pricing via a calculator or volume tiers, case studies, or other methods, PLG leaders embrace transparency even when selling at higher price points to enterprise customers.
Free plans
As we noted above, OpenView cites “monetize after you deliver value” as a core tenet of a PLG motion. OpenView suggests that you should also monetize for that value based on customers’ usage. These principles make offering a free tier of your product a cornerstone of a SaaS PLG approach.
We acknowledge there are tactics that can be used instead of a forever free plan to accomplish monetization after delivering value. The most common is a free trial. Vendors also use tactics such as embedded product demos with no sign-up required to demonstrate product value to prospective users.
For the purposes of this analysis, we’re benchmarking the PLG stack enablers on the gold standard —whether or not they offer a free version of their product(s). For our purposes, we consider a free plan as a stand-alone product or a tier of a product where the customer is provided access to limited features and/or usage of the product, without limits on the amount time the product can be used for. This differentiates a free plan from a free trial, which typically provides access to most or all features for a given product tier for a limited amount of time.
Surprisingly, 53% of PLG stack companies do not offer free plans. When we ran this analysis about a year ago, 50% of PLG stack companies did not offer free plans.
The verdict: There is more work to be done for PLG stack companies to monetize after delivering value.
As with price transparency, there are good reasons not to offer a free plan for a SaaS product. Free plans can be burdensome and costly to manage, and they typically have low conversion rates to paid plans. It can be a pricing and packaging nightmare to balance delivering value with a free plan to compel adoption, while gating usage and features and differentiating paid plans sufficiently to encourage customers to migrate from free to paid plans over time.
If you are a PLG stack company, however, it should be expected that you’ve designed effective packaging to address these challenges above. There is room for PLG stack companies to do much more with free plans to embrace monetization after delivering value.
Pricing models
Effective PLG motions are designed to monetize based on usage of a vendor’s software. Customer usage growth is a signal that the customer is receiving more value from the product and thus should pay more for their increased usage. For these reasons, OpenView cites monetizing based on usage as one of its foundational principles for best-in-class PLG motions.
There are two interrelated models that we see used by SaaS companies to monetize based on usage. The first is a true usage-based pricing model in which the vendor prices directly based on usage (e.g., per gigabyte of storage consumed, per marketing contact). Customers are billed in arrears based on actual usage in the metering period (typically one month). The second model is a usage-based tiering strategy in which usage limits are defined for the tiers of a given product (for example, a product’s Pro tier might allot the customer 30GB of storage per month). With this model, the customer pays a recurring monthly or annual subscription that is based on a flat fee or number of users. Depending on the vendor, to access additional usage, the customer may have to upgrade to the next product tier, step up to the next volume tier (if a volume or stairstep pricing strategy is used), and/or pay an overage fee for additional usage beyond the allotted amount in the tier.
Of the companies in this analysis that publish pricing model information, about 25% use a true usage-based pricing model and approximately half of those employ usage-based tiers.
The verdict: PLG stack companies are monetizing based on usage but have not deployed true usage-based pricing models.
The prevailing packaging construct in B2B SaaS today, including for PLG companies, is a tiered model with between three and five tiers, each of which are structured around five to seven key usage factors, where one of those factors is the product’s value metric. Pricing is typically based on a flat-fee or per-user price that is defined for each product tier. Companies may use some form of volume pricing or stairstep pricing to set differences based on volume of consumption for a given tier.
This tiered model being used by most PLG stack companies today. In this regard, PLG stack companies are keeping pace with the prevailing best practices used in PLG overall. While we’ll be keeping watch for evidence of categories that start to embrace true usage-based pricing, we anticipate monetizing based on usage will primarily remain a packaging consideration for most PLG stack companies.
The road to PLG monetization
PLG stack companies used in this analysis are on the forefront of enabling PLG motions with technology innovations. However, like their broader peer groups in B2B SaaS and PLG more specifically, they have a long way to go to embrace the monetization of best practices of PLG, including monetizing after delivering value and monetizing based on usage.
We believe there’s one major challenge PLG stack companies face in trying to build PLG-ready monetization models. The PLG stack is being built upon software infrastructure that is already in place for SaaS companies. Yes, PLG stack companies are adding new features and functionality, but they are doing so on top of existing workloads, such as CRM, data warehousing and customer support. When establishing pricing and packaging, PLG stack companies have anchored themselves around the norms in their broader categories.
This helps customers understand pricing and positioning relative to alternatives. It’s easy, for example, to compare your existing CRM at $X per user, per month to a PLG sales outreach tool that is $Y per user, per month. However, what’s gained in terms of price simplicity is offset by a lost opportunity to establish new and/or innovative pricing and packaging models that are more closely aligned to the concepts associated with PLG monetization.
Interested in digging into this more for a specific PLG stack category and/or competitor? You can access the full dataset that powered this analysis here.
Want to talk PLG stack pricing or have a question about how these concepts apply to your product? You can find me on Twitter at @bbelangerTBR or send your feedback directly to [email protected]. I read all replies. Be sure as always to subscribe to get our content sent to your inbox once it publishes. Thanks for following along!
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