You’re in the market with a product and customers, already running hard, and now wondering, “Where do we start with pricing?”
Nov. 9, 2022
Author: Bryan Belanger
Nov. 9, 2022
Author: Bryan Belanger
I think most people would agree that SaaS pricing is confusing and difficult. Some might even say it is “annoying” or “not fun.” Most entrepreneurs are builders, sellers, or both, and pricing is an art and science that sits somewhere between those two pillars. While there is a lot of advice around pricing available online, it’s often incomplete or contradictory, making it difficult to know where to get started.
Figuring out where to start is also highly dependent on where your company’s actual starting point is. Yes, it’s difficult to establish your SaaS product’s Day 1 packaging and pricing. You are a new player in the game and trying to build a value proposition and brand, and you have to build around a price position that reinforces your differentiated value in the market. That’s a tall task.
But it’s almost harder if you are already in market, with some traction, and are now trying to step back and look at pricing and packaging. Once you have living, breathing customers, you have set an expectation on pricing and value and have contractual commitments to uphold. You also have other fires burning in your business or with your product on a daily (OK, hourly) basis. Once you’re in the arena, pricing and packaging are just two other things to figure out on your to-do list.
That becomes more complicated by the fact that everyone has a day job to do. According to OpenView, most SaaS companies don’t hire a dedicated pricing person until they reach $50 million in annual recurring revenue (ARR). For the rest of us, that means pricing is part of someone’s responsibility or a shared responsibility across a multifunctional team.
Those very same folks at OpenView recently released an excellent set of resources for running a pricing project. This should be an immediate download for those who are thinking about or currently undertaking a pricing strategy project. Inspired by their post, we wanted to share our perspective on the topic, specifically focused on those of you who are in market with a product and customers, already running hard, thinking about your pricing and wondering, “Where do we start?”
You’ve decided that you want to prioritize your SaaS pricing strategy. You might have said to yourself or your team, “It’s time we take a look at our pricing and packaging strategy.” That’s great. But what does it mean? It could mean a lot of things, depending on your specific company situation, the team, the resources you have available for pricing-related efforts, your market category, your competitors and customers, and many other factors.
Here’s where we recommend designing a minimum viable pricing process. It’s tempting to design a project around a particular issue(s), and then assume that will solve all of your pricing challenges and allow you to move on. The truth is that like your product, market and competitors, pricing is ever-changing. There are multiple elements and sub-elements to pricing, and over the life span of your company you’ll want to look at all of them. How do you find the time and resources to do that? By establishing a process for pricing.
We call this a minimum viable process because we don’t want you to try and bite off more than you can realistically chew. You aren’t going to have the same pricing process or resources that an established, publicly traded enterprise technology company has. We know that there are constraints and that you have personal lives to somehow lead as well.
Determining your minimum viable process requires getting together as a leadership team and coming to an agreement on the answers to the following questions:
A good analogy is to think of pricing the way you think about your product management process. It should be living and breathing and managed with the same process rigor.
We recommend workshopping the above questions by first meeting with your chosen pricing team and developing some internal hypotheses. Next, look at the market — what can you find out about how similarly situated SaaS companies are approaching pricing? What changes do they seem to make and when? Who is responsible for pricing? Use those insights to inform and refine your internally derived plans.
Once you’ve landed on an outline, write it down! We always like to point to GitLab’s pricing strategy documentation as a guideline here. It’s important that you put pen to paper and publish your strategy internally. You don’t have to open source it as GitLab has done, but you should codify it and commit to it in writing for your organization so your team can start working against the plan that’s been devised.
At this point you might be saying, “OK, great. You gave us a list of questions and homework, but what we’re really looking for is answers.” That’s fair. We’re analysts and consultants. Our answer to anything is typically, “It depends.”
But you’ve got a business to run. We can’t just leave you hanging like that.
Based on running hundreds of pricing projects and working with a lot of repeat clients over the years, there are a few common foundations that you can adopt to accelerate your pricing and packaging strategy. Remember that we’re mostly speaking to companies without a dedicated pricing function here. If you are a multinational tech company with a large pricing team, you’re probably past this stage.
Once you’ve outlined your pricing and packaging strategy and are ready to get started with actual pricing projects, the next step is to establish your baseline analysis.
Here’s a baseline analysis framework that typically works for us. Use it and/or adapt it as needed to get started with your pricing and packaging strategy:
If you take the above steps on a quarterly basis, you’ll start to cultivate a deeper understanding of your pricing and packaging strategy, and a clear picture will emerge for where you are today and where you might need to go in the future. You’ll also identify areas where you need to revisit and optimize your pricing strategy and data collection plan overall to provide you with the resources necessary to optimize your pricing and packaging strategy.
From there, you’ll devise more specific plans and take steps toward rolling out pricing changes. You’ll also want to translate your findings into a pricing road map that sets the course for your pricing strategy. Those elements are beyond the scope of this post but equally important.
We’ve thrown a lot at you. We’re asking you to deploy a lot of new processes and adopt tactics that may be completely new to you. It’s OK to try it and see what you learn. Doing something is better than nothing. Just get started and let the ball roll downhill.
As you get going, there’s one piece of advice we want you take to heart. We want you to stay practical. As with anything complex, it’s easy to get caught up in the academic theory, think about what-ifs, and head down rabbit holes that may be conceptually important but tactically irrelevant.
We recently worked with an earlier stage SaaS company that is undertaking a pricing project. Our data evaluation revealed there was a clear potential opportunity to evolve the company’s pricing model. We could envision redesigning their entire pricing structure around a new value metric, establishing new price levels and packages, and completely transforming their monetization model. As we thought about that, we asked a simple question, “How would that play with customers?” It quickly became clear that it wouldn’t play well. Their customers would be turned off at any change to the pricing model. Instead of pressing forward with evolution for evolution’s sake, we quickly course-corrected to focus on other areas of optimization.
The lesson? Acknowledge and understand the theory, then steer toward the right frameworks for the long term. But ground yourself in the reality of the day. You’re in the game each day, and you have starting points that you have to work from. Take the lead from your current and wanted customers, systemize the process, and build from there.
Need advice on how to set up a pricing program for your business? Want to throw ideas around? 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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