In this article I’ll describe you how to choose the best price for SaaS product.
So what is ‘optimal price’? It’s the price at which the company will achieve the maximum profit from sales in a particular period of time.
How to price your service before you run it?
We’re starting the analysis from checking offers of our competition. We’re looking for products, similar to ours in functionality, users and business model. Remember that almost the same service directed to different users can be remarkably different in price.
I’m a huge supporter of value based pricing that is setting price on the base of provided value. The analysis of competition may help you to price your functionalities. However you shouldn’t be guided by it at random, you can just use some of its suggestions.
Estimate what measurable value can bring your service to the customer in the form of rise in income, money saving, time saving or other added values. Define the service value on the base of it.
- Analyse how much the customer can gain (save) when he implements your tool. Don’t expect more than multiply of 10 profit, so if the customer can earn $1000 the service shouldn’t be more expensive than $100.
- Demonstrate your competitive advantage (I assume that you’re better than your competition at least in a few aspects) – initial price should be equal or higher than the price of your competitors.
- The customer will easily perceive values connected with higher incomes or reduced, direct costs. It’s more difficult to indicate indirect benefits, for example: saving time.
Types of subscriptions – scalable pricing- customer segmentation
The truth is that the simpler and clearer price list the better, however there should be some options of subscriptions in most services (but not more than 5 – I suggest 3).
To define the method of price list division it’s advisable to make initial customer segmentation. Example: if the product is aimed at micro, small and medium-sized enterprises of any branch, it’s obvious that the subscription for microenterprise can’t amount to $1000 per month (it’s rather $15-$99). However in the case of medium-sized enterprise, the price is less important and the subscription can be more expensive.
1. There shouldn’t be big price disproportions among different options of subscriptions. However if the client thinks that one subscription should be more expensive, ask him to contact you in order to make an individual pricing.
2. Low price is associated with low quality. Set higher price and show you customer how much he can gain.
3. Scale effect – many people think that thanks to low price they can achieve scale effect and earn a lot of money. It’s very deceptive, because only few companies can do it. Remember! Your expectations in relation to customers, who you got, are almost for sure overestimated.
4. Adjust price to customer segmentation – no student will pay $200 monthly subscription, no matter how wonderful the application is.
Try for free
It’s almost always worth having such an option (63% of services have it). A basic question is – should we expect giving credit card number before trial period starts? It depends on the country.
Costs of customer acquisition
Customer acquisition costs. When you start your business, unfortunately you don’t know how much customer acqusition may cost you. However you should assume that it may cost much more than it costs at your competition.
Monitor costs of customer acquisition and begin with such a price which is profitable.
No matter what prices you set, you’ll probably want to change them soon. But it’s not a problem. Remember only, to monitor as much data as you can (conversion, cost of acqusition from different channels) so as to make next decisions on the base of hard data.
CEO at Price-expert.net. Has many years of experience in managing IT projects and automating the price management process in e-commerce.