Customer-centric Growth by Lincoln Murphy

How to Develop your SaaS Pricing Model

how-to-develop-your-saas-pricing-modelDeveloping your SaaS Pricing Model isn’t Rocket Science, but even in the Rocket Science business, you need to price your work so you can sell it and make money!

This post is awesome (IMHO), but there’s an even better, more recent one that’s specific to early-stage SaaS companies: Pricing Strategy Framework for SaaS Startups

Just so we’re clear, your Pricing Strategy is so much more than your Pricing Page. It’s about far more than not leaving money on the table and making a profit; though profit is a good thing, after all, that’s why we’re in business!

Your SaaS Pricing Model will help determine – among other things – your market position, whether or not your target customers can buy from you, and whether or not you can provide the level of service required by those customers.

A Good SaaS Pricing Model has Many Inputs

So when a friend of mine mentioned that SaaS vendors should think a little less about Pricing and a little more about deal size, I was confused.

You see, “Deal Size” is simply one input – of many – that should be used to develop a Pricing Strategy for your SaaS or Cloud offering.

So that you have a more complete picture of what is required to develop a Pricing Strategy, here are some of the required inputs:

Internal / Strategic SaaS Pricing Model Questions

Quantity vs. Quality: Do you want a massive amount of customers or fewer, potentially more profitable customers? There are pros and cons to both…

Market Position: Do you want to be the low-end, low-price leader or Super-Premium, high-end offering targeting elite customers only? Who do you want to pick a fight with in the market that we’re entering and how will you compete? Hint: SaaS doesn’t mean Cheap!

Once you have those big ideas figured out, then you move on to…

External/ Customer-Facing SaaS Pricing Model Questions

Who are you marketing your SaaS offering to?

What value will they get from your offering?

What will the ROI – monetary or perceived – be on that value?

What metric(s) will the price will be based on?

How many will they buy?

What is their estimated Customer Lifetime?

What is their buying process?

What is their internal procurement process?

What level of service must you provide the customer?

Some other things you need to consider:

Then, once you have all of these questions answered – oh, and those aren’t all of them, either – you can start to put together your Pricing Strategy, including the actual price – the number – that you’ll charge for access to your SaaS or Cloud offering.

So yeah, developing a SaaS Pricing Model isn’t Rocket Science…

…it’s just a super-important, high-level Strategic initiative that requires many different inputs and can ultimately determine whether your company thrives or goes out of business!

That seems kind of important to get right to me.

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