It is time for SaaS & Web App startups to sit up and pay attention. SaaS Pricing is very important to your venture but not just to ensure you make a profit or cover expenses. It is so much more than that and you should seek to get it as right as possible out of the gate.
Too many SaaS and Web App companies, startups or not, think that they’ll just throw some numbers together, put it on a pricing page and that is the end of it. If they are leaving too much on the table, they’ll just raise prices until people stop buying and then lower it a notch. Simple. They would be wrong.
Pricing is marketing.
We say it all of the time, but what does it really mean? Well, look at Zendesk, a growing startup with $6.5M in funding and, until this morning, very well-liked. They decided to raise their prices and did so in a way that has caused an enormous amount of negative backlash.
In some cases, customers are reporting a 300% increase in what they’ll pay to use Zendesk. From the outside, this seems to be indicative of no real pricing strategy (as a part of marketing) and certainly no or at least very poor tactical planning around the price increase. Some simple polling on Twitter shows that Zendesk did not actively engage their customers in the process prior to raising prices.
My immediate reaction on Twitter to the backlash:
When you need to raise prices, there are two options: engage your user/customer base or alienate them. Its your choice. #zendesk
— Lincoln Murphy (@lincolnmurphy) May 18, 2010
Did the price increase correlate to an increase in perceived value by the end customer? How is their market position now? How have they helped the competition? Look at this random tweet I grabbed when searching for #zendesk… this is why pricing is marketing!
Anyone got any recommendations for someone considering dumping #zendesk after their crazy stupid level price increase
— Adam Bartlett (@abartlett) May 18, 2010
We will do a post-mortem on the Zendesk Pricing Fiasco of 2010 later, after more details emerge and the dust settles, but It is very obvious the planning around their price increase was either poor or was executed poorly. Just to be clear, Zendesk did not reach out to Sixteen Ventures for help with their pricing nor with the execution of the price increase, but they should have.
This is something we help companies with all the time. Whether its a price increase, moving from beta to production, or from Free to a Paid or Freemium offering, Sixteen Ventures can help you. Please don’t wait until its too late, though we have been known to clean up some messes…
We have always preached the message that Pricing and Revenue Modeling are vitally important for SaaS & Web App companies, startups or not. Unfortunately, this kind of thing happens a lot, and when the company is lower-profile than Zendesk, it doesn’t get this kind of coverage. But it happens more than it should and that is because the message that Pricing is Marketing and vitally important to your business just isn’t being absorbed.
Let’s Grow Your SaaS Company
For immediate consultation and advice on effective growth strategies and tactics for your SaaS company, schedule a 60-minute meeting with me via Clarity. If you feel a more involved engagement is required for me to help you, email me with the specifics of your situation (as much detail as you’re comfortable giving) and we’ll setup a meeting to work through the particulars.