Building great products is hard enough — but pricing them can be just as tricky. Pricing and packaging is one of the most powerful yet overlooked levers to drive growth in a SaaS business. Yet, just like we manage our products, pricing and packaging can also be thought about and managed in a data-driven manner, allowing us to gain an understanding of the best monetization strategies for each stage of company growth.
Steve Ballmer of Microsoft once said, “This thing called price is really important. The only difference between companies that succeed and fail is that winners figured out how to make money.”
Yet, for as important as it is, SaaS pricing tends to be a gut-based judgment decision. There tends to not be as much scientific process or rigor that other areas get. But pricing is not something you can set and forget. There are five common pricing mistakes.
- Your product is too cheap. You’re protective of your pricing, but customers aren’t that sensitive to it. If you’re only winning deals because you’re the lowest price option on the market, you haven’t found your fit yet. You want customers coming to you because of the value you provide.
- You picked the wrong value metric. Historically, this defaults to “seats.” Less than 50% of SaaScompanies have a seat-based pricing model at this point. The right value metric can help you differentiate against competitors and generate more revenue.
- You are selling to customers in a way that’s not aligned with how they make purchases. Software companies have nine competitors on average. If your pricing page is too confusing to understand, people are going to leave. Your pricing page can be your best performing sales rep. Use it to address and resolve any lingering doubts from your prospects and customers.
- Usage-based pricing and feature packaging drives net negative churn. Use features to drive expansion, not create confusion about your products.
- Your pricing is static — not dynamic. Pricing should evolve as your company evolves. It is never 100% complete. Most companies don’t do any pricing research, or at best, only cursory pricing research. It’s even worse with price testing. Instead, you should think about iterating your pricing model the same way that you iterate your product over time.
Ultimately, who should own pricing and make these decisions? It can fall into sales, marketing, operations, finance, and product — and each has benefits and drawbacks. Find where it makes the most sense for your business. This, like the pricing model itself, can be experimented with and iterated upon.
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