As an occasional B2B SaaS buyer, the key point in getting your pricing right / wrong is knowing where the limits are for;
a) I can just get this on my company credit card without needing approval
b) OK for this price it's going to show up as a line somewhere in a budget and / or I'm going to have to get approval from my boss ( 1-2 meetings work )
c) For THAT price I need to trigger a whole enterprise process, have a ton of meetings, make the case
Mostly you want to stay in a) for volume sales. Once you start getting into b) and c) you start needing support agreements, enterprise sales people etc. plus b) and c) make work for the customers that are your "adopters" in the enterprise - they need to love your product for that to happen.
At many companies, people can expense up to $50 with minimal (no?) prior approval via providing a receipt. That's a great place to be for tools that are useful in your job but not required.
Beyond that, most companies need more documentation or prior approval from your boss (only). The upper limit for that is often $500. That means whether something is $60 or $499, it can take exactly the same effort.
Above that, it often requires boss' boss' approval or a real line item in the team/department budget. The upper limit for this is all over the map, I've seen anything from $1000/month or $10k/year. Once you cross into this zone, assume customization, a more complex sales process, and you've left the realm of expense reports and moved into Purchase Orders (POs).
Above there, this is starting to look like enterprise software sales which is a beast unto itself. This likely turns into competitive bidding, a dedicated sales force, custom contracts & TOS, and a lot of other things. IF you can be successful here though, you can do quite well, especially if you've figured out how to make it repeatable and scalable.
This is a great comment - I would add that for the $50 price point / pricing stage, it is also low enough for an "operator" (someone using your SaaS to help their daily work) to just put their credit card in first, and then worry about claiming back from their company later.
The "pinch" of buying is therefore low enough to encourage uptake. If the base price level is higher than this, then that itself becomes another mental task for the potential customer to work through before pulling the trigger. This doesn't mean you shouldn't have higher priced plans (you must!), but from my experience $50 or even $99 as the upper end of the "base" plan is a good first threshold to get prospects to be ok with putting their credit card in.
But with all those things, beware of the recurring expense problem: I would agree with all those cliffs, for one-time expenses.
As soon as payments are recurring, things will be more complicated: Being bound to a contract beyond the current year is often subject to approval, at least when recurring payments are involved. Not yet paid but binding future obligations have to occur in various reports and need accounting involvement. Better have short contracts with autoextension or at least the possibility to pay up front for a fixed term.
Usually yearly should be fine, however, monthly would reduce customer anxiety (not sure if thats very relevant for B2B) but increase possible administrative overhead on your side.
> What's a good fixed term, maybe one year? Or a few years?
Longer than your usual recurring term. I'd say 2 to 5 years. The right term depends on the overall cost of that package: you should price them below the next-higher aforementioned cliff of course. If you usually offer yearly $20 contracts, and you have determined a typical cliff to be at $50, you could offer a 3year package for $49.
Also consider other factors: you might not want to support a version for the whole fixed term. And you definitely don't want to sell anything perpetual or semi-perpetual.
They can probably do it once or twice in a given year without having to move into the next level. If a company is particularly flexible, you can probably do it annually without much pain.
It depends on the person who's making the purchase. I've dealt with VPs of programs in the past that had no problem putting $10k per month onto their corporate card without much additional oversight, but I've also dealt with program managers and directors who topped out at 1/10th that.
It also depends on the company. Are you talking about Dell, Toyota or Lockheed, or are you talking about a regional business?
Usually I've encountered needing to go through an arduous traditional procurement process when any one lump of money that's being negotiated over or leaving the building is North of $100k
Mostly agreed, but your section a goes too high. 400$ per month can't just be quietly expensed in most orgs I've worked for. I'd say max $50-$100 per month.
It’s also about platforms. For example, it’s easy for me to spend several thousand a month in AWS because as a company we spend a double digit millions amount for it already. However, if I want to buy a new product oh boy will I be in a procurement process. For any amount at all from a new platform / vendor I will have to have at least three meetings with increasing audience plus fill out a procurement application at least twice (once with my best guess at what should be in there, second with what the last meeting agreed on). Not price, but existing relations is the biggest factor atm.
That said, I’ve also worked at a startup accelerator on rigorous pricing validation for startup business plans. So I have some ideas about the thresholds and know for a fact that they exist. But it’s never as easy as a single number. If anyone’s interested in discussing some data, feel free to hit me up. Only saas targeted at (mainly) small to large business though.
Any commentary on the relative price ranges of each category? Do you think there’s further segmentation based on the size of the company, or the employee level within the company (i.e. engineer vs c-suite)?
As an example, the product in the linked article is designed to be customer facing, and at the very least, linked to from within an app or site. The person who decides to take that direction is some sort of product owner.
If a person has the authority to decide to incorporate that sort of product (accept & expose feature requests) into their app but doesn't have the authority to sign off on a few hundred dollars a month, then something very unusual is going on.
On the flip side if you're selling something to an individual engineer then the price point is a lot lower. A developer might have autonomy to pick their tools, but they typically won't have the authority to sign off on a large expense.
As the price goes up we tend to get larger organisations as customers. Unfortunately, they are also more likely to ask for custom legals, T&Cs, and security audits. In all cases, I say no. That may change in the future.
this was a particularly interesting bit. I've got a feeling that the organizations that care about custom legal and security audits can be charged way more than $50 a month. If people are caring about that you're probably beyond a developer with the corporate card in terms of who is buying.
Indeed. I operate a B2B SaaS company as well. We also said “no” a lot in our first 5 years. It wasn’t worth the overhead. But as we grew and our processes matured we started talking to enterprises. Turns out that we’d already figured out most of what they wanted/asked for at that point.
We have a list price on the website and also a “contact us” enterprise plan over a certain size. Once an enterprise ends up in that funnel, everyone involved knows multiple zeroes are being added to the TCO. It’s never been a problem for us.
Larger orgs really will pay significantly more just to have their hands held.
Yup. I worked for a hosting company once that added a zero to the price of service for an NBA team that wanted a 12 hour SLA instead if a 24 hour SLA. Another NBA team bought the highest priced of solutions i offered and told me as they were signing, "we know the least expensive option was probably overkill for our needs, but it is important that we have your full attention."
I have been occasionally "in the room" for conversations where a contract between an enterprise and a vendor is being discussed. I was initially surprised that enterprise buyers specifically wanted per-X billing, to ensure that the vendor was equally incentivized to maximize X as the buyer was. But it makes sense.
> We also said “no” a lot in our first 5 years. It wasn’t worth the overhead.
OP here. I'm grateful to hear that you also said "no" a lot. I do sometimes feel like I'm declining a lot of additional revenue, so it makes me feel more confident about what I'm doing to hear that you did the same for a few years.
I always respond to these requests that we're happy to do these things for our Enterprise customers, with a minimum yearly commitment. (I stole that from Patio11 and it has served me well over the years).
Companies use these requests as signals that they want me to charge them 10-1000X the off-the-shelf price for the service. Usually they realize that this is what they're doing, but occasionally I'll get to have a fun email exchange with a rank and file developer who accidentally flipped his $5/month personal plan into $300/month Enterprise mode by routing his purchase through Purchasing.
No, you can't go back. Once you start acting like an Enterprise, you're an Enterprise. There's no way I'm risking ever needing to involve my lawyer for a customer with an expected lifetime value of a few hundred dollars, so once you cross that line you're across it.
cc'd to 3 levels of purchasing at a company you've heard of:
"I'm afraid we've reached the point where it is now officially silly to continue discussing ways to save $BRAND_NAME (a billion dollar company, if I'm not mistaken) three hundred dollars."
That is absolutely valid option for anyone who wants to stay indie dev. The idea of being burried in redtape and weeks long business negotiations give me shivers. SMEs, who pay well just by buying max plan or multiseat licenses and with no need for all that papetwork burden, are the holly grail for a tech geek.
I think this is key. New customers will evaluate based on the current price not historical prices, but if you increase the price for existing customers, they will feel cheated.
OP here. The main reason I don't put up prices for existing customers is because this is how I'd want to be treated as a customer.
Perhaps I'm not making the best decisions to maximise revenue, but part of the pleasure of running my own company is running the way I feel is right to me.
Think it depends how prices are increased. When Keen.io went from a couple hundred dollars to a couple hundred THOUSAND dollars per month we had to cancel, but with services going up <50% after years of usage, it has often seemed reasonable.
What if the price went up by 25% a week after you initially purchased a subscription (even if it has been years since the last time the price changed)? You could do something like only change the price for customers that have been customers for a long time. But that gets complicated, and then you are punishing your best customers for their loyalty.
What do you do if you want to experiment with lower prices? If you lower the price for existing customers during the experiment, it's going to hurt if you end up putting the price back.
> Call it a flash discount/sale/promotion for new/existing customers.
Not sure if you mean this, but the problem I find with offering sales (where you mention the end date) is you can't tell if some customers are only buying it because they don't want to miss out on a limited offer so it doesn't help you learn the real value of your product.
Like when people buy clothes in a sale they end up never wearing, or people that buy Steam sale games and never play them.
Our [1] UX/UI design service with a monthly retainer had similar results when raising prices for new customers (old ones are locked in at previous rates). same conversation rates, more revenue, zero complaints, bigger customers. Big difference is that we charge $xxxx/mo. So raising our 4-figure prices resulted in a huge revenue increase. We’re probably going to double prices in a few weeks to see what happens.
yeah $50 is still not a lot for the service you provide, if shneider electric, weework, ... are really your customer, you could probably 10x your price. You have to think on the value your bring to them instead of the the complexity of your service.
Actually for your product I would expect the price to be around $200 per month for a <300 people company
But the price has a big impact on what people expect from you, so if this is a side project, you may prefer keep it low
For a large number of engineers in the target market of this service, a commitment of $50/mo subscription service (which translates to $600/yr) can be put on the credit card without too many hoops, but a commitment of 10x that (translating to $6000/yr) may require actual approvals and a business case. The first price raise might have been successful because it was still in the realm of "put it on the card", but 10x the current price quickly pushes that into a different territory
I agree that it's a low price, but disagree one should just raise it because they can. Keeping prices low helps prevent competitors from undercutting, or even competing in the first place, in my opinion. If this service were charging say, 500 per month, they'd likely have a lot of knockoffs enter the space.
If I'm a huge business getting a lot of value out of a $500/mo SaaS product that does everything I need and is reliable, it would be a pretty bad decision to take a chance on a new $200/mo service offering the same thing.
That's true for a while, but companies churn a lot as new things come about. I can't even tell you how many travel/HR, ticketing, chat, and video conferencing systems my rather boring company has gone through in my tenure.
More importantly, new customer acquisition. At 500 a pop, someone like me could be inclined to give it a go, and I'm just one not-so-motivated guy. That's great passive income with a handful of customers. For 50? Not worth the effort since now I'd need a handful x 10. At 500 a pop, companies with way more resources will outpace and outspend you for that. Less likely for 50. Just my opinion.
* To be clear, the above is a hypothetical. I have zero interest in copying anyone's work, or really any side project at the moment.
Usually the good price is the price you are comfortable with. But most of the time, this is a cheaper price than customer are willing to pay.
In any case you have the good behavior, put a price, give it a few months, if after a few months you feel like you want to increase it, do it, if you want to decrease it, do it and contact people who pay more.
And don't forget that if you want to target bigger customers, you can, but you will have to make them pay much more than currently, but you will also have to change a lot of things in the way you operate your company (you can have more info on my blog, link in my bio)
I don't want to rain on anyone's parade, but you don't learn anything from this exercise. Unless you somehow know how many new customers would have signed up without a change in the price, you can't infer anything from this. It's tempting to compare with earlier growth rates (as the author did) but for a small, growing business the growth rate isn't going to be constant over time. What is really problematic, though, is trying to do this type of comparison when we're literally in a different world due to the pandemic.
I take your point generally but I think it's overstating it to say you learn nothing. Definitely the signal can be hard to isolate form the noise, but if it's a big enough signal you'll hear it.
For example: if sales fall off a cliff, it's reasonable to interpret that as "perhaps I over did it." and so on.
> For example: if sales fall off a cliff, it's reasonable to interpret that as "perhaps I over did it." and so on.
But (a) that's not the outcome, so it doesn't help here, and (b) with the pandemic, even if sales went to zero, you'd still need some way to know the effect of that.
Then it would be nice if you could suggest an experiment which would yield useful pricing results for him.
I don't know if this was your intention but it's kind of a pet peeve of mine when someone posts "that's useless" to a content creator without elaborating on how they would've approached the issue.
Have you heard of Van Westendorp's Price Sensitivity meter? It could give you numerical insight into how you might raise prices further (vs. guess and test).
I ran a successful SaaS and didn’t test. While it’s easy to test basic conversion, it’s way harder to test the prices’ impact on churn and an effect on PR.
I'd say that the author missed the chance to add sales copy and/or message the trial users with "Our prices are going up on [date], act now to lock in this rate!"
It seems like you could squeeze at least a temporary bump in conversions out of that.
For most bootstrapped SaaS businesses, the number of active free trial users is so low, it's not worth your mental capacity.
Also. You really don't want customers who will buy from you at $29/mo and won't buy at $39/mo. This is because if $10 makes difference in their purchasing decision, the value they are getting out of your subscription is roughly what you charge. This segment of customers will churn the fastest as they will be constantly on the edge revaluating whether your subscription is "worth it". You might as well not care about whether they become customers or not. So why bother with cheesy tricks to make them convert. It's not worth it.
> What did I tell existing customers about the price change?
> Nothing. I probably should have, but it fell off my to-do list.
This pisses me off, I started paying for Notion back when they limited the number of blocks monthly and then at some point they changed the pricing to unlimited blocks in their Free plan, and I didn't notice until last month. I googled, I couldn't find any announcement, no tweet, nothing. I felt betrayed, It's been over a month, and now I find myself using Notion less and less every day.
In that situation an email would have been nice, but just raising the price with no feature changes doesn’t warrant notification. Especially since existing customers would be charged their current rate anyways.
OP here. I didn't raise prices for existing customers. FTA:
> I’ve never put up prices for existing customers. I’m okay with people getting the price they started with indefinitely. It is the way I’d want to be treated as a customer. Anyway, within a couple of years, as existing customers churn, the “problem” of older customers paying less will simply go away.
Reminds me of my mother-in-law's wedding photography business. She was struggling with the what-ifs of raising prices and losing her valuable customers. She took a business course and they recommended she double her price. Double.
She gained more customers than ever before.
I guess when it comes to wanting a premium product, whether it's a wedding or software in general- people are less likely to follow-through if the price is unusually cheap because it gives the smell of "maybe they have terrible support" or "maybe they cut corners in x or y".
Have you explored any non-digital marketing channels for growth yet? I am working on a sales model for companies like yours that sell to small/medium sized businesses. Would love to chat if you had some time to discuss. Is there a good way to contact you?
> I’ve never put up prices for existing customers. I’m okay with people getting the price they started with indefinitely. It is the way I’d want to be treated as a customer.
a) I can just get this on my company credit card without needing approval
b) OK for this price it's going to show up as a line somewhere in a budget and / or I'm going to have to get approval from my boss ( 1-2 meetings work )
c) For THAT price I need to trigger a whole enterprise process, have a ton of meetings, make the case
Mostly you want to stay in a) for volume sales. Once you start getting into b) and c) you start needing support agreements, enterprise sales people etc. plus b) and c) make work for the customers that are your "adopters" in the enterprise - they need to love your product for that to happen.