Q&A: How to Set List Pricing for SaaS
Question: How to set list pricing for SaaS/HaaS when the first payment/signing a deal usually represents less than 10% of a clients lifetime value accounting for scheduled price increases, upselling and cross-selling opportunities. Ulises
First, if the first payment is for a month, I hope it’s way less than 10%. Typical subscription prices are 1/36th of the price of a perpetual license. That means it takes 3 years to make in revenue from one customer what a traditional business would make on day 1. However, as you rightly point out, the lifetime value (LTV) can and should be much higher in subscriptions.
Win: To win a new customer you need to know how those buyers make the initial purchase decision. Do you have competition? Are they uncertain about your value? Some companies use freemium or free trials to demonstrate value. Other companies have inexpensive entry-level prices. Some companies know that customers know their value and charge a lot anyway. Pricing to win a new customer is a lot like traditional pricing, but you might want to be a little bit more aggressive to bring people into your platform.
Keep: The biggest pricing concern in retention is when you raise prices. Customers will rethink their purchase decision if you raise their price. You better be certain those customers are receiving much more value than the price.
Grow: This is the tricky, fun, new area of pricing. How to get a customer who signed up at one price to pay you more over time. There are four ways to make this happen:
Grow usage and price based on usage
Upsell to more features. (E.g. good, better, best packaging)
Cross-sell to other related products
**Note: Mark Stiving has an active LinkedIn community, where he participates in conversations and answers questions. Each week, he creates a blog post for the top question. If you have a question, head over to LinkedIn to communicate directly with Mark.
Mark is a pricing expert who helps companies understand value, how to create it, communicate it and capture it. He has a PhD from U.C. Berkeley and an MBA from Santa Clara University, plus 25+ years pricing experience. As an educator, speaker and coach, Mark applies innovative, value-based pricing strategies to guide growth and increase profits for large and small companies.