Software as a service businesses are all the rage. There is a plethora of opportunities for any competent developer and entrepreneurs that are able to isolate a section of a market and provide a solution to a problem that holds a business back.
Every saas business is rooted in the growing pains or struggles of another business. The growing pains of a struggling business or a functional one are similar in many ways. A great saas business is able to solve a problem both have. A poor one is one that only preys on one or the other with absurd pricing. The likelihood is that business will end up unsuccessful as so many do.
Every saas business is different. The pricing models that are used by one won’t work for others. Like most businesses trial and error is the best solution, but that isn’t as effective without having an idea of what’s worked in the past/works now.
There are new saas sites popping up daily, each with their own unique methodology for converting leads into paid customers. Whether you’re building or perfecting an Saas business or just researching, there are few things as important as knowing how to make money from customers.
How Pricing Should Be
Pricing based on customer value is the most important aspect of any business. While cost is a motivator for deciding a particular pricing, when it comes to Saas businesses it comes down to CLV. CLV is an abbreviation for customer lifetime value.
Basically, a customer that buys the highest package for only one month and disappears is not worth the same as one that buys the lowest package for ten years.
The reason, is not only for the obvious monetary difference, but for the opportunities the long term partner offers. They give the chance for numerous upsells, referral opportunities, and more. A one time big buyer helps bolster numbers, but commitment is the name of the game.
How Pricing Shouldn’t Be
Pricing shouldn’t be obviously arbitrary. The problem that many businesses experience is that they either undervalue their product or overvalue it. Looking at competitors can go a long way toward discovering the strengths and weaknesses that they have before testing a price.
Your value is not only in their weaknesses but in your product and teams strengths both currently and in being able to provide support and adapt.
Pricing Based On Number Of Users
Salesforce amongst saas pricing models is an ideal. The way they structured their pricing based on team size as well as the number of people that would use it otherwise is a value because of how they provide the definitive enterprise level service.
Charging based on the usefulness your saas has to each user as well as the team as a whole can ensure that you keep total costs low.
Pricing Based On Features
There can always be freemium to tiered levels. Businesses such as Serpwoo and beyond use tiered pricing based on feature allocation for a reason. The allocation of certain features are both an advantage to premium members that give them an edge over their competition. At the same time, their value is in particular based on how they perform.
Hi Klaus,
Great post, pricing is a key factor which can attract potential buyers on to your site. It is important to have a price which gives value to your potential buyers. A lower price will undermine the value of your software whereas a higher price will turn away buyers from you.
Thanks for sharing, have a great day. 🙂