Negotiate like your life depends on it, and Price to make your negotiation a breeze - SaaS pricing strategy!

Riding the waves with choppy waters of the SaaS pricing conundrum?

Here comes the Orthogonal axes of questions - How do you select the pricing metric? How to build an all inclusive pricing strategy? When to change your pricing? 

Undercharge, and you'll cripple your business with uncompensated development and delivery costs; overcharge, and you'll throttle your growth and drive away thousands of would-be customers

Here is an attempt at putting together pieces of the price puzzle! Some top-of-the-mind suggestions for these billion dollar questions! Quite literally! 

A. How do you select the pricing metric? 

Do you start by asking yourself what it takes to make your (profitability) cup runneth over? But firstly, should your model favor your company or your customers?

 Or do you look to reduce your sales cycle? Is it different for each product in your portfolio, paving way for more confusion in adopting a metric internally?Is your model simple (for ease-of-use) or complex (to accurately capture nuance)? 

Let us start here: 

1. If you operate under red ocean conditions, benchmarking will help you identify these metrics. Alternatively, in the blue ocean space, you need to launch with a best guess and continuously refine over time based on market feedback. For the uninitiated, In a red ocean strategy, an organization has to choose between creating more value for customers and a lower price. In contrast, those who pursue a blue ocean strategy attempt to achieve both: differentiation and a low cost, opening up a new market space
2. If you have multiple products in your portfolio, try and ask yourself this question - how would you justify ROI on each product - does it all come under the same metric or does each product call out for a different value proposition? There is no right or wrong answer here, just an honest internal judgment. When creating a flywheel, always optimize for volume. The happier your customer is, the better the likelihood of a receptive market
3. The mostly commonly used metrics to derive value in SaaS include the below. Each one of these metrics have their own pros and cons, from ensuring stickiness to scalability, and whether customers start small and expand or buy a full suite.

• Per user license
• Usage/ Consumption
• Per active user 
• Per Feature
• Per API call

Getting down to brass tacks, identify and iterate on where value lies. This forms the base for a justifiable price metric. Group your products and features based on these metrics and create bundles. Note that the metric is just a north star. You might still want to start with a platform based pricing, flat fee, free trial, penetration price or even captive price. Why not! As long as you can justify value and identify a metric. Over and above this are your developmental, customisation and such one time development costs. Stack them all! 

4. I said it just too quickly! What are these bundles? I would consider a bundle of use-cases (based on metrics above) as a set that solves a common pain point for any end user. I’m sure your product is medicine for a set of problem statements. Based on customer feedback, pick the most common problem statements and create ready to consume bundles accordingly. 

B. How do you build an all inclusive pricing strategy that caters to different segments of your customer base?

It's tempting to create a wide range of packages to appeal to every possible need - but as the adage goes, you can't be everything to everyone.

1. You might want to consider tiered pricing - now the question is how do you identify the tiers? Would it be plain vanilla customer revenue? Would you take growth and potential growth into account? Ensure that your tiers accommodate for volumes based on the metric you choose. 
2. You might either want to establish a base platform fee with add on modules for solutions or create packages with incremental feature addition - either way, the volumes of different segments should be baked into your module (especially if you are charging flat fee, where volumes are not automatically adjusted for)
3. Always leave room for upsells. You can use the checklist module (Recollect post 1 from the menu card) to ensure that your customers consume in byte sized portions. Project overall value and chalk out a trajectory with current value structures. Allow our heroes in post sale journey to add to the success story! 
4. At this stage you might also want to consider if all pricing is to be made transparent (self - serve buying experience with price tiers available on your website) or keep it under wraps till the elephant in the room is discussed. 

C. When do you realize it is time to change your pricing strategy

Pricing is an incredible lever due to the relatively infinite number of options available to your organization. In my experience, pricing strategies tend to have their own version of entropy. Unchecked, your pricing strategy will end up in chaos. So how do you know its time?

1. Your original one-size-fits-all product is splintering into distinct offerings for different firmographics or demographics. 
2. You’re leaving money on the table because larger customers are paying less than they’d be willing to.
3. Proposals are dismissed at an early stage for budgetary reasons
4. You’re losing smaller customers who would subscribe to a more accessible tier if it were available.
5. Requests for pricing adjustments from your sales team are trending up.
6. Legal and finance are spending an unreasonable amount of time modifying contracts.

Closing thoughts:

Stuck in a place where you have to change your pricing? How frequent is too frequent to change pricing? How do you know it's working for all segments?

1. When in doubt,Go back to question 1 and revisit your north star. How do you know you are in doubt? When you land at point 3. Its a wheel, like I said. So go back and pick an existing customer to iterate and re-iterate your pricing. Try to derive value with a different north star metric.
2. This would depend on the stage of your business (Penetration, Growth or any other level). Always map the delta price change to the overall organisational value. A change can result in any level of delta for a given customer - you are looking to make overall sense from it.
3. Remember to establish a feedback loop. This enables data backed decision making, instead of ad-hoc changes to accommodate one customer or a customer segment.
4. Create transparent channels of communication when discussing price changes. Talk only from a value standpoint. There is always resistance to change, but you know when you know! 

Let me know your thoughts on pricing, bundling and how you identify the best strategy!