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The Price is Right

Some good points on pricing strategy:

• One reason for this [saying the product can save the customer hundreds of thousands, yet it is priced as if it is saving thousands] is assuming the need to price and program similarly to competitive products. With a potentially disruptive product, however, falling into the trap of pricing like a legacy competitor not only leaves money on the table — but it could fail to surface your differentiation.
• your product is your price and how you price your product reflects value from the buyer perspective as well as what your company believes is valuable.
• SaaS products also have the advantage that they are priced not just for the service they offer, but for the potential of saving massive capex/opex spent directly by the customer.
• The business side of SaaS involves a complex array of variables such as customer lifetime value (LTV), customer/subscriber acquisition cost (CAC), average revenue per user (ARPU), cost of goods sold (COGS), and churn; as well as pricing models such as freemium, tiered (price items differently for higher quantities), and time based.
• The most critical costs are related to customer acquisition and sales/marketing expense — which can appear to erase any potential for profit by traditional accounting measures — so the key to early-stage SaaS businesses is to focus on understanding customer acquisition costs (CAC) relative to the estimated long term value of a customer (LTV).
• Some useful examples on pricing strategy for SaaS
• the most important suggestion for pricing I have here is to wait until the last possible moment to price and announce.
• for enterprise products, things like round-numbers, 9′s, and discounts all matter. Do keep in mind that discounting will be substantial in enterprise products with direct sales and 50% or more off “list” price is not uncommon (and often required).

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And about marketing, distribution and sales:

• “Early in a startup you need to acquire your customers for free. Later on, you can spend on customer acquisition.” (Fred Wilson)
• In a great company everybody sells – not just the salespeople.” (Larry Ellison)

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