How to decide pricing for your new SaaS project?
The pricing strategy plays an important factor in every SaaS business.
Don't complex pricing structure. Make it simple so that customers do not have to spend time figuring out the cost to value ratio.
- Your SaaS product must have a Freemium plan or a trial
Over the past decade "freemium" a combination of “free” and “premium" plans became the principal business model among #startups. Users get basic features at no cost and can access more features for a subscription fee.
- Follow the 10-5-20 rule
- Give 10x value in return for what the customers are paying
- Increase the pricing by 5%
- Until you lose 20% of customers
- SaaS Product value based on complexity and Price
- MRR < 2k ---> Can't afford a team or ads
- MRR > $2k-$10 ---> Can afford a small team and marketing
- MRR > $25K ---> You are now an enterprise
- Takeaways when you decide Pricing Model for your SaaS 👇
- Low price and high value give a doubt.
- Don't complex pricing structure.
- Customers should save money or make money.
- Don't be afraid to charge more. Does not matter if you are 2 people company
Thank you for reading it.
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Absolutely brilliant and concise read. The 10-5-20 rule is quite interesting as well.
I legit guessed (and likely low balled) for my latest solution.
2 Questions regarding the 5-20 portion.
Patrick McKenzie (patio11) recently weighed in on these two questions during a talk that he gave:
He recommended that startups revisit their pricing at least yearly and do more minor pricing experiments (ones that don’t impact all users) at least quarterly.
For customers who are on your email list and haven’t signed up yet, he recommended announcing the upcoming pricing change to encourage them to convert ASAP (and lock in the lower prices). For current customers, he recommended announcing the price bump while letting them keep the old prices.
I go into more detail about #2 and some of his other pricing tips in this blog post: https://www.glance.fyi/blog/pricing-patio11
Excellent - thank you for your response.
Budget
Nice concise write-up. We have a more detailed article on this topic: https://www.pricewell.io/blog/2022-04-16-how-to-choose-the-best-pricing-for-your-saas/
Thank you for sharing.
This is all great advice. Thanks for sharing.
Yes! Previously I worked with a client that insisted on having the ability to pay monthly, quarterly, every six months, or annually with all sorts of different add-ons. It was so complex and gave users a big case of decision fatigue.
Less options is always better in my opinion.
100%,
Customers should not get confused with the prices.
"Low price and high value give a doubt." - I have always had the same thought, and based on my experience in digital marketing. Unfortunately, I see many projects sell their value proposition as "our price is super low for these many XXXX number of quality" Lol
Founders are afraid of positioning high prices even though their product has value. This thought process should change.
Thanks for this advice!
It's helpful for my next project
Glad to know you liked it.
If you want to dive deeper into startups you should read this article as well
https://www.indiehackers.com/post/you-must-read-this-post-before-you-start-your-startup-74b5f5c43d
This is a great summary
Great read! Thanks!
Thanks for the article! Our SaaS has Freemium model:
And, of course, trial period! Here you can see more: https://getscreen.me/en/plan
Thank you for sharing
Thanks for the article but few things astonished me
I would not go as far as "must" have a premium plan or trial. In the end depends on your target audience. There are scenarios where you do not need to have freemium plan
like If you already have an established relationship/following with your audience then you have already build trust with them and in that case they will gladly jump the paywall to let you solve their problem through your product.
2.Follow the 10-5-20 rule - Nice rule - perhaps out of some book that i have not read yet. My distrust with the ruke is "10 times value part" - how can you exactly quantify you are giving 10 times value. Plus, not everyone will have resources to give 10x value.
Lets take some pain and do some maths. They say no pain no gain. right
Currently,
My Hourly work rate = $100 /hour
My Total Customers = 100
My SAAS has say 10 features and Each feature is 1 value point (so total 10 VP)
Each Customer paying $ 200/month
COSTS
Development - Each feature cost be a good 10 hours work so $100 x (10x10) = $ 10,000 .
1 value point development is $ 1000 dollars.
Keeping other maintenace fee like licences /server etc constant.
Say on average each of my customer cause me 6 minutes a month maintenance (super optimistic) . So for 100 customers is 60 minutes (or 1 hour) in month x $ 100 = $100
REVENUE
My current revenue per month is is 100 customers x $ 200/month = $20000
My income is $ 20000 - $10,000 (maintenace work for month) = $ 10,000.
So that sums up the current situation. Not bad.
LETS ADD YOUR RULE 10 - 5 - 20
a) Give more 10x value to customers.
10x more value means for me 100 value value points (coz i am giving 10 value points now)
Cost = 100 VP x $ 1000 dollars (cost of 1 VP) = $ 100,000 development cost (which i may not even have but thats different feasibility issue for applying rule)
**I understand features may be priced different and not all same but lets go with my possible scenario.
Now lets increase price 5%.
A customer currently paying 200 dollars each/month.
Increasing 5% that will be $210 /month.
Monthly price customer pay (from 100 customers ) becomes 100 x 210= $21,000.
(my monthly maintenance expense was 10,000 for customer servicing 100 customers)
But now with added 10x value (features) that maintenance work must also increase. right. right ?
END RESULT
My known cost of work / hour is $100.
You asking me drop/lose 20% customers
so i am left with 80 customers. 80 x $210 = $16800/month customers payments
lets update maintenace hours. Now thing is though customers decrease by adding 10x more features will add some more maintenace work. Lets add a humble 2 minutes per customer extra making mainteance cost like :-
80 customers x 6 minutes = $ 480
So now my income after rule = $16800 - $480 = $16320
==============================================================
With 10,000 cost and 1 VP and 100 customers my income was $10,000
After spending $100K to give 10x value and with 80 customers my income is $16320
10 times investment and not even 2x profit and thats going optimistic way.
Look i am not a market research guru or stats nerd. May be my ratios are very OFF.
**i just would like to stress that rules written are great to know what is possible but more than often they give that little knowledge to people that becomes dangerious if people not consider their circumstances.
I like your takeaways points but people have to consider their own circumstances and not just blindly apply.
Will be keen on having some feedback if you have time. cheers
I think the 10x value is for customer's perspective. Like their hour rate is $100 and do this themselves takes 10hrs. So their cost is $1000. Using your saas is $100, so you are creating 10x value for them
SaaS (Software as a Service) is a method of software delivery and licensing in which software is accessed online via a subscription, rather than bought and installed on individual computers.
In the beginning of your message you mentioned
"My Hourly work rate = $100 /hour"
It does not fit well with SaaS business model.
Also, the software as a service (SaaS) revenue model is associated with regular, ongoing payments over a defined time period, in exchange for the use of a "software application" or "other tool".
I really appreciate the math you did however if you really want to know more about 10-5-20 rule you can read this article https://danmartell.medium.com/the-10-5-20-rule-to-perfecting-your-saas-pricing-552b8a4e463f --- Dan Martell has advised more startups than his hometown has people and teaches startup founders like you and me how to scale.
Cheers
thanks for this article, really good !
there is a startup company that doing exactly that:
https://www.stigg.io/
Short but really valuable. This will definitely help me when pricing my soon-to-launch SaaS project. Thanks!
Thank you!
Excited to see your project. Good luck with it !!
For your SAAS project , to adjust your pricing for new project you should start with free trial first then you can go with budget
Really helpful tips. Right pricing model can definitely impact growth of your startup.
Thank you ! Glad you to know that tips were helpful 😊
The right software-as-a-service (SaaS) pricing model will help you attract more customers and sell more subscriptions, increasing monthly recurring revenue.
However, figuring out how to accurately price a SaaS product can be difficult. In this article, we’ll take a look at several different SaaS pricing strategies so you can find one that suits your unique business needs.
🙌
thanks man that really helpful and opened my eyes :)
Glad you liked it.
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Great content! the "Low price and high value give a doubt." has a lot of sense. Thankss
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Great content! the "Low price and high value give a doubt." has a lot of sense. Thankss
Super well-written post. I will be applying this in the WBE Space. I only raised the price of my community because the members suggested. It's hard to really measure our own value
first, to adjust your pricing for new project you shouls start with free trial first then you can go with budget.
Offer free trial without paypal o credit card request :)
Interesting structure - each business and their market is different. I believe if you are outstanding at execution and the growth is high, price matters least.
Interesting, where the 10-5-20 rule comes from?
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Well written post.
In the CRM world and ERP this can be applied?
Or depends of the market you are trying to get in?
Hey this is a great article, thank you for sharing.
MonitUp.com has MRR $0 yet, but MonitUp has an AppSumo campaign: https://appsumo.com/products/monitup-employee-monitoring
I have just sold 7 licenses through AppSumo. When is it right to end the AppSumo campaign?
For monthly pricing, I set the price for 3 different packages as $2, $4, $6. I asked for a much lower price than my competitors, could this be a wrong pricing?
Hello @Faruk,
Glad you liked the article.
Pricing strategies are difficult to crack. As a founder only you can crack it because you know all the answers. How much value does your product have? If you want my opinion what I would recommend, Don’t price your product much lower than the competitors if your Products gives similar or near to similar value as your competitor. Free trial or Freemium plans should be there in you are new in the market. Customers will pay if your products solve their problem but first, they need to validate it. With a Trial or Free plan, the customer validates your product and decides whether need to go with a paid plan or revoke the subscription.
Good luck
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