We have seen different methods for establishing your SaaS company’s pricing plan in our previous post. We had three: by instinct, considering what it should cover and watching our competition. We leave the fourth method to the end:
Method 4: whatever the customer is willing to pay
Stop thinking about your company. Stop thinking about your competition. Think about your customer.
To establish your SaaS company’s pricing plan you need to know how much your customer is willing to pay for your product.
The price is not just the number of euros your customer pays. It is the number of euros he pays and in exchange for what. The price is what your company offers, with all its functions and characteristics. Once you have a minimum viable product, everything you add to make it bigger must be oriented by consumer demand. So a good price requires a good product.
This has a clear advantage: it focuses on what needs to be focused: the customer.
But there are also several disadvantages: it takes a long time to build and quantify your customer, to build a idea of each customer, that is, a buyer persona. And the measure will never be 100% accurate, just an approximation.
To know your buyer persona you need to know what he wants from your product, who your most valuable customer is, what kind of customer is willing to pay for your product, how he is going to use it, what need it to solve, etc. Divide it into a few identifiable types. The more useful data you collect from your customers, the better.
A product for every buyer persona
When you build your buyer persona you will probably encounter a problem: there are different data for each section of your buyer persona classification file. This means one thing: you have more than one buyer persona.
Of course, it would be optimal to have one product for each buyer persona. But it’s not always possible: clarity has to prevail, that is: if a customer has to check a lot of data to know which plan to choose, he will go to the competition. Therefore, when it comes to establishing your SaaS company’s pricing plan, you have to make it varied, but simple.
That’s why any pricing plan of any SaaS usually has three or four closed packages. Look at an example of an VoIP telephony company:
Three price plans. They could make 100 offering every combination of their characteristics, but they offer three, so it’s easy to find the one that suits you best.
Find the correct metric
We saw before that the price does not only include the money to be paid, but also the product to be acquired. Determining how we are going to offer our products is part of the pricing strategy.
Let’s look at this better with an example:
Let’s say, it’s a simple hypothesis to understand what I mean, that you have a SaaS that allows to make use of a computer in the cloud.
You can create price plans by “playing with” limiting the time you use the processor and with the number of programs you can install.
Maybe one of your buyers is a company, let’s call it a CustomerCompany, that uses a program intensively. If you don’t have it well defined, you could make this mistake:
You establish the price plan of your SaaS company doing two plans: basic and premium.
In the basic one you can only install one program, but you allow an unlimited processor use. You put it at 10€ per month. In the premium you also allow unlimited processor use, but instead of a program you can install unlimited programs. And you put it at 1000€ per month.
So CustomerCompany arrives, buys the basic plan, installs only one program and, even if it becomes the next Disney, it will pay you only 10€ per month while making intensive use of your SaaS.
If you have well defined buyer personas, you may see that it is much more important to limit the plans by processing time than by number of programs installed. You Need to find the right metric.
When to review the prices of your SaaS company?
After establishing your SaaS company’s pricing plan, what you have decided is not written in stone. In fact, you should have someone in charge of analyzing your pricing plan and strategy. In any case, you should consider changing your prices when:
You introduce new products.
There is a big change in your products.
Your company enters a new market.
Your competitors make big changes in their prices.
There is an economic crisis (or the opposite).
Your strategy changes radically.
Or one of your customers is making a lot of money using your product or service (even if it sounds ugly).
With this we have seen the basics of how to establish your SaaS company’s pricing plan. Like anything else, if you want to do well is not an easy task. But with time and common sense you can get more out of your SaaS business.