Maker Hunt’s AMA with Patrick Campbell from Price Intelligently
Patrick Campbell is the Co-founder and CEO of Price Intelligently, the team and software behind some of the biggest and best SaaS pricing strategies out there from companies like New Relic and Autodesk to Wistia and Litmus. Patrick will jump in and make a quick intro. Then, we can start the questions. If you’ve ever wanted to learn about pricing, this is the AMA for you.
The floor is yours ☺
Hey Everyone! Couple of things:
I’m best for questions around: 1. SaaS Pricing (Price Intelligently), 2. SaaS Metrics/Unit Economics (ProfitWell by PI), and 3. Bootstrapping (We’re at 12 people now off $0 in funding and growing). That being said, love to talk about all the fun things about SaaS startup-land.
Biggest ask from you: Don’t let me get away with any b.s. answers. If I don’t give you something actionable or complete, follow up. Hopefully you won’t have to call me out though, because I will already have answered everything. ☺
Feel free to truly ask me anything. I’m a big believer in true transparency, meaning not just giving you revenue numbers and stuff like that, but actually fighting through any discomfort on the hard questions.
Q. It is always better to offer different levels of products or services at different price points? And at what point have you gone from “options” to actually offering too much? — Eric Willis
Great question. 80–90% of the time you want to be offering differentiated products or services, because if you think about the demand curve, a single price point only really gives you one slice of the revenue and people are willing to pay more or less. That being said, if you really need to focus on simplicity because of acquisition channels or other issues, then a mono-price mindset is ok.
I’d say you’re crossing into too many add-ons when your packaging isn’t aligned to your personas, which is absolutely imperative.
Q. Which do you think is worst for moving forward as a new startup with no idea of how to price things. A price thats too high, or a price thats too low?— Zane Wolfgang Pickett
Q. What did you personally do to figure out your Goldilocks pricing (not too little not too much)….? — Perri Gorman
Kind of a similar questions — typically you need to be in the range of your prospects’ willingness to pay, but I’d say to actually start high. The reason for this is because you want to make sure you’re getting highest quality leads to do your initial cust dev post initial acquisition. These people will value the product more and it’s easier to bring the prices down over time. This is what we’ve seen work most with SaaS companies. Additionally on Goldilocks pricing — mono-price mindset is only good if you’re arguing for simplicity over everything.
Additionally on pricing — you need to speak with your customers about prices, similar to how you do product, marketing, and sales development.
Q. How do you raise prices in a way that causes the least amount of issues with your users? I remember how negatively Netflix customers reacted to their price increase. — Eric Willis
Here’s a full article on the subject:
If you haven't changed your prices in the past 12 months I guarantee you're losing money. The companies we've seen with…www.priceintelligently.com
BUT it comes down to three big things: 1. handling existing customers in an efficient manner (my favorite is the grandfather discount), 2. clearly communicating why you’re making the change, and 3. releasing the price change with other product improvements
The article includes a hell of a lot of information to expand on those three points.
Q. What’s your thoughts on the Freemium approach? There’s this trend where SaaS businesses are steering away from Freemium, but recently e.g. the CrazyEgg founders expressed regret on not having kept freemium which slowed down their growth — Markus
The biggest thing is that freemium is an acquisition model NOT a revenue model. What’s funny is CrazyEgg (full disclosure — a priceintel customer) probably doesn’t quite need a freemium model at this point, because of it’s mindshare in the space. Long story short, you need to treat the free product as a really sophisticated ebook in terms of your marketing funnel. What’s great about it is you always own the lead if there’s high retention. Here’s an article on why we released ProfitWell for free that expands on this concept, as well:
When you're part of a SaaS pricing company, releasing a free SaaS product has a bit of irony- especially when you've…blog.profitwell.com
Markus — NB: I was referring to this interview from this week where both of the founders seemed to have expressed that regret in one way or the other:
The co-founder of KISSmetrics and Crazy Egg shares valuable insights ongrowing a business. To be honest, I just wanted…www.groovehq.com
Q. Outside of “costs”, what other internal factors should one consider when setting a product price? —Eric Willis
You really shouldn’t think of costs at all when you’re thinking about your pricing. Nor should you think about your competitors as much. You need to do what’s called “value based pricing” which involves speaking with and collecting data from your customers to figure out where there sensitivity exists.
Q. Are there any general rules for a good first pricing strategy? ie at the point where you have no data whatsoever? — Ed Moyse
Good question — biggest things we see — 1. price based on your personas and make sure each persona has a tier/package and a place to grow, 2. make sure your pricing is value based, 3. make sure you price on a value metric to ensure you’re taking advantage of the whole demand curve AND getting expansion MRR in your business
I’ve found most companies (literally 9/10 of the hundreds of SaaS companies I’ve seen inside of) don’t have quantified buyer personas and that’s what holding them back. They don’t know their customers on a deep quantified level.
Q. Are you seeing more usage of “dynamic pricing” and can you give some examples of where it makes sense? —Eric Willis
Dynamic pricing is quite the rage right now in retail, especially since there’s a lot of advantages. In SaaS we don’t see it as much in terms of two people going to the same pricing page and seeing different prices. What’s interesting is pricing based on a value metric gives you a ton of opportunity to truly be dynamic.
Q. Is there any evidence around effectiveness of having “Fixed Packages” vs “Build your own Package (i.e. sliders)”? We have both: https://auth0.com/pricing and we are testing them right now — Matias Woloski
Fixed packages are good for less sophisticated types of personas. Sliders/calculators are best for more sophisticated. Typically devs fall in the latter category, but mainly in the mid-market and enterprise. You want the value metric of the slider, but design of your pricing page will be key to not slow acquisition.
Q. Another topic that’s tough to price — Enterprise pricing for SaaS. Do you have basic guidelines or ideas on the approaches in that field for early-stage SaaS businesses? — Markus
Definitely see that with CrazyEgg, but I think they’d have to expand the team (I think it’s only around 5 people and mainly part time) to truly hit freemium out of the park. This is also why they’re priced much lower than what they probably could get in the market
The model of persona based and value based pricing still holds true, but with enterprise you have a bit more negotiation power. I’d still do your homework in the cust dev portion of your cycles and then make sure you can effectively start high and come down if needed. Most startups launching in the enterprise start way too low. Most established companies that launch a new product start way too high.
Q. Can you give us some examples of pricing based on a value metric? — Eric Willis
Definitely. Salesforce is based on a per user model (per user is only really good for helpdesk, CRM, and project manangment apps). Wistia is based on bandwidth and # of videos. 0auth I think you guys are based on number of auths or API calls.
Q. How does your company go about testing different pricing points to ensure that you’ve chosen the best price? — Eric Willis
We eat our own dogfood by really talking to customers about what they need and what’s manageable from where our value sits. As we’ve gotten better, those conversations have yielded higher results, which leads me to an important point:
If your product gets better, your pricing should be getting better, too.
Doesn’t mean you raise or lower prices. you may adjust packaging, but you should be updating your pricing at least every 6 months.
Q. How much consumer psychology do you get into when thinking about how to display prices? Like how consumers have a different reaction to seeing $1,299.00 …..$1,299…..$1299… where the last option feels less expensive. Is that mainly used for retails or are you seeing that taken into consideration in other categories? — Eric Willis
Alluded to this in the last answer, but this is also a “last 5% optimization” The standard is that typically you want prices to end in 9s or 8s if you’re a discount or value product, and ending in 5s or 0s if you’re a luxury or premium product. Thing is that in SaaS there hasn’t been a conclusive study. We should probably do one, but everyone’s been touting the “9” since they did the original retail study in department stores in the 1930s.
Q. I didn’t get this “ You want the value metric of the slider”, and we are based on # of **active** users — Matias Woloski
Sorry — jargon. ☺ If you do fixed tiers, someone with 1000 API calls and with 1500 API calls may be paying the same price. The slider allows you to potentially charge the 1500 API call guy a bit more. You may not think that’s a big revenue gain, but they’ve found a 1% optimization in price equates to an 11% boost in process (consistently found in McKinsey studies every two years). That’s a lot of cash and has 3x the impact than similar optimizations in cost or volume. So basically you can put as much sales or marketing dollars on the fire as you want, but if the engine is broken, you’re only getting marginal gains.
Q. You said to largely ignore costs and instead focus on value. I can understand that… but you also said to not to focus on competitor prices — why? — Ed Moyse
In SaaS your costs per user are marginal so they don’t matter and shouldn’t in SaaS (exception are data heavy products, but even then we’ll be fine with Moore’s law over time). This is how SFDC can charge $125/u/month and their costs may be $1/u/m. Competitors it’s similar. SaaS is so easy to mold from a perspective of new features, value proposition differentiation, etc. that competitor comparison in pricing is a race to the bottom. You need to keep them in mind, but don’t set your ultimate prices off them.
Q. What about hiding of the pricing page in favour of trial sign up CTAs? I see some SaaS businesses doing it, and am annoyed that I have to google their pricing. On the other hand other customers might be different… thoughts on this approach? — Markus
We find that transparent pricing helps qualify leads muuuuch better, but if you’re starting off in the enterprise and have trouble getting leads in the first place, opaque pricing may be a good idea to get people who are interested to raise their hands. Everyone hates opaque prices. Everyone. Even companies that have highly customizable pricing can at least give ranges. Our Price Intelligently pricing page at least gives you an idea of our prices, even though they’re more enterprisey and require a phone call.
Q — I meant that the pricing is listed on the pricing page, if you google it. But it’s not one of the links on the landing page— Markus
In terms of the pricing page — it’s typically always the second page someone will look at thinking “should I waste my time exploring this product more”, so make it accessible or you’ll just continue to annoy folks. As always though — always test your funnels. I believe buffer’s homepage doesn’t have the pricing listed because it works for them
Q. How do you think Slack should deal with the public use of their product (non-enterprise)? It’s too expensive for communities like this, but people would be willing to pay something in this use-case. There is a lot of revenue being left on the table. However, a lower price (for communities like this) would likely cause problems with their business customers. — Eric Willis
It’s similar to the freemium points spoken about above — all of us here probably use slack in our respective organizations because we discovered it in our community. Keeping it free here ensures a lot more leads and they can play the long game, because eventually we at PriceIntel will have to pay for Slack to get more integrations, unlimited message storage, etc. Freemium is a long game play and Slack fortunately has their value metric and overall pricing really set up correctly to make sure they’re rocking in terms of conversion to paid.
But the 10,000 message view limit really causes an issue. People in communities like this would pay for the upgrade, but it’s too much for public communities like this.
I bet Slack comes out with a “non-profit” type plan eventually for communities like this or just gives it away to folks that ask. Slideshare did this and a lot of the big dogs do this too, or companies that need to “train the market”. They’re likely just growing way too big/quickly to catch up or frankly they may not care because we don’t fall into their target — meaning we may pay for our own personal companies, but for a group like this, it’s kind of ok with the status quo.
Q. Credit Cards on sign up vs post-trial? ☺ —Markus
Credit cards. If you don’t have your unit economics figured out in terms of retention, time to conversion, time to value, etc. I’d argue that you should keep the gate up. A lot of people want leads, leads, leads when they don’t know what you’re looking for. One of my favorite product teams at Hubspot that built the Sidekick product spent a ridiculous amount of times (weeks) only focused on a couple dozen users, then they expanded to 100 or so. Only then did they let Balfour work his growth magic on opening the floodgates. When you need to open the floodgates, drop the CC.
Q. So coming back to fixed vs sliders. We thought the package limited to 1500 API calls will be chosen by both the 1500 API call customer as well as 1000 API call customer (because there is no other package that would make the cut for them). If instead sliders are used, the 1000 API guy will choose 1000 API exactly, whcih translates to 500 API worth of lost revenue for us. From what I read you are saying that sliders are better, but I don’t follow the rationale. — Matias Woloski
You’re exactly right, but this is where the decision comes down to making sure you’re extracting value properly from your prospects. If you run a histogram analysis on your base and find that they fairly neatly fit into a few key groups by API calls, then you should do bundles/tiers, rather than the slider, but if that histogram shows wide scale, then you’ll be losing more by doing the tiers. Often times, there’s a bit of a compromise with low end tiers (which also work for less sophisticated buyers) and then a slider for when you reach a certain size in terms of the value metric. This ensures that you’re not charging Adobe the same price as a startup.
Also, lot of SaaSy posts on
Your explainer for SaaS metrics and how they impact your business.blog.profitwell.com
We like to write a lot of deep content with good ol’ data, so feel free to check it out.
Q. What’s the last pricing page that blew you away? — Markus
Haha I see *a lot* of pricing pages. Here’s a study/overview of 270 of them
I’d say the one I reference the most for customers is likely UserVoice’s or Wistia’s old one. I don’t like Wistia’s new one, but it’s working for them and where they typically throw you to the pricing pages in their lead funnel. HubSpot’s is great for a non-touchless sale.
Q. You mentioned that a lot of SaaS companies dont know their customer perosnas on a *deep* quantified level. Can you provide an example for this? — Mridul Agarwal
Definitely — there’s some key examples and a PDF to quantified customer personas in this blog post:
Quick note: This post is a bit different than what we typically write on our blogs. We're trying to be more "actionably…blog.profitwell.com
Biggest thing is you need to know all the psychographics on them in addition to: 1. What they value (found through survey/usage/etc.), 2. What they dont’ value in your product, 3. Estimated or actual CAC, 4. Estimated or actual LTV, 5. Willingness to pay (measured through survey/market data/etc.), and then a few profile customers/prospects that you’ve spoken with
Patrick, thanks for doing this AMA with us. It’s been really great. We’ve learned so much about pricing today. We’ll get this up on Medium soon. I’ll tweet you when it’s up.
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Special thanks to Patrick and everyone who participated. If you’re a maker with a product on ProductHunt, be sure to sign up to participate in the AMAs and connect with others.