The Non-Obvious Reason You Should Charge More for Your SaaS Product
Summary: Don’t dip your toe into the water when it comes to pricing. Make a splash and build yourself the means to not drown.
Our Story: Applying MVP to Influencer Marketing
When we started Revfluence back in 2014, we were true-believers in having a ruthless focus on building a minimum viable product (get it out early to customers, test & iterate).
So when we launched for our first paying clients after only 3 months of development, we were ecstatic! With clients already in the bag, we felt like we were well on our way to achieving real product-market fit.
Over the next several months we excitedly grew our client base and MRR. We priced the product low, at $199–499/month, because our objective was get as many clients early so we could use their feedback to improve the product quickly. Which we did: in only a few months we on-boarded over 100 notable e-commerce brands with relative ease.
Even though the product itself was relatively nascent in terms of both features and polish, we were confident that given our early traction we’d be able to iterate quickly.
The Obvious Reasons You Shouldn’t Price Too Low
Naturally, our investors and advisors warned us against the dangers of pricing too low: at an average MRR of $250, we’d need tens of thousands of clients to be a meaningful business.
But this was only temporary! Our thesis was that we would be able to leverage the data and feedback from our growing set of initial clients into building the right features to eventually raise prices.
We chugged along, growing the business for another several months, until we hit a sad realization.
The Non-Obvious Reason
Short version: we were building for the wrong customers. (Put another way, we misinterpreted the word “viable” in MVP.)
By pricing low, we were able to get certain buyers within the marketing departments at great brands, but: 1) many of them had tiny budgets and 2) the ones with big budgets were often inactive (our price was cheap enough that they could take a flier without real commitment). The traction we were seeing wasn’t a true indicator of success.
Even worse from a roadmapping perspective: for the bigger clients we wanted, we found there were entire use cases that we hadn’t prioritized in the product because our loudest voices of feedback were coming from smaller clients.
Everything needed a massive correction, from the product, to the sales pitch and all the processes in between.
Changing Your Pricing Means More Than Swapping Out the Page
So around the beginning of 2016, we upped our pricing by 5–10x to the point where the unit economics were scalable.
This required major changes, not just to the product (which we overhauled around key enterprise-features like workflow and analytics), but also around how we approached each customer.
With new contracts coming in less frequently but representing a sizable chunk of business, we needed to build much more intensive and educational customer success processes to ensure each would be a long-term client. We overhauled our own team to make sure we had the right types of people to fit such a challenge. Even small details like the tone on a client call (more strategic and discovery-oriented) and the polish of the platform needed to fit the needs and expectations of the new clients.
Luckily (and to the credit of the team), it worked. Our growth rate in 2016 is multiples higher than previous years thanks to these changes and a strong wave of market demand.
But we could have gotten there much faster. Looking back, the better high-level strategy would have been to peg our price where it needed to be long-term and try to sell it. And if it didn’t sell, it meant we still had work to do.
The lesson is: be wary of false positives around product market fit. If you’re not selling to the right buyer at a price that helps you scale, you might be falling into that very trap.
Eric Lam is the co-founder and CEO of Revfluence, the leading social content & influencer platform with over 200 brands like Calvin Klein, MeUndies and Dollar Shave Club.