Pricing and SaaS
Pricing as a SaaS company is easy. Charge per user.
The profit you’ll reap when a company with a hundred employees sign up is huge.
Genius.
Well no. SaaS companies should never charge per user. Always go for fixed pricing.
The issue with pricing per user is that it doesn’t align with the value of your product. You want to see users adopt the product. You want them to add their colleagues. That’s when your product’s value is at its greatest. The number of users and the value of your product is often correlated. Yet you bully people trying to get value by charging them more. When you’re encouraging them to invite their colleagues they’ll have no idea if you’re being authentic. Do you want them to do that because they get value, or because you’ll be able to charge more?
If you’re in B2B you’ll face another challenge. The first user in that company has to sell your product to her colleagues. If she is successful the price they pay will increase and at a certain point need a manager’s approval. If the manager doesn’t see the value you’re done.
With fixed pricing, you wouldn’t have these issues. They’re paying the same for 2 or 80 users. Now your intention and incentive to help are clear. You’re doing it because you want them to succeed and maximize their value. Also when they’ve decided to pay there won’t be a discussion about it again. The price is always the same.
Now let’s say you bring this up for discussion. $10 per user or a fixed $99, and after going back and forth you convince your team to try fixed pricing. Success! Until your favorite co-founder sees that a new customer with 120 people signed up on the fixed plan. Followed by commenting on how you would have earned a lot more money if you didn’t go for fixed.
The thing that actually happened is that you earned $99. You also got 120 new advocates of your product. That’s also 120 people that are likely to at some point change jobs. People bring products they like to their new workplace.
You also kept control of your company. If you were on a per user plan they would have had control of your product.
How? Say you have 30 customers with an avg. of 8 users per account. That would make your MRR $2400 at $10 per user. Now the last company comes. At 120 people they pay $1200, boosting your MRR to $3600.
A month goes by and you receive an email. It’s from the last company. They’re requesting what for them is a vital feature. To be able to continue and use your product they want a better way to manage their users.
Do you say no? If so you lost 33% of your company’s MRR. That sucks.
If you say yes and add it you have made a feature that only makes sense to 1 customer. The complexity of your app increases. The learning curve for new and existing customers are higher. And we haven’t even gotten to the hidden costs. Even scarier is when it’s a directional feature. A feature that forces your product in a specific direction.
With bulk actions and a better way to manage users, you’ve also said that you’re no longer for SMBs. You’re for large companies, what does a team of 8 need bulk actions for? They’ll begin to feel that the product is less relevant for them. And you’ll keep adding features for large companies.
When you’re using fixed pricing customers are equal. No customer is more important to you than the rest. This gives you the freedom to continue to build your product, with your vision. You’re not forced in a direction by a customer.
Founders also think features mean increased value. But most people I know are always looking for something easier to use.
Fixed pricing also removes questions around; should we charge inactive users? How do we bill a user that was only in the system for 3 days? If your customers don’t agree with you on how you decide to do this they’ll get agitated.
Great products help the user achieve what they want to achieve with minimal friction. Don’t create friction because you want to earn $10 more a month. It won’t pay off.
