Determining Subscription Pricing at the Early Stages
For most buyers of enterprise software (and products in general), price is the first thing considered. Product capabilities, design, and integrations are all considered only after pricing. Especially at the early stages of the company lifecycle, it is imperative that founders develop a pricing strategy that aligns with how the market values the company product.
Higher priced offerings make for deals to take longer as vendors will shop other options. This may be okay if you are the only vendor in the space, but for most firms that is not the case. For most companies, you want to prioritize closing every deal rather than closing one big deal. Not only does the subscription model de-risk itself by acting as a consistent stream of cash flows, but companies that prefer to price themselves high and attract a small number of buyers put themselves at risk of customer concentration risk. In this scenario, the company selling the product has little leverage over their buyer, and they must make concessions, product enhancements, and even price changes in order to keep their most meaningful customer(s) happy.
Underpricing leaves too much money on the table along with other signaling issues. Today the average SaaS customer has purchased 60–100+ subscriptions; they are veterans and have a pretty good idea on what your offering should cost based on comparables. Pricing should denote value extracted, and most buyers will compare you to comparable companies with offerings within the same price parameters. Simply put, if your product has the same functionalities as product priced at $100,000 but is priced at $50,000, many buyers will wrongly assume that your product is inferior to the product priced at $100,000. This type of statistical bias can be misleading especially in the early stages when many companies underprice themselves to gain market share.
In order to increase sales velocity, you need to close deals faster. In order to close deals faster, you need to get your pricing right.This is easier said than done, but a good rule of thumb is to price your offering similarly to other similar products and then beat the others in functionalities / customer satisfaction.
