Launch Pricing Strategy — For SaaS and Everything
When you’re trying to figure out how much money to charge for your SaaS or services or pretty much anything, there are two main phases:
- Deciding (coming up with the pricing)
- Implementing (putting the pricing wherever you display it and making sure your system will charge those prices)
The faster you can get through each phase, the better off you’ll be.
I often see people getting stuck in phase 1, so that’s what this article focuses on.
Just make a decision and you can always change pricing later.
This is not only a problem when launching; you also encounter this situation when changing pricing. But at least when you’re changing pricing you have already launched and are collecting data (and hopefully money). When planning out launch pricing, you are inherently receiving no data and no money. Or if you’ve launched as a free platform, then you’re collecting data with no chance of getting any money until you launch a paid option—and the data you’re getting, specifically any feedback from users, is probably not good (more on that later). If the only thing blocking you from launching is deciding on pricing, just make a decision and you can always change pricing later.
Often there are several viable options that seem equally attractive. When you get to that point, rather than spending more time drilling down and trying to figure out which is the “best” option, ask yourself, “which of these is the quickest option to implement?” Choose that option and move on. (Note: Don’t let this blind you to the possibility of needing to do some bigger implementation if the potential impact seems worth it. Choosing the quickest path only makes sense when you have otherwise equally viable options; it’s better than flipping a coin.) Conversely, if you’re at the point where you’ve come up with a few reasonable ways of doing pricing plans and none of them seem perfect, choose the option that will be the easiest to implement because nothing is perfect. As Patrick Campbell says, there’s no silver bullet for pricing. Use this method when changing pricing later, too. That’s the method we’ve used when determining pricing for our appointment reminder app and it’s saved us a lot of time.
Once you launch your paid offerings, you’ll be astonished at how great it feels. Getting no one to convert to paid users when you have paid offerings feels way better and is way more productive than having no paying users because you haven’t yet decided on pricing. At least now you have some data about whether or not you’re able to get people to pay for your software or product or service within the current circumstances. You literally cannot get that data if you aren’t offering anything that people can pay for.
As I mentioned earlier, the feedback and data you get from free users is meh compared to that from paying users. Feedback from paid users is so much more valuable. If you don’t believe me, ok. Good luck. There are plenty of frameworks to use for figuring out what features to build or new services to offer (I like this one from Rahul Vohra of Superhuman and this one from Josh Pigford of Baremetrics), and if you can use data from paying users these processes will be way more effective (unless, of course, you’re not planning on charging money for the product or service in which case this article is not for you).
The following excerpt from Des Traynor’s Indie Hackers podcast interview by Courtland Allen had a big impact on how I view the process of determining pricing. I bolded some particularly pertinent bits.
Courtland Allen
You mentioned that you guys started by charging $50 a month and that for so many reasons that was the wrong price to start at but it was also the right one. What does that mean?
Des Traynor
Right decision, I’d say it was wrong price, right decision. So a few different thoughts, one we were running around in circles, we had multiple different ways we could consider charging for Intercom, but we didn’t really know which would make sense [and] which wouldn’t. We had never really been faced with this dilemma before and we knew that we’d gotten pricing wrong as most people do, you know pricing’s always wrong.
We knew we had [gotten it] quite wrong with our previous business. So we were really hesitant and we wanted to be informed on making this decision as well as we could. So we spoke to [Basecamp founder] Jason [Fried] and we outlined all the different ways he was thinking about it and we were thinking about it and he stared at our options for a reasonable while and concluded basically, this wasn’t his words, but the message was effectively, screw all that. Charge $50 and we’ll come back to this problem later.
That to me was at the time was such a breath of fresh air because everything we were about to do sounded messy or complicated and this sounded straightforward. And also I liked the fact that we could just come back to this problem. The core insight in what he said was that pricing will basically always change. Your product is going to get more valuable over time. As a simple example, let’s say IndieHackers was not as valuable to post an advert on after you had one podcast, as it is now that you have hundreds.
Intercom was not as good at sending tens of millions of emails in 2011 as it is today. Products get more valuable which means your pricing will probably have to change to reflect the new value and that was the key insight that kind of unlocked our thinking. I said right for now let’s just say it’s $50, let’s just say that’s beta pricing and we’ll see what happens and we’ll come back.
What happened was really interesting. We anticipated we would lose quite a few of our customers, once you start charging. There is this mythical penny gap, the very second you charge anything for a free product you lose so many people. I can’t remember what our exact drop-off was but it wasn’t as high as we had anticipated. We lost maybe 30% or 20% but what was really shocking to me was the feedback and the feature requests we got totally changed after that fact.
The way I summed this up inside at the time was that, free users want more software and paying users want better software. So all of our free customers wanted us to expand our offering to do more things for free. And all of our paying user who stuck around after, all of them were like, I want to be able to send more in app or I want more types of this or I want to be able to customize how this appears. It wasn’t, I want you also to be a reports tool and a survey tool and an analytics tool.
Conclusion
To wrap this up, here’s how I recommend approaching pricing strategy:
- Come up with reasonable pricing options.
- Pick the option that will take the least work to implement.
- Launch!
- Collect data.
- Revise pricing (go to step 1).
Now go make a decision on your pricing and launch!
P.S. If you’re not yet at the point where you have some pricing options that you think make sense, I recommend reading through Patrick’s pricing strategy guide and other posts on Price Intelligently’s blog.
