How Slack will break the SaaS pricing model as we know it… for the better
After attending SaaStr annual two weeks back , I returned to NYC with two big takeaways.
- More and more companies are moving the outbound process to marketing.
- Slack set a new precedent for the “seat” model that will completely disrupt the current model… and lead to more sales.
The first point is a trend that many of us have seen in the last year but with companies like Zenefits proving this model at scale I’m sure you will see more organizations start at this point. Giving marketing the ability to control the complete top of funnel just makes sense as we shift toward the fully quota’d marketing organization.
The Slack pricing model and payment terms, though, is something that turned many heads, including a brief look of shock from the host Jason Lemkin when Slack CEO Stewart Butterfield first explained.
The standard pricing set by Salesforce and many others years ago was the fixed, pay for seat model. You commit annually to a number of seats and are forced to make tradeoffs as to who should and shouldn’t be on the system. The Salesforce sales and customer success teams then try to grow and upsell. This is a multi-year process to get large adoption throughout a company that is extremely time, people, and resource heavy. This has been the recipe for the last 10+ years and it worked!
But what sucks about the old model?
- It makes people think about who should and shouldn’t have a seat.
- Department leaders have to guess who will and won’t use in advance so even if you buy 100 seats in year one, you still have to guess on year two and will normally just add seats in 1s and 5s as needed
- As stated above, the upsell process is long and it’s extremely difficult to get 100% account penetration
- This process creates many touch and friction points between the client and company.
What’s the Slack fix?
Commit to seats but only pay for active users.
I commit to ten but only five people actually use…I pay for five.
Why is the Slack model brilliant?
- It puts usage on products shoulders rather than sales. Product is incentivized to make things simple and drive usage because if the customer doesn’t use Slack, they don’t make money.
- It encourages department and company wide adoption from day one, or at least Month 1, as it spreads rapidly to other departments. There are no tradeoffs needed and the pitch is simple: If your people love it and use it, you pay. If not, you don’t.
- It delights and amazes people when a company sends an email saying they refunded you X dollars because X% of people didn’t use.
Additionally, this leads to larger MRR much earlier in the client relationship which short circuits the upsell and penetration process by years.
Obviously I’m a fan and believe this will be a go to strategy for many companies in the (very) near future, especially for those brave enough to stop selling and trust the product to do the work. Time will tell if this blows up or becomes the norm, but either way it is refreshing to see someone pricing in a new innovative way.