How To Set, Structure, and Tier B2B SaaS PricingApril 29th, 2021
We invited three B2B tech startups in the Venture Lane community to participate in our SaaS Pricing Lab. Founders worked directly with a Mentor Committee of Boston's leading pricing experts to optimize their pricing strategies for acquisition and customer LTV.
On the Mentor Committee, we welcomed Mark Burton (Pricing Partner @ Bain & Company), Peter Zotto (General Manager @ ProfitWell), and Swapnil Gadkari (Director of Commercialization & Market Development @ Rapid7). Check out their key takeaways below!
Run discovery before setting or changing prices…
- Few key reasons to change course on pricing - new segment emerges in your TAM that necessitates new products with new pricing, new challenger emerges in your space with disruptive pricing, or you've become more confident in your value prop and want to take more value for your company off the table.
Talk to prospects and current customers. Run discovery with current customers. Also talk to prospects or use low-cost tools like aytm.com to poll non-customers who fit your buyer persona. Ask what price would be too high to justify and what price would be so low that the product would seem unreliable. These questions establish your price ceiling and floor.
- Block out challenger noise. Don't be too quick to react to new challengers in your space disrupting pricing conventions. If they're an early stage venture, they're likely throwing new ideas against the wall to see what sticks.
Opt for annual contracts over month-to-month…
Annual contracts support retention & revenue. If it takes multiple months for your customers to realize ROI on your product, annual contracts will give you enough time to deliver that ROI and reduce the risk of churn. If sales cycles in your target market are seasonal, annual contracts will also smooth your revenue curve and protect against monthly or quarterly peak/trough patterns.
Incentivize annual contracts with more months. If you incentivize prospects to sign annual contracts by discounting price, you anchor yourself to a lower starting price once renewals come around and ultimately drag down customer LTV. Better to leave price unchanged and add bonus months to the contract duration.
- Monthly payments are better than monthly contracts. Ideally, your customers sign annual contracts and pay upfront. If those terms are too much to swallow, offer annual contracts with monthly payments before offering monthly contracts. Yes, some customers will be delinquent and stop paying bills, but you'll always have a subset of delinquent customers no matter what you do.
Optimize starter tiers for acquisition and higher tiers for margin…
Freemium can be full featured. Startups have a tendency to gate their freemium layer around 1 or 2 key features. Open up all features to your freemium users so they know what the product can do, and then gate after a certain usage of those features.
- Keep it simple with lower priced tiers. Starter tiers of your product are meant to acquire customers that can later be retained and upsold to increase LTV. Don't hurt your own cause on those tiers by making pricing terms overly complicated.
- Say more than 'talk to us about enterprise' on your pricing page. At a minimum, also include some information about feature set to help leads self qualify. Regarding terms... if you use discount pricing, make sure discount rates leave enough margin on the bone for servicing those enterprise accounts - both now and if you move upstream in your target market in the future.
Want to take part in one of our upcoming Labs and get 1:1 time with Boston's best operators in B2B tech? Apply to join our live beta of Venture Lane | Connex, our newest virtual offering!