Pricing Matters

It is a new fiscal year for many of you and you may be considering tweaking your pricing models this year.  Having done a few SaaS enterprise pricing engagements in the past, here are seven considerations, as you revisit pricing.

1. For enterprise SaaS products, software subscription pricing is typically ½ to 1/5^th of the total solution cost to the customer – rest being implementation costs, costs associated with migration from existing systems and change management/enablement costs. So, software subscription price alone should not be a reason to lose a deal if you are in the ballpark vs. other competitors. Your sales reps will of course lose credibility with the prospective customer if your customers find your initial software subscription price is significantly higher than your competition and then your sales rep offers steep discounts to come closer to their price. 
2. Ensure transparency in your pricing model to customers, so they can see the various parameters you used and how you arrived at the price.  Customers don’t like black box pricing models.
3. As a continuation of the transparency rule, ensure the parameters (entitlements) used in your pricing model are easy for customers to determine their price.  For example, if you use parameters such as Number of API calls in your pricing model and if customers can’t clearly determine that parameter, it will delay your ability to close the deal in a timely manner or you may even lose the deal to a competitor. If your product costs are based on such a parameter, I recommend creating a proxy for that parameter that is easy for customer to determine (or for your solution engineers to determine during their discovery process such as number of active users instead of # of API calls).
4. Keep it simple.  Don’t use too many entitlements.  They may yield little incremental ARR, but end up making your product look complex.
5. Ensure your entitlements are framed such that you can increase your ARR from the account as either they grow, or your customer increases the adoption of your product.
6. From my experience, if the new pricing model requires customizations to your quotation module in your CRM system, you lose the flexibility to make ongoing tweaks to pricing and roll them out to the field.  It may seem like a tail wagging the dog (i.e. your pricing model is influenced by the quotation tool), but I have seen delays of up to two months in rolling out pricing changes to the field when the pricing model is complex and requires changes to an already customized quote tool.  If you keep your pricing model simple, you would be able to implement the CRM quotation tool out-of-the-box, giving you the flexibility to design and roll out changes more frequently.
7. Include pricing in your competitive and win loss analysis to see how your customers are reacting to your pricing, so you have some good feedback as inputs into your process for changing the pricing.   It also gives you insights into how much your sales reps are selling value and use that as an input into your sales enablement processes.

These seven considerations are valid irrespective of your pricing model – whether it is per user or per entitlement pricing, per active user pricing, tiered pricing, usage based pricing or some other model.

If you have more questions or need some help with pricing, please reach out to me via LinkedIn at https://www.linkedin.com/in/applicationsmarketing/