How to find your SaaS revenue model

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Wondering what the right revenue model for your business is? There’s no one-size-fits-all approach. After all, you wouldn’t feed a mouse the same foods (or quantities) as an elephant. The best approach for your business depends largely on two factors:

1. Market maturity: Are you creating a category, or entering a mature category with one or more incumbents??
2. Annual value of a customer: Is the expected annual value of each account relatively high or relatively low??

Based on your answers to these two questions, you can figure out which pricing archetype represents your business and what that means for the best way to conduct your pricing discovery process.

Here are four B2B SaaS archetypes to help you pick the right pricing model:

The Mouse

You serve a mature market that understands your product well and you compete with several mature incumbents. Given the relatively low value of customers, you likely rely on an inbound or inside-sales-led go-to-market motion with a fast sales cycle.

How to approach pricing initially: Your product team should lead the charge, and primarily focus on understanding willingness to pay (WTP) based on comparable products. Since there’s an abundance of comparable offerings, it’s likely you’ll make a fairly accurate guess on your initial price, but you should still revisit and optimize over time.

How to optimize pricing over time: Given the low ACV and high customer count, this should be a data-intensive exercise. It’s helpful to have a BI or analytics person working on the trends. Particularly in self-serve models without a sales process to provide feedback, conversion data becomes the most reliable insight into customer behavior.

The Elephant

You serve a mature market that understands your product well and you compete with several mature incumbents. Given the high value of customers, you likely rely on an outbound enterprise sales motion with long lead times.

How to approach pricing initially: Pricing should be a collaborative exercise between sales and finance, with some healthy tension from product and engineering teams. The most successful teams capture qualitative data from their direct and indirect sales channels, and create systems to interpret this data. Other invaluable resources include win/loss data from your sales team, analyst reports from Forrester and Gartner, and enterprise software benchmarks. Since there’s an abundance of comparable offerings, it’s likely you’ll make a fairly accurate guess on your initial price, but you should still revisit and optimize over time.

How to optimize pricing over time: Sales and finance teams will often find themselves at odds in early-stage price optimization cycles. Sales is incentivized to produce results and may try to hang revenue misses on price, but also has real-world feedback from prospects. Finance needs to be the filter and judge which data points are most indicative of larger trends.

The Gnome

Your market is unfamiliar with your product and not yet aware of your company. There are likely some adjacent companies, but those may confuse customers more than clarify your offering.

How to approach pricing initially: Your product team should lead the charge. You should get comfortable in experimentation mode for a long while, then plan to do a price reset grounded in analytics down the road. Conjoint analysis and Van Westendorp’s Price Sensitivity Meter can also be useful guidance. Given the lack of market comps, it’s likely you’ll be fairly far off on the initial price. That’s okay—just make sure you have an iterative mindset and refine over time.

How to optimize pricing over time: Evaluate the value you provide to end users while also determining how the buyer perceives value. Given the small ACV, run experiments to find an optimal price (e.g. raise prices to see if you still earn more even with more churn, or introduce new tiers or add-ons, etc.). Continue running conjoint analysis and monitoring your price sensitivity meter to understand changes in willingness to pay over time as your features evolve and the competitive landscape changes.

The Godzilla

Your market is unfamiliar with your product and not yet aware of your company. There are likely some adjacent companies, but those may confuse customers more than clarify your offering. Given the high value of customers, you likely rely on an outbound enterprise sales motion with long lead times.

How to approach pricing initially: You should facilitate a deeply collaborative model between sales and product, typically with finance playing referee. Working iteratively, you should proactively search for a market-clearing price through sales discounting, then capture and systematize the information you discover. ROI analysis and proof-of-concept with design partners can also be helpful tools. Given the lack of market comps, it’s likely you’ll be fairly far off on the initial price. That’s okay—just make sure you have an iterative mindset and refine your pricing over time.

How to optimize pricing over time: Sales will develop the most accurate picture of what value proposition and price point resonates with customers, based on their prospecting conversations. It’s important to implement structure to capture and evaluate incoming data in an unbiased and longitudinal way. Consider assembling a customer advisory board to get your highest potential clients a sense of what great-fit companies are willing to pay for.A quick recap: Mice, rely on data. Elephants, listen to finance. Gnomes, run experiments. Godzillas, ask sales. And for all, continue to revisit and revise.

Common pitfalls to avoid

Not every company is going to get their pricing model correct on the first try—and that’s okay. There is a certain degree of experimentation that’s unavoidable. However, being thoughtful about which initial model you choose will save you headaches down the road.

When you pick your pricing model, trade-offs are inevitable. These come in two main flavors:

1. Is your model simple (for ease-of-use) or complex (to accurately capture nuance)?
2. Does your model favor your company or your customers?

Ideally, you want to strike a balance in the needs of both parties with a model that is appropriately complex without being over-engineered. Here are some common pitfalls to avoid at each point.

Want to learn more? Dive deeper into Atlas' Gnome or Godzilla? B2B SaaS archetypes to help you pick the right price model and then sign up for our free SaaS Pricing Course.