Pricing Your Early Stage B2B SaaS Product

For the last couple of weeks, the topic of pricing has frequently come up in discussions.?

It’s an issue that seems pretty straightforward at first glance, but as you start unpacking the layers, you realize it can be incredibly complicated.?

There are a million different ways you can price your product, and the implications are completely different.

Your pricing will drastically change based on your product, field, customer type, and whether you actually want to have revenue.?

As my man Russ Hanneman pointed out, maybe no revenue is the way to go.

But other than just taking advice from Russ Hanneman, I decided to dive into the wisdom of some of the best founders out there and curate it for this week’s newsletter.

General Pricing?Advice

1. Start with Value-Based Pricing

• “Charge more than you think you should. Then keep raising prices until you start losing customers.”?—? Paul Graham
• Keep pushing the pricing till the wheels start to fall off to really understand the value of your product.

2. Don’t Undervalue Your Product

• “Underpricing is one of the most common mistakes startups make. It’s much easier to lower prices than to raise them.”?—? Jason Fried
• Starting with higher prices gives you room to offer discounts or lower prices later if needed.

3. Consider Pricing as Part of Product Development

• “Pricing isn’t just about numbers. It’s about the story you’re telling and the value you’re providing.”?—? Patrick Campbell
• It’s crucial to include pricing discussions in your product development process from the start. Product and Business should go hand in hand.

Different B2B SaaS Pricing Strategies

1. Tiered Pricing

• “Create 3–4 tiers of pricing to cater to different customer segments and needs.”?—? Tomasz Tunguz
• This allows you to capture value from different types of customers and provides clear upgrade paths.

2. Usage-Based Pricing

• “Consider usage-based pricing for products where value scales with usage. It aligns your success with your customers.”?—? Darren Chait
• This model can be particularly effective for products that deliver more value as usage increases, especially if you include a monthly minimum.
• This could be number of users, amount of data processed, or any other metric that correlates with the value delivered.

3. Annual vs. Monthly Billing

• “Push annual contracts. They improve cash flow and reduce churn.”?— Jason M. Lemkin
• Offering a discount for annual billing can incentivize longer-term commitments.

4. Freemium Model

• “Freemium can be a powerful acquisition tool, but make sure your free tier delivers value while clearly showcasing the benefits of paid tiers.”?—? Hiten Shah
• This model is great for user acquisition and product evangelism, but requires careful balance to ensure you’re still getting value out of it.

5. Consulting and Integration Fees

• “Don’t be afraid to charge for your time and expertise. Enterprise customers often expect and value high-touch service.”?— Jason M. Lemkin
• Most founders are some of the most capable people in the world. It’s very tough for enterprise customers to find people of your caliber with the same support and care that you’ll provide in a solution for them.
• You can charge your customer for customization, integration, and ongoing consulting services.

Initial Pricing Strategies

1. Penetration Pricing

• Start with a lower price to quickly gain market share, then gradually increase as you establish your product.
• Be cautious: this can set expectations for low prices that are hard to change later.

2. Competitor-Based Pricing

• Research your competitors’ pricing and position yourself strategically.
• Consider offering slightly lower prices with unique features, or higher prices with premium positioning.
• This is the most straightforward approach as long as you have certain value you know you can deliver versus your competitors.

3. Cost-Plus Pricing

• Calculate your costs (including CAC, hosting, support) and add a desired profit margin.
• This ensures profitability but may not maximize value capture from customers who would pay more.

4. Skimming Strategy

• Launch with high prices to capture early adopters and maximize initial revenue.
• Gradually lower prices to expand your market. This aligns with what Jason Fried was saying earlier.

Other Considerations for Early-Stage B2B?SaaS

1. Offer Extended Free Trials

• For complex products, consider 30 or even 60-day free trials to give potential customers time to see value
• This trial period could be set to the point you know they have their data in the system and have integrated into their processes thus becoming sticky

2. Implement a “Land and Expand” Strategy

• Price your entry-level tier attractively to get customers in the door.
• Focus on upselling and cross-selling additional features or seats over time.
• Some additional features can be easy to implement. You might be able to upsell clients with out-of-the-box features from software tools you’re already using (e.g., SSO, Audit Trails).

3. Use Promotional Pricing

• Offer time-limited discounts or special packages to create urgency and boost initial sign-ups.

4. Leverage Early Adopter Discounts

• Offer significant discounts to early customers in exchange for feedback and case studies. These case studies can be used as leverage for more customers or for investors.?

5. Implement Usage Limits Instead of Feature Limits

• Rather than restricting features in lower tiers, consider limiting usage (e.g., number of projects, API calls).

6. Offer a “Concierge” Onboarding Package

• Charge a premium for high-touch onboarding to help customers get maximum value quickly.

7. Create an “Unlimited” Enterprise Tier

• Even if rarely purchased, this can make your other tiers seem more reasonable by comparison.

Pricing Page Best Practices

1. Highlight Your Most Popular Plan

• This helps guide undecided customers and can influence plan selection.

2. Use Round Numbers

• Prices like $99 can feel less trustworthy than $100 in a B2B context.

3. Clearly Articulate Your Value Proposition

• Don’t just list features; explain how they benefit the customer.

4. Include a FAQ Section

• Address common pricing questions to reduce friction in the buying process.

5. Offer a Plan Comparison Table

• Make it easy for potential customers to compare features across different tiers.

6. Provide Multiple Contact Options

• Include a chatbot, contact form, and phone number for prospects with questions.

Metrics to?Track

1. Average Revenue Per User (ARPU)

• Track this over time to ensure your pricing changes are having the desired effect.

2. Customer Acquisition Cost (CAC) Payback Period

• Aim to recover your CAC within 12 months for a healthy SaaS model.

3. Expansion Revenue

• Monitor how effectively you’re growing revenue from existing customers.

4. Price Sensitivity

• Regularly survey customers about their willingness to pay at different price points.

5. Feature Usage

• Track which features are most used to inform your packaging and pricing tiers.

At the end of the day, there are a hundred ways to slice and dice pricing strategies.?

But ultimately, pricing boils down to two things: how the market perceives your value and how you capture that value.?

You can do a lot to maximize the perception of value in the market.?

However, for long-term retention, you need to focus on what makes your product sticky and what ongoing value you can deliver to keep customers with you.

Remember, pricing doesn’t necessarily need to be your primary innovation focus.?

It should be something that makes sense for your product and situation, evolving as you grow with your customers. The key is to stay flexible and responsive to both market demands and your customers’ needs.

In the end, the best pricing strategy is one that aligns with your product’s value, supports your business goals, and resonates with your target market.?

As you navigate the complexities of pricing, keep experimenting, listening to your customers, and adjusting your approach.?

Your pricing, like your product, should be something that changes with your business.

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Thanks for reading,

Daivik Goel