Scaling your Pricing is Good Business

When you aspire to have newer, larger clients, have your fee aspirations gone with you? A common thread in many of my Slack channels is about pricing.

There are the SaaS people, the solopreneurs, the big corporate teams, product owners, resellers, eBay/Amazon dealers, and more.

Let's discuss the SaaS people.

There are so few unique products, and most SaaS apps have competitors, sometimes dozens or hundreds. Does price matter?

If you are B2C, there is always a price point to consider, which may be too high or too low relative to your product benefits. You are playing a numbers game, and the winning price might be 9.95, but it could also be 1.29.

Sheep pricing: no one wants to be the leader, just the follower. You say you are the leading app, but your actions don't correlate. Any change to your established pricing causes internal chaos.

It would help if you thrived on that chaos.

Do you increase your price annually? Most do, and $1 more a month may help your bottom line, but not as much as 2 or 5 would.

You can ask how we can get away with increasing our price by $5 a year.

My answer is twofold.

First, most people expect a change in fees on an annual contract basis in a large entity. Are they expecting $60 more per user a year? It may depend on where they started.

Often SaaS pricing is a 3-4 tier structure. Free/nominal, middle, high, "Enterprise" levels.

Enterprise level often gets into a Walmart-like pricing battle. The lowest amount for the most benefits. This is the worst thing you can do. I understand you want to sign Company X, but losing money on a contract like that will kill your company.

Enterprises require, and expect, top-level support, customization effort (this is also where big money can and should be made), and a neck to wring if something goes wrong.

By lowering your pricing to Walmart level, you cannot maintain the development staff or support staff needed for the contract. Don't forget you must also pay your salespeople commissions, executives, and managers.

What if you start at your highest tier instead of Walmart shoppers and move up instead of down? Salespeople have a hard time doing this. They would rather get a deal done, at whatever cost, than make the effort to sign the big contract.

Welcome to Enterprise Sales. The people in that space deserve their bonuses because getting that contract signed is a long process.

When you start at a higher level, you can increase by a higher level.

Can you do this perpetually? That depends on the legs of your app and the up-and-coming startups that now view you as a has-been. You may only have a 5-year window, or with the right product, you have a 30-year one like Microsoft Office and Outlook or HCL Notes and Domino.

What happens is your product will plateau, from a price perspective, if it has a long life because it reaches maturity and the value, while there, diminishes a little every day.

Preparing for that eventuality and starting your next application would be best.

But just like a sophomore effort from your favorite band or author, which usually is good but not as great as their first effort, you start treading water while you pivot to something new, again, because you didn't hit the geyser you thought you would.

Timing is everything.

Should you let customers know your prices changed? This is also a common thread in discussion rooms.

From a services arm, as most of us know, there is no pricing plan. There are additional or set fees, but much of it is just a toss at the client to see who blinks first.

In some cases, it is free for all, based on the whim of the salesperson, the head of services, or the customer.

I am not in favor of telling customers when pricing changes. It creates friction where there is no need to make any.

It also helps your cause if you announce pricing changes while reviewing all the functions you added to benefit the customers.

I am not talking about back-end changes that go unnoticed unless they significantly affect how users work with your product.

Annual buyers will not worry about a price increase, and once you have them for a year, they should stay with you for longer and be okay with the pricing changes.

A company with 100 people will see a price change of 10% as high, perhaps, but if it is a company-wide application, its value and replacement costs far exceed the price change.

A company with 1,000 employees feels that 60K($5pp/pm) and has enough revenue to not worry about it. Of course, it helps if your SaaS app is on the sales side of the company. This is why CRMs are popular but also replaced often.

Solopreneurs

Some started at the low end of pricing, while others started at the middle or high. How did they do this, and why is it not you?

Usually, people go out on their own after they get let go from their job, or they hate their boss but love their work and find someone who wants to hire them, and they go with whatever rate they can get.

This is a good starting point because you don't know what you don't know yet, and you need to learn.

When you acquire customer #2, this is where the fun begins. Do you use the same price as customer #1? For simplicity's sake, let's say the work required is similar.

My thinking is to increase your pricing for four reasons, among many others:

1)????? You have already done some of this work, so you should have some templates now and a better(easier) way to complete the tasks, so make up the money you probably lost doing the first contract.

2)????? Customer #2 has no idea about your rates for customer #1.

3)????? You will start to learn if you are pricing yourself in the best way.

4)????? Different industries have very different views on pricing.

If you increase your rate by 25% and customer #2 agrees, you probably still are undervalued.

If the customer argues about the price, you may have hit the ceiling for this work. Or you didn't sell your services very well. But be careful. A bank, for instance, has a different view of price than a manufacturing company. Learn the difference, and you will be much happier with your revenue stream.

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