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Doubling SaaS Revenue By Changing The Pricing Model

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Re: Doubling SaaS Revenue By Changing The Pricing Model

#41

Post by simonbrown »

patio11 wrote: post #7
salman89 wrote: post #3

I always wondered how volatile your pricing scheme can be. Suppose you wanted to A/B test a pricing scheme - is there any potential impact/backlash from customers? And when a company changes their pricing scheme, what happens to customers who were paying a former price/scheme?

And when a company changes their pricing scheme, what happens to customers who were paying a former price/scheme? Best practice -- and I'm shamelessly stealing this lesson from Joel Spolsky -- is to grandfather SaaS accounts in indefinitely if you raise prices. This a) lets you get a nice bump in sales if you announce the incoming price increase (no reason you can't do the A/B test quietly but announce the conclusion…

This post compares that strategy with giving customers discounts (and the former wins): http://blog.asmartbear.com/discount-gambit.html

Re: Doubling SaaS Revenue By Changing The Pricing Model

#42

Post by simonbrown »

dmytton wrote: post #4
salman89 wrote: post #3

I always wondered how volatile your pricing scheme can be. Suppose you wanted to A/B test a pricing scheme - is there any potential impact/backlash from customers? And when a company changes their pricing scheme, what happens to customers who were paying a former price/scheme?

We had a few people pick up on this test (colleagues browsing on different machines) and they understood when we explained we were running a test. I think so long as you don't try and cover it up and offer those who discover the choice between the new/old pricing, it shouldn't cause any problems.

zcvosdfdgj (hellbanned) posted:

that's just because you aren't big enough. Amazon has been caught testing prices previously, and there were a lot of upset people. Noticing the test isn't what caused the outrage.. wait until you have thousands of people who find out they paid more than another person for the same item (ie in their minds: were ripped off). Then you'll see how consumers feel about your test.

Re: Doubling SaaS Revenue By Changing The Pricing Model

#43

Post by Silhouette »

Retric wrote: post #36
ricardobeat wrote: post #35

> The minimum buy-in for the service is now $99 a month, which should scare away the idiots And bootstrapped startups, etc. This isn't just a pricing change but a market repositioning?

99$ a month is reasonable for bootstrapped company's. It's not reasonable for most hobby's, but 50$/month or 100$ / month are both rather high for a hobby website so there is little real loss.

99$ a month is reasonable for bootstrapped company's.

I think HN has been collectively in denial on this kind of point lately. Yes, services offering real value should charge commensurate with that value. Yes, it's lovely if you're Patrick or Thomas and in B2B world where you can whack up your prices and hope whoever is paying the bill isn't spending their own money.

Newsflash: If you're dealing with a bootstrapped business, it might well be that the person paying the bill is spending their own money.

Newsflash #2: There are dozens of companies pitching useful-but-not-that-useful tools and services to these bootstrapped businesses. If you spend $100/month on this one, and $300 over there, and $150 on the next one, and ten more after that, and then you multiply it by 12... Well, before long you're spending on the same kind of level that it takes to hire some office help or to run a long-term marketing campaign with a significant level of funding or for that matter to hire in a guy who knows what he's doing for a few days to build your own customised versions of a lot of these services.

In short, if you think the ability to monitor a couple of production servers is worth $1,000+/year to a bootstrapped company, you're crazy. Yes, it's a convenience, but you're talking about a service that could be built using a couple of widely available building blocks with a tiny fraction of the running costs, and frankly to a business at that stage in its development it is highly unlikely that a server falling over until the morning is going to cause any real long-term damage anyway.

When you're dealing with relatively time-rich and cash-poor early stage businesses (OK, time-poor as well because they're trying to build the business, but that's not really the point here) you can't just dismiss the cumulative effect of all these SaaS gadgets. They add up, and if you want to know why so many small businesses fail, I expect not controlling costs is probably somewhere around #2 or #3 on the list.

Does that mean bootstrapped companies are bad customers for these kinds of services? Sure, maybe it does. If there isn't enough in it for both sides to make it a deal worth doing, it's not time to do the deal yet.

Re: Doubling SaaS Revenue By Changing The Pricing Model

#44

Post by Silhouette »

147 wrote: post #37
patio11 wrote: post #2

Happy to answer questions to the extent that I can. Speaking of which: if it isn't transparently obvious by now, I really, really like getting feedback about how my advice worked out. If you ever implement a suggestion from me (particularly with an A/B test), please, drop me an email. Even if the result was "Well, that was sure an epic failure", because negative confirmation is useful, too. (If you want to share resu…

What about pricing a B2C SaaS? It seems to me that all of the advice I've found leans towards pricing B2C and charging a lot more money. Will applying the same techniques work for B2C where customers will be more stingy with their money?

Will applying the same techniques work for B2C where customers will be more stingy with their money?

Which techniques?

Market segmentation and pricing by features? Sure, absolutely. Some people value a certain service more than other people depending on their circumstances, just as some businesses do.

Doubling/trebling your prices overnight and hoping you'll get a similar number of customers all paying several times as much? ROFLOLWAT. These customers are spending their own money, and not only will many of them take their business elsewhere if you try to charge insulting prices, they'll tell all their friends that your service is a rip-off, too.

Obviously it's not really as simple as that. For example, a lot of businesses pitch their prices far lower than market value would support at first. In those cases, increasing the prices to something higher but still reasonable is fine and often quite lucrative.

But you're absolutely right that advice that holds for B2B environments doesn't necessarily work the same way in a B2C context. The starting point and assumptions simply aren't the same.

Re: Doubling SaaS Revenue By Changing The Pricing Model

#45

Post by staunch »

patio11 wrote: post #30
casca wrote: post #28

Earlier quoted context omitted.

The reason that Colin can get away with the picodollar model is that the type of people who use tarsnap would get annoyed if they were charged for 1gb if they were using 100mb. _For those customers_, there is a clear correlation between the price being charged and the value provided.

If Colin is attracting people for whom the difference between $0.03 and $0.30 is meaningful, then Colin is attracting people that do not deserve to do business with Colin. Colin was involved in security with BSD, and made a no-BS almost bulletproof encrypted backup solution on top of untrusted hardware, and has created something of actual value . Anyone whose data is worth less than, oh, call it $100 a month (at the…

I know it's rather unlikely and presumptuous, but I'd love to see you and Colin team up. You guys would be a killer duo.

Re: Doubling SaaS Revenue By Changing The Pricing Model

#46

Post by Retric »

Silhouette wrote: post #43
Retric wrote: post #36

Earlier quoted context omitted.

99$ a month is reasonable for bootstrapped company's. It's not reasonable for most hobby's, but 50$/month or 100$ / month are both rather high for a hobby website so there is little real loss.

99$ a month is reasonable for bootstrapped company's. I think HN has been collectively in denial on this kind of point lately. Yes, services offering real value should charge commensurate with that value. Yes, it's lovely if you're Patrick or Thomas and in B2B world where you can whack up your prices and hope whoever is paying the bill isn't spending their own money. Newsflash: If you're dealing with a bootstrapped b…

With bootstrapping it's not just a question of write and maintain something myself or use a 3rd party. There is also the option to use something until you write it yourself. Month to month SAAS means you can add an expensive monitoring service temporarily while you work on other pieces, or diagnose a bug. You also get to play with complex features to decide which are useful and then build out those pieces. Think of it as a DEMO that you pay someone else to write and suddenly X$/month can look vary cheap.

Re: Doubling SaaS Revenue By Changing The Pricing Model

#47

Post by adrianhoward »

true_religion wrote: post #33

> The minimum buy-in for the service is now $99 a month, which should scare away the idiots. I'm scared, and as a potential customer I hate to be labeled an idiot. I'm very happy with New Relics system even though they're priced higher than you per server, they at least offer a price PER server instead of tiers.

I'm scared, and as a potential customer I hate to be labeled an idiot.

The idiots being scared away doesn't necessarily imply that everybody who is scared away is an idiot :-)

Yes - you will cut out some very nice people who would make lovely customers by segmenting like this. However if this ends up:

* getting more money using the new pricing model

* removing a large chunk of support costs by getting rid of the high-cost, low-value customers

.... as a business should I care?

Re: Doubling SaaS Revenue By Changing The Pricing Model

#48

Post by gav »

patio11 wrote: post #23
gav wrote: post #19

Earlier quoted context omitted.

If you are targeting non-technical people, I wonder what improvement the change from "∞ users" to "unlimited users" would be.

Non-technical is not a synonym for uneducated. Many of my non-technical customers have masters degrees, and substantially all passed high school math. The typical non-technical decisionmaker trying to buy server-monitoring software has a title like Purchasing Director or Team Lead and a four-year degree or better. (I'd also tend to avoid that A/B test because the pricing grid looks very clear in context.) There's a s…

That wasn't a dig at non-technical people, more so that I've always (and seen results) from being a clear as possible. It took me a couple of seconds between reading "infinity" and realizing what you meant.

Re: Doubling SaaS Revenue By Changing The Pricing Model

#49

Post by Silhouette »

Retric wrote: post #46
Silhouette wrote: post #43

Earlier quoted context omitted.

99$ a month is reasonable for bootstrapped company's. I think HN has been collectively in denial on this kind of point lately. Yes, services offering real value should charge commensurate with that value. Yes, it's lovely if you're Patrick or Thomas and in B2B world where you can whack up your prices and hope whoever is paying the bill isn't spending their own money. Newsflash: If you're dealing with a bootstrapped b…

With bootstrapping it's not just a question of write and maintain something myself or use a 3rd party. There is also the option to use something until you write it yourself. Month to month SAAS means you can add an expensive monitoring service temporarily while you work on other pieces, or diagnose a bug. You also get to play with complex features to decide which are useful and then build out those pieces. Think of i…

The thing is, every time you integrate with another one of these services, you are spending time, both learning about the service and implementing the integration. You may also be incurring some degree of lock-in, either due to direct technical constraints or because of the future costs in time and money of getting your systems unhooked and any relevant data out again.

These costs are on top of whatever you're paying for the service itself, so if you're only going to be using the service for a few months anyway, you might be better off spending the time just implementing something quick and dirty yourself until you have a chance to do it properly.

The key thing is that in bootstrapping terms, very few of these services are indispensable: if you're in that environment then you're probably looking for just enough infrastructure to make a viable product/service, just enough legal/financial advice not to screw up in the early days, and then throwing everything else you've got into marketing, R&D, and sales to try and reach a self-sustaining level of income as soon as possible.

There are decent arguments for integrating certain services early on. For example, analytics/optimisation tools and billing services that boost customer retention can easily have a direct, significant, sustained impact on your income that exceeds the initial investment very quickly. But hardly any of these trendy SaaS tools aimed at small businesses are in that category.

Re: Doubling SaaS Revenue By Changing The Pricing Model

#50

Post by Poiesis »

tptacek wrote: post #32
casca wrote: post #28

Earlier quoted context omitted.

The reason that Colin can get away with the picodollar model is that the type of people who use tarsnap would get annoyed if they were charged for 1gb if they were using 100mb. _For those customers_, there is a clear correlation between the price being charged and the value provided.

You've disastrously misunderstood what Colin is doing. Colin "gets away" with "picodollar pricing" because he is deliberately segmenting away most of his customer base. I am not entirely sure why he is doing that, but he has made a strategic decision in the short term to make less money in order to build his service up more slowly and, I presume, carefully. He exclusively wants the kind of customers who will not be a…

I can't help agreeing with Patrick here, but I'm not Colin so I can't really presume too much.

In any case I always thought that Colin could get out of the low price quicksand by launching an entirely rebranded service with updated pricing based on value to customer, etc. sure, keep the original guys around too. Throw in some perks on the "new" service that are attractive to enterprise customers. It's not every day you have a product of this quality and (potential) customers willing to pay so much.

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