Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Don't Blindly Model Your SaaS Pricing on 37signals

ginzametrics.com

Post reply on HN
Print view View original

11–20 of 65 posts

Re: Don't Blindly Model Your SaaS Pricing on 37signals

#11

Post by facorreia »

jcampbell1 wrote: post #5

The discussion around annual pricing seems misguided. You should charge customers in whatever method they prefer to pay. For some customers, putting $400/month on a card is much easier to deal with than a $4800 check. The oposite is true in other organizations. Requiring pre-payment for software and using customers to fund working capital to pay sales associates seems myopic. Get the working capital from somewhere el…

His math is completely skewed. 22 sales a month of a service that charges $200/month will generate $343,200 a year (unless he's assuming 100% churn rate).

Re: Don't Blindly Model Your SaaS Pricing on 37signals

#12

Post by rgrieselhuber »

facorreia wrote: post #11
jcampbell1 wrote: post #5

The discussion around annual pricing seems misguided. You should charge customers in whatever method they prefer to pay. For some customers, putting $400/month on a card is much easier to deal with than a $4800 check. The oposite is true in other organizations. Requiring pre-payment for software and using customers to fund working capital to pay sales associates seems myopic. Get the working capital from somewhere el…

His math is completely skewed. 22 sales a month of a service that charges $200/month will generate $343,200 a year (unless he's assuming 100% churn rate).

Good point! I was talking about startup costs for the first few months of hire as the rep ramps but didn't make that clear at all. I'll update soon.

Edit: Updated now.

Re: Don't Blindly Model Your SaaS Pricing on 37signals

#13

Post by jwblackwell »

I think the OP makes some very important points here. There's definitely a somewhat fixed mentality when it comes to SaaS pricing and it's easy to fall into the trap that you should be charging something akin to 37signals.

Pricing isn't actually something that's as easy to change as you'd believe either. It has huge implications on your actual product, your target market and sales strategy - as the OP points out.

Imagine you were suddenly told you had to charge 10x more for your product. You might initially think it would kill you but think about what that would change. Would it necessarily be a bad thing?

If you're anything like me, it's easy to assume everyone lives in a world where $10 for Spotify is a pretty big deal. My friends moan about that price for unlimited music. $200 a month seems huge to me for anything I'd buy. It's only recently I've fully started to appreciate just how much money enterprise clients willing drop on "simple" products that meet their needs.

I really think there is a lack of good advice on pricing and how alternative pricing strategies could be used to open up new markets for SaaS type businesses. Sure, you may need a slightly "less scalable" sales strategy but with increasing competition in the web-app marketplace, moving to a different customer base with more cash may well be worth a few sales phone calls.

Re: Don't Blindly Model Your SaaS Pricing on 37signals

#14

Post by maximegarcia »

facorreia wrote: post #11
jcampbell1 wrote: post #5

The discussion around annual pricing seems misguided. You should charge customers in whatever method they prefer to pay. For some customers, putting $400/month on a card is much easier to deal with than a $4800 check. The oposite is true in other organizations. Requiring pre-payment for software and using customers to fund working capital to pay sales associates seems myopic. Get the working capital from somewhere el…

His math is completely skewed. 22 sales a month of a service that charges $200/month will generate $343,200 a year (unless he's assuming 100% churn rate).

At the end of the year, yeah. But at the end of the first month, in order to be able to pay your salesman, he must have done 22 sales. By charging yearly, only 2 sales are needed. That's cash flow.

So yeah, if he does his 22 sales / month, at the end of the first month, you're even, and starting from month #2, you're making money.

Combine this with "It's easier to sell one time a $1000 product than 1000 times a $1 one" and you get the main idea.

Re: Don't Blindly Model Your SaaS Pricing on 37signals

#15

Post by jwblackwell »

GavinB wrote: post #9

If you want to sell services to large companies--even low cost ones--you need to offer invoice payment. At a big company, the corporate credit card is for meals and travel, not for paying vendors.

Another great point. There's so much obsession with billing credit cards I've never seen this mentioned in any pricing blog.

Re: Don't Blindly Model Your SaaS Pricing on 37signals

#16

Post by tlogan »

adestefan wrote: post #10
GavinB wrote: post #9

If you want to sell services to large companies--even low cost ones--you need to offer invoice payment. At a big company, the corporate credit card is for meals and travel, not for paying vendors.

This is true even for medium sized companies.

And for schools or any other organization.

Re: Don't Blindly Model Your SaaS Pricing on 37signals

#18

Post by dangrossman »

Thanks for the post, it was the push I needed to get off my butt and run a pricing test, if only a weak one. I've been told I'm charging too little, and I've been told I'm charging too much.

Just to see if I'm leaving money on the table (and hurting my ability to grow by undercharging), I made the one-line CSS tweak to hide the cheapest pricing plan on http://www.improvely.com/pricing

If that doesn't hurt signup rates, I'll have this post to thank for it. If it does, it's easily undone.

Re: Don't Blindly Model Your SaaS Pricing on 37signals

#19

Post by rgrieselhuber »

dangrossman wrote: post #18

Thanks for the post, it was the push I needed to get off my butt and run a pricing test, if only a weak one. I've been told I'm charging too little, and I've been told I'm charging too much. Just to see if I'm leaving money on the table (and hurting my ability to grow by undercharging), I made the one-line CSS tweak to hide the cheapest pricing plan on http://www.improvely.com/pricing If that doesn't hurt signup rate…

Glad to hear it was helpful. Improvely looks fantastic, btw. I love the UI.

http://www.improvely.com/demo

Re: Don't Blindly Model Your SaaS Pricing on 37signals

#20

Post by charleshaanel »

"Once you get a lead, if it takes even a single phone call to close them, you’re no longer doing self-service and Customer Acquisition Costs vs. Self-Service pricing is going to kill you. If you’re not doing that phone call and you’re also not closing those deals, you need to figure out of if you can solve the problem through conversion optimization or if you really do need to be speaking with customers in order to close them. "

Wow, can you bold this? Touchless sale/conversion = win.

David Skok talks about it brilliantly and has an eagle eye on these metrics when evaluating his SaaS investments - http://www.forentrepreneurs.com/business-models/the-touchles...

No one really talks about backing into pricing based on LTV/CAC ratio (affected by for example measurable inbound marketing or cpc/cpm costs).

Pay back period (ideally CAC http://www.forentrepreneurs.com/saas-metrics/

Post reply on HN