Don't Blindly Model Your SaaS Pricing on 37signals
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Don't Blindly Model Your SaaS Pricing on 37signals
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Re: Don't Blindly Model Your SaaS Pricing on 37signals
#2Hopefully this is useful. I've seen very little discussion on pricing models for SaaS in the startup community.
Re: Don't Blindly Model Your SaaS Pricing on 37signals
#3Hopefully this is useful. I've seen very little discussion on pricing models for SaaS in the startup community.
I would have liked it better if you had actually talked a bit about business. A lot of people who hang out here are engineers / developers who don't get a lot of exposure to that side of things.
Start by explaining a business 'model' which goes like this:
Revenue - Cost-to-deliver = Gross Margin
Gross-Margin - All-other-costs = Net Margin
A business "model" takes the Gross Revenue, and then fractionally allocates it to those other expenses. Maybe 20% of the GM is engineering, 10% is is marketing, 10% is sales commissions, 5% is facilities, 3% is swag/giveaways, maybe 10% goes into a bonus pool that you divvy up among your best performers. The remainder is 'net revenue' or 'free cash flow'.
If you're a C-level executive and you don't know what every single number on your tax return means, you're running the risk of having a problem staring you in the face that you never "see". If you're an engineer and you see a bunch of patched together spaghetti code that is poorly documented you "see" that there is a huge amount of technical debt that is going to have to be paid before you can move on to V2.0 or what not. If you're looking at your taxes and you see that you're depreciation costs are of the same magnitude as your revenue you need to be able to "see" that a cliff is coming when you're going to need new gear and you'll have no money to buy it.
The biggest challenge of "pricing" is that sometimes you realize that you can't sell your product for what it is going to cost you to produce it. You have a choice, either innovate around the costs to make it, or put on a really good show and try to sell it to someone before the truth is out. Hard place to be but knowing your costs will inform you on whether or not your pricing makes sense. The 'best' situation is when you can sell it and your costs scale fractionally with users. That is a very good business to be in.
Re: Don't Blindly Model Your SaaS Pricing on 37signals
#4Hopefully this is useful. I've seen very little discussion on pricing models for SaaS in the startup community.
I would have liked it better if you had actually talked a bit about business. A lot of people who hang out here are engineers / developers who don't get a lot of exposure to that side of things. Start by explaining a business 'model' which goes like this: Revenue - Cost-to-deliver = Gross Margin Gross-Margin - All-other-costs = Net Margin Its a sad bean countery topic, but really its not that hard to see that if your…
I did make some assumptions about people understanding the core parts of any viable business model but the way you explained it here adds some great points.
As you mention, it's hard to know what your costs are going to be when you're just starting out so it's really important to be flexible enough to change your pricing / value prop to your customers as you grow in order to cover your costs and provide room for further growth.
Re: Don't Blindly Model Your SaaS Pricing on 37signals
#5The 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 else and do whatever is best for revenue.
Re: Don't Blindly Model Your SaaS Pricing on 37signals
#6The 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…
Very few companies are going to turn down revenue, regardless of the shape it takes, so if customers are unwilling to pre-pay for a year, it's easy to figure out a way to make it work.
That being said, the startups we've spoken with who have switched to annual pricing are able to get paid in advance 60-70% of the time. This helps a lot.
Some companies prefer this as well as it can reduce their own AP and record-keeping burden.
Re: Don't Blindly Model Your SaaS Pricing on 37signals
#7Earlier quoted context omitted.
I would have liked it better if you had actually talked a bit about business. A lot of people who hang out here are engineers / developers who don't get a lot of exposure to that side of things. Start by explaining a business 'model' which goes like this: Revenue - Cost-to-deliver = Gross Margin Gross-Margin - All-other-costs = Net Margin Its a sad bean countery topic, but really its not that hard to see that if your…
I did make some assumptions about people understanding the core parts of any viable business model but the way you explained it here adds some great points. As you mention, it's hard to know what your costs are going to be when you're just starting out so it's really important to be flexible enough to change your pricing / value prop to your customers as you grow in order to cover your costs and provide room for furt…
What is transactional? And how is it different from enterprise?
Re: Don't Blindly Model Your SaaS Pricing on 37signals
#8Earlier quoted context omitted.
I did make some assumptions about people understanding the core parts of any viable business model but the way you explained it here adds some great points. As you mention, it's hard to know what your costs are going to be when you're just starting out so it's really important to be flexible enough to change your pricing / value prop to your customers as you grow in order to cover your costs and provide room for furt…
What is transactional? And how is it different from enterprise?
That's explained really well in this ebook:
http://chaotic-flow.com/saas-sales-model-and-organization-st...
But, briefly, the transactional model is one in which you require some customer communication in order to close the deal and is typically closed via inside sales reps. Enterprise deals are larger, cost more and typically require on the ground reps and a lot more customer facetime in order to close deals.
Re: Don't Blindly Model Your SaaS Pricing on 37signals
#9If 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.
Re: Don't Blindly Model Your SaaS Pricing on 37signals
#10If 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.