7 ways to price SaaS and Web Apps

With Web 2.0 Ad funded sites going out of fashion subscription based services are on the rise. Setting the right pricing for your SaaS and Web App service is a difficult decision. It is also a critical choice. Get it wrong with high prices and you could be losing out on sales. Running with very low prices may result in too many low profit customers.  The secret is in knowing your customers and competition.

Life of Brian Huggling
“Haggle properly!” (Life of Brian)

The seven ways to price SaaS and Web Apps:

  1. Cost Plus – Conventional wisdom says price on variable sales costs. However this is more of a resell/retail approach. Operational costs per  additional SaaS/Web app customer tends to be very low. It’s the customer acquisition and developing new features that requires the high investments.
  2. Match the Competition – Don’t worry about the costs. Price the service the same as your competitors and move their customers across to your service.  Unfortunately this strategy offers limited differentiation and thus customers won’t move. If you don’t have any competitors check that there is a market in the gap.
  3. Undercut the Competition – Start a price war and storm the market! This may grab the attention of some budget conscious customers. Unfortunately if it does work the impact does not last long.  This strategy also leaves less money for acquiring new customers and future product developments.
  4. Price Higher than Competitors – If your service is very similar to your direct competitors charge slightly more than them. Then focus on being a quality service. However you’ll have do something much better than your competitor. Find a feature or service level that the customer really values and your competitor is weak at.
  5. Differentiate – Build a very different feature set and charge much more than your competitors. The challenge is you’ve got to have an outstanding service that fits a need. Your business message also needs to be very strong to justify the higher price.
  6. Hide Your Prices – Many modern SaaS services such as  TactileCRM and Freshbooks, etc publish all their prices. Some, like  Echosign, have a salesforce to sell the service. Others let the service sell itself. If you don’t publish your pricing your salespeople can upsell  the service levels when the customer comes calling. Pricing is often hidden this way in the corporate world of software.
  7. Segment – Offer several service level to suite different customer types. Huddle and DNS Made Easy offer and range of service levels for small businesses and corporate customers. The pricing on these service levels varies a great deal.

Like I said it’s not easy. A mixture of the above pricing strategies may be the  answer. A lot of the decision relies on knowing the market well i.e. the customers and the competitors. Choose a price strategy early on, test the market, and be flexible. A word of warning: it’s much easier to decrease prices than to increase them. Good luck!

Advertisements

Tags: , , , , ,

3 Responses to “7 ways to price SaaS and Web Apps”

  1. Learning from big & small startups successes « Nickpoint Says:

    […] success and improve on what they do or how they work. This could be their messaging, channel, pricing, etc. If the market is growing fast and big enough you could even simply copy them and share the […]

  2. Nick Barker Says:

    Found an interesting quote from Josh S. Weston: “We will never try to develop a strategy that wins on price. There is nothing unique about pricing.”

  3. Saasmanario – Semana 32/2009 | Saasmania Says:

    […] Estrategias de precio en aplicaciones saas y web.- Consejos para el establecimiento del precios de tus servicios saas. Discutibles alguna de ellas. […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: