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SaaS Pricing
Public • 512 • Free
9 contributions to SaaS Pricing
Nov 4 in
The role of packaging when using a credit based price model
For those of you with experience using credit based price models, I'm curious what you're perspective is on how packaging fits into the broader monetization strategy. I ask because if you're using a credit based price model, you presumably have a lot of flexibility with monetizing the usage of various areas of your solution. In that world, limiting access to features through packaging doesn't seem like it really has a place. I'd much rather focus on giving my customers access to all the features they need and encouraging adoption/usage to drive up credit consumption. Am I thinking about this correctly? Thanks! Steve
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New comment Nov 21
1 like • Nov 15
My thoughts: - Purely credit-based models have high volatility, and as a consequence unpredictable recurring revenue. - We generally recommend implementing monthly plans with tiers of credits (pay 49$ monthly for a 100 or 99$ for 250, etc.), to bridge the gap between seasonal usage of a service and stable MRR - You want more than one form of value capture. Credits are fuel. The more fuel a client buys, the higher discount they expect per unit of fuel. As a client scales usage (and value they obtain from your service), you will get less and less value from them. - Users with high usage of a service have a larger likelihood to be sophisticated, and benefit from advanced features that are not relevant to the average customer. By giving everything to everyone you are failing to monetize value from your largest customers, who are likely to have the biggest budgets. Hope this helps!
Nov 15 in
What are your communication best practices?
You've designed and tested the new pricing, the client has given the green light, you have aligned on a roll-out plan, and the last step is communicating the change to customers. Our go to recommendation was sending out an email a month in advance to each customer affected (the February cohort would get this in January): 1. Clearly state in the email title that the pricing is going to change 2. Inform the client of the value you are providing (as framing of the value was likely to change during the pricing project) 3. Inform o the new price (and possibly new plan) and when it will change 4. If applicable, inform about a loyalty discount 5. Explain what is the reason of the change (adding more value to customers is an evergreen) How do you approach it? Is there something missing here? Do you think there is a need to send additional communication? Personally I think that there is no upside to a price-hike forewarning, as the only action we incentivize for the client is reviewing alternative solutions... But I might be completely wrong, so please share your experiences!
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New comment Nov 15
Oct 24 in
How to price AI in SaaS
I'm writing a guest chapter on AI pricing for another authors upcoming book. So I'm thinking about this a lot lately, and wanted to give you a sneak-preview of a linkedin post that will come out later next week. - I've done maybe 10 pricing projects involving significant AI functionality this year. Here is how I think about it. AI should be considered a 2-layer stack: 1️⃣ The AI compute 'fuel' (i.e. token pricing at OpenAI) 2️⃣ The AI solution (i.e. the value you add on top of AI) The dilemma with AI pricing is that currently: ◾ Fuel is expensive - at least way more so than traditional SaaS. ◾ Solutions are immature and early stage, not yet adding a lot of value. So any AI pricing model needs to both work today AND tomorrow. AI PRICING TODAY: 🔹 Charges usage-based on fuel consumption to ensure costs are covered, as usage patterns of customers is often unpredictable. 🔹 Is mostly focused on low barriers to entry to get users onboarded in order to develop the solution layer and get data on behaviour and cost patterns. 👉 This is unsustainable as fuel costs will drop and 2025 customer will refuse to pay a price-per-token (or token equivalent) that is based on 2024 token costs. This is especially true for enterprise. AI PRICING TOMORROW: 🔹 Charges based on the outcome created by the solution layer and just factors in fuel costs in the use case. 🔹 Protects against cost-downside of over-usage with 'fair usage limits'. HOW I SOLVE FOR THE TODAY-TOMORROW PROBLEM IN AI PRICING 🔸 Focus on speed: just get usage and adoption as fast as possible. You likely have a core non-AI product that monetizes just fine. Consider AI a 'development budget' and focus on profitability later. 🔸 Tell customers you are BOTH charging for fuel and for a solution outcome. Educate them. But keep it 90% fuel and 10% solution early on. 🔸 Over time: shift $$ from fuel to solution pricing. Cut Fuel pricing aggressively, even anticipating future cost reductions. Consider solution pricing separately and from a value perspective.
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New comment Oct 26
3 likes • Oct 24
Fully agreed with enabling AI usage early on to gain data. To price for the future the AI has to be an integral part of the solution. It seems that many AI functionalities are slap-ons equivalent of copying and pasting a chatGPT response. To be able to charge for the future, the AI has to do something that would otherwise be too difficult or even impossible to do. We had two start-up cases with LLMs at the core of the value proposition: 1. E-commerce solution - the AI assistant had a major impact on key KPI's , but only a low % of site visitors were using it. We used this to create a future benchmark - with each iteration of the product the % of users will increase, leading to higher profitability. We set the price so the expected (benchmark-based) ROI was at 10x with 1% adoption. By jumping in early the client could secure their price for the next 2 years and impact the development of the tool. 2. Indsutry-specific AI assistant - the founders created an LLM that is able to become an expert in a niche topic and generate answers tailored to a specific case. This allows a degree of information synthesis that would be otherwise difficult to achieve. By understanding the impact on the user and the business, we benchmarked the price of a typical ICP project and found a price-point that is hard to say no to, which vastly exceeds fuel costs.
Oct 6 in
Intellectual Property ownership for SaaS Startups?
Hi Everyone I wonder if you have experiences or opinions about the importance (or not) of having copyrights or patents (or alike) finding funding for a B2B SaaS startup. I understand it is "better", but is it a necessity? Or.... it depends. My case is scaling something that is working. The application enables pricing/selling more value based in traditional industries, extremely fast, tested/used in Field Service. Scaling means getting people on-board (further development, marketing/sales), and financing. If very valid, any sources where I can learn more about Intellectual Property? Should this be one of my top priorities? Is there any other alternatives? With a Smile, JJ
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New comment Oct 7
3 likes • Oct 7
From my experience as a cofounder of a non-tech start-up, where we developed and patented an innovation for the construction industry this is my take: - Before you gain traction no one is willing to take the risk and copy something that is not yet proven to be commercially successful - When you have some success, it is more likely that you will be acquired by a bigger company (cheaper than repeating mistakes), if there is a good fit (your invention enhances their value proposition) - If you become very successful, a patent will not help because there is more than one way to create tech that does X, and you need to be different only by 20% to bypass patent laws Anyway, good luck!
Sep 30 in
Teardown request | Flowscape
https://flowscapesolutions.com/price I'm in the board of the company and we are re-considering our build. We are facing a specific obstacle where we with the soft and hardware solutions, especially by the usage of our analytics product allow customers to save money by actually understanding their office usage. The problems is that this practically contracts our contract as its less office, rooms Etc. Large Enterprise. Often public tenders. Hardware and software. Any tips?
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New comment Oct 5
3 likes • Oct 1
Hey Viktor, I think this is a very interesting case. Based on the information you provided and what I've found on the page here is my diagnosis: Issue: Misaligned incentives. The more value you bring, the less money you get. Probable cause: Basing your metric on hardware. Each desk needs hardware, so by default it became your metric for software. Possible solution: You provide value in two ways: - By increasing employees productivity (increasing deep-work time by minimizing the chance of distraction, decreasing time needed for conference room management etc.). By quantifying the average effect you provide you could create a metric based on that productivity increase (times number of employees). Therefore, the more employees, and the higher the productivity increase the more you earn. Incentives aligned. - By optimizing the amount of space needed for a set number of employees. The caveat here is that this is more akin to a non-recurring consulting project than constantly provided value. Therefore a potential solution would be a success fee of 10% of the yearly cost of freed office space. Could be either a one-off payment or a 12-month installment. Incentives aligned. What is left is the issue of hardware that is no longer needed - I suppose an exit fee based on freed up desks would be highly rated on all 3 key metrics; value (decision makers will want to free up office space), fairness (you need to refurbish your devices) and density (each piece of equipment = one desk / room / floor). Hope this perspective helps!
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