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The top pricing mistakes for SaaS startups, and how to avoid them: Part II

Our last post covered the most obvious inputs into Saas pricing, like focusing on understanding who your customer is, listeni...

Our last post covered the most obvious inputs into Saas pricing, like focusing on understanding who your customer is, listening to what customers have to say, and treating the price discovery process as an ever-changing one. But there are other, less obvious inputs into what constitutes the price of a SaaS product, and they have to do with the product itself.

In terms of functionality, what is or isn’t in your product can have a large impact on what the market is willing to pay for it. Knowing what your paying customers are actually doing with it can help as well. Read on to learn key product-related mistakes to avoid when setting your SaaS price.

DON’T take too much stock in feedback from beta testers. Sure, there’s plenty to learn from beta testing. Beta testers can help you find bugs, work out the kinks of a particularly clunky process, and more. However, beta testers are not customers yet. They aren’t paying for your product, so they’re not fully invested in making it successful for their business purposes.

DO heavily weight feedback from paying customers. Once you get a group of customers who are paying for your product and using it regularly, the focus should switch from beta testers to paying customers. Paying customers apply a different lens to your product, as they’ve already made the decision that what you offer is worth paying for. They can easily tell you what the minimum features and functionality are for their specific case, give you specific working examples or use cases, and rank features in order of importance.

DON’T look for ways to limit product usage. You’ve probably noticed that many SaaS products are priced in such a way that limits usage. This can be based on a number of licenses (only a set number of users can log in), volume of transactions (emails sent, visits per month), or even amount of gigabyte storage. While these limits are a fit for some SaaS products, there’s a different way to think about product usage: penetration into your customer’s business.

DO find ways drive your product deeper into your customer’s business. Instead of thinking about artificial limits on customer usage, hone in on how your product adds value to your customer’s business. That could mean taking an online capture tool normally dedicated to your customer’s marketing team and selling it to other departments, like human resources for employee outreach. That way you can charge per department you add, increasing the customer’s ROI and your company’s revenue in tandem. If we think of your product as an octopus, you can brainstorm ways to “sink your tentacles” in wherever it adds value.

DON’T create pricing that is completely unrelated to product usage. How many times have you looked at a SaaS pricing page to find pricing that doesn’t make sense? We see the same 3 words thrown around over and over: basic, pro, and enterprise. Sometimes these words are accompanied by a list of features - pretty helpful information to have. More often than not, they are accompanied by one or two sentences that give the prospective customer zero insight into the difference between the tiers, other than price.

DO learn enough about product usage to determine use cases. Going back to our first point: once you start capturing activity and usage patterns of paying customers, use this data to segment your customers into viable use cases. The use cases themselves can determine your pricing levels. And don’t feel the need to get so specific - pricing tiers can relate to what stage of life a business is in, or how much time and money they are ready to invest in a particular technology. Take a look at these awesome SaaS pricing examples to get the creative juices flowing.

Setting SaaS pricing is a complex process with many inputs. Your product is just as important to the process as your customers are to setting the price. Your best bet for success is to combine your knowledge of your customer with their product usage today and any requests for the future state.

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