
Pricing low-touch SaaS - davidw
https://stripe.com/atlas/guides/saas-pricing
======
tommikaikkonen
I did my MSc thesis on SaaS pricing pages. I'll share what I found, since I
think many people in this thread may find it useful.

I tested how Mechanical Turkers (N=~400) chose plans on pricing pages with
4-tiered subscriptions plans, for both a file sharing service and a payroll
software service. Each respondent was randomly assigned to one of 4
conditions, where the presented pricing page was slightly different. The
scenario was framed as choosing a SaaS plan for a company they're employed at.

The first variable I varied was plan order. Half the respondents saw a pricing
page with plans in increasing price order (cheapest first), the other half in
decreasing price order (most expensive first). There was a statistically
significant difference between the plan choices for these groups; respondents
in the most expensive plan first condition chose a more expensive plan. This
phenomenon has been seen before outside SaaS, and it's called the price order
effect.

Another variable I tested was exchanging the cheapest ($5) plan for a free
plan. Half the respondents saw a free plan, the other half a $5 plan. There
was no statistically significant difference in the plan choice for these
groups.

Getting familiar with previous literature, I would surface a couple of general
thoughts:

\- The most expensive plan first approach may give the visitor a more
expensive image of the product, a higher "reference price". If a prospective
customer is comparing two products from two different companies, they may
favor the one that seems cheaper (has a lower "reference price") even if the
offerings may provide similar value.

\- The hypothesized mechanism for the price order effect is that you don't
look at all the options as a whole, but you begin by assessing the first
option, which is the leftmost one for us reading left-to-right, and then judge
the next option by comparing it to the previous one, and so on. You compare
added (more features/less cost) and lost (less features/more cost) value.
Because we weigh losses heavier than benefits, there's an inertia toward the
initial options. Only options with benefits that greatly outweigh losses
combat that inertia. Hence respondents tended to choose plans more on the
left.

~~~
vsl
Fatal flaw: the turkers weren’t _invested_ , it was just a nonsense game for
them.

~~~
tommikaikkonen
Agreed. I think this kind of research can give ideas on what kind of
experiments to run on pricing pages, but there are so many factors affecting
real life plan choice that everyone should have their own A/B testing setup to
see what works for them specifically.

------
KeepTalking
Related advice given by Marc Andressen:

What do you recommend for pricing in SaaS before reaching product market fit?

Pricing is highly specific to the product and the market, so it is hard to
give general advice.

But if I were to give general advice, I’d say that we see far more SAAS
startups underpricing their product than overpricing.

The problem with overpricing seems obvious—we in our daily lives as consumers
are more likely to buy products if they are cheaper, and so pricing higher is
presumed to reduce sales.

But that’s not how business markets tend to work—in business markets, where
customers make what’s called a considered purchase, the result of a reasonably
objective and rigorous analysis of options, startups that underprice tend to
have the problem I call “too hungry to eat”—by pricing too low, they can’t
generate enough revenue per deal to justify the sales and marketing investment
required to get the deal at all. In contrast, by pricing higher, the startup
can afford to invest in a serious sales and marketing effort that will tend to
win a lot more details than a competitor selling a cut-rate product on a
shoestring go-to-market budget.

TLDR: When in doubt, double prices. :-)

~~~
sytse
Totally agree. At GitLab we doubled pricing and then introduced two tiers with
higher pricing. Or highest tier is 50x what we started with. Turns out it is
very expensive to market and sell to the enterprise. SDR, pre sales engineers,
technical account managers, and strategic account executives are all involved.

------
nathan_f77
Hey, that's me! (FormAPI: [https://formapi.io](https://formapi.io))

The screenshot in the article is actually the updated pricing, after I
followed advice from @patio11. Here's a screenshot of the original pricing:
[https://imgur.com/a/3JtUU](https://imgur.com/a/3JtUU)

That was definitely too many plans. I also really like the copy suggestions,
and have started using that in some AdWords campaigns: "Save weeks of
development work on PDF generation; fits easily in the budget for any
project."

Thanks a lot for the help!

~~~
duncanawoods
Given they are all usage tiered, why have plans at all?

You could just have one metered plan and show how usage gets cheaper the more
you use it.

~~~
nathan_f77
That’s a great question. I’ve been trying to decide if that’s the best way to
go. I’ve built a metered plan internally that has the following tiers:

• 0 - 100 PDFs: $0.20 per PDF

• 100 - 1,000 PDFs: $0.10 per PDF

• 1,000 - 10,000 PDFs: $0.05 per PDF

• 10,000 - 100,000 PDFs: $0.02 per PDF

• 100,000+ PDFs: $0.01 per PDF

I don’t like that the customer is invoiced at the end of the month, instead of
paying at the beginning. I was worried that someone would generate a lot of
PDFs, and then their card would be declined. I might have spent a lot of money
on hosting and wouldn’t be able to collect payment. For brand-new customers, I
could also collect payments at certain intervals (E.g. $50, $100, $500, $1000,
$5000.) After 2 months, I could trust them more and just have one charge at
the end of the month.

I could continue to have monthly plans with quotas, and add the pricing tiers
based on usage. If a customer knows that they will generate at least 100 PDFs
per month, then they could pay a discounted rate at the beginning of the
month, and save 30% on the first 100 PDFs.

I was also thinking that customers could buy “credit packages” at a discounted
rate. This would useful if they are running a one-time batch job, and wanted
to get a discount for the next 1,000 PDFs. The credits would also roll over to
the next month, and I don’t think I would set an expiry date. I paid for some
credits on KeyCDN, and it was really annoying when they expired after a year.

I’ll continue to think about this and A/B test different pricing over the
coming months.

------
encoderer
As always, great work from Patrick.

    
    
      An excellent question! Net on net, removing the CC required upfront decreases conversions in the early life of startup,
      until you’re sophisticated with regards to onboarding, in-app messaging, lifecycle email, and reachout by a customer
      success team. I would not suggest you remove the CC required from this free trial.
    

This was exactly our experience as a pretty unsophisticated team with
Cronitor. Our 3 month experience in 2015 with no-card-up-front free trials was
a total failure, dropping conversion and arpu in that cohort.

    
    
      Name pricing plans to sell them to the right users
    

This is something that does work well for us. For us that means Business,
Teams and Solo. We do a bit of feature packaging to add value and more or less
you get everything you need at your size by buying one of those 3 packages.

~~~
avip
I was very surprised by this one. I will never, ever, under any circumstances,
put my CC details in a form hosted on a domain I'm not 100% confident with
(s.a apple/amazon). I can't believe I'm an outlier on this one. Maybe it's
because I belong to the nowhere-dense set of developers?

~~~
agwa
But if it's not your credit card, it's your employer's, you've got a job to
do, and you know there's an accounting department whose job it is to make sure
the bank refunds the charges in the unlikely event there's any funny business?

Most people in that situation will not be deterred by having to enter a credit
card for a free trial. And those are the customers you want.

~~~
user5994461
Business don't get refunded when crazy things happen on their cards. That's
one of the major difference between being a consumer and a business. You have
zero protection as a business.

~~~
chasedehan
Sure about that? I use my business AMEX all the time and have contested at
least one time and there was no problem.

You always have recourse against fraudulent activities - the credit card
company will just reimburse

~~~
toomuchtodo
Consumer protection laws, such as the Credit CARD Act of 2009, don’t apply to
businesses.

~~~
brianwawok
Many small business cards are issued to the owner not the business.

Talking 3 man business, not 4000 person enterprise.

~~~
toomuchtodo
Definitely depends on the card. Make sure to read your cardholder agreement!

------
lettergram
I actually found just two options: monthly and annual provide the best
conversion.

I've done it across multiple websites, and combined with a half-decent call to
action and a quick signup (just 3 fields) you can convert pretty easily.

Personally, my website conversion is ~2% which is pretty good:

[https://projectpiglet.com/](https://projectpiglet.com/)

Prior, when I had two options the conversion rate was ~1.5%. Now the sample
size is only ~25k (12k for each) so take from it what you will...

~~~
trevyn
FYI, on iOS/Chrome, tapping the “start trial” button without filling in the
fields leads to a confusing Stripe error page.

~~~
lettergram
Thanks for the heads up!

------
yread
Great article! I have a question though: when you have a Call us tier, what do
you actually talk about when they do? I guess you need to judge value they
will get from your service, but how? And then what, charge them half of that?
What if they don't know what they want or whether they want on premise or not?
Should you travel to meet them? What if they want you to sign ndas or other
stuff first? How much effort to spend on it if it's just a request for quote?

~~~
mikeokner
Don't think of it as a call for a quote, think of it as an initial sales
contact. An unsolicited inbound phone inquiry is about the strongest possible
lead you can possibly get. The potential customer typically won't expect you
to provide a full quote on the spot, but will expect to have a brief
conversation and either a follow-up email with pricing details or a follow-up
formal sales/demo call scheduled.

In terms of pricing/value, you should already have estimates of value for
different customer sizes/use-cases and put together prices based on those
estimates. On the call, it's your job to learn as much as you can about their
problem so that you can determine how best to solve it with the products you
offer and where it falls on your pricing scale.

Don't do on-prem unless they pay you a boat-load more and SaaS isn't an option
they're willing to consider. It's way more of a headache.

NDAs are usually fine, but better to pay a lawyer a couple bucks to throw
together one for you and try and use that one all the time rather than having
to review a bunch of different ones coming from other companies.

Travel is case-by-case. Definitely not necessary for just a quote, and not
strictly necessary for sales if your video demos/sales calls are on point,
especially if your customers are tech-inclined.

------
hartator
> $X.99 pricing is not generally used in B2B or prosumer (professional
> consumers) services because it communicates cheapness; I’d suggest you drop
> the 0.99 accordingly here, for aesthetic reasons. (No series of A/B tests
> I’ve ever done generated as many strong opinions as whether it was better to
> price a product at $49, $49.99, or $50. Despite bikeshedding this to death
> at several clients, I’ve yet to see it really matter, so aesthetics win the
> day. If your data says differently, trust the data.)

Interesting, I would have said $X.87 is still the best strategy when talking
pricing/extracting value, even for B2B.

~~~
winslow
Why $X.87 ?

I've seen $X.99 versus the $X but never $X.87

~~~
alexeldeib
Hazard a guess: where .99 lowers the leading digit and feels "cheap", .87
feels more precise than a round number like X.00. Even if it's entirely
arbitrary, it carries weight of apparent calculation behind it.

~~~
ttul
Does anyone have any science to hack this up?

~~~
tmnvix
> hack this up

I had to chuckle a bit. So you want some science to discredit the idea?

------
grantlmiller
Providing different product packages that are usage and featured gated in
order to enable SMBs to use the basic version while giving enterprises the
functionality they need in the enterprise version is a core concept in going
up market with SaaS. We called it "product assortment" based on a talk that
Michael Dearing gave several years ago about pricing. An overview of the
concept with some examples can be found here
[https://www.enterpriseready.io/features/product-
assortment/](https://www.enterpriseready.io/features/product-assortment/)

------
ericabiz
Nice, Patrick. I love this!

Can you do an article on reaching out to SMB's and selling them a SaaS? I know
most SaaS that sell to SMB's actually do a lot of sales over the phone, but
I'd rather not spend my whole day on the phone. (I am thinking about creating
a SMB SaaS that solves problems for the retail stores we run now.)

~~~
mlevental
read zero to one by Peter theil. mostly garbage but in it he makes a good
point: smbs are nearly impossible to sell to because there's no SMB marketing
channel (as opposed to radio/TV/fb for consumers). you're only option is cold
calling.

~~~
cm2012
I'm a (fairly expensive) consultant that specializes in marketing to small
business owners. You can absolutely reach them on Facebook, AdWords, or Direct
Mail at huge scale. Source: Grown campaigns with OnDeck, Zenefits, Segment,
many other SMB targeters. Here's a recent case study:
[http://www.kevinlordbarry.com/facebookleadads1.html](http://www.kevinlordbarry.com/facebookleadads1.html)

~~~
mlevental
case study would be much more useful if you at least gave a vague description
of what the company does (what kinds of widgets they sell). i'm willing to
believe that for some sectors this might work but for many others it won't
(e.g. pizza ovens to small pizza places).

------
danenania
I've been trying to figure out the ideal pricing structure for EnvKey[1], a
saas configuration and secrets manager. I want something that is affordable
for indie devs and smaller teams, but then scales up for larger companies who
face this problem to a greater degree and tend to see more value in solving
it.

The pricing is currently per user, since I've envisioned it as a tool that
you'd invite all your developers onto. For the most part, this has been the
case, but there are some companies using it heavily on the server-side and
only inviting a small number of users.

To account for this, I've considered charging a small amount per access key
(say $2/mo for a base plan) instead of per user. A typical app has an access
key for each developer working on it, plus one per server, so for a team of 5
this would work out to ~16/app/month (assuming test, staging, and production
server environments; some have more). Most teams seem to have at least a few
apps; some have as many as 10.

The good thing is this would scale up with usage, starting very low and then
getting pretty substantial as you get more and more use out of the product.
The bad thing is... it would scale up with usage, and therefore might
disincentive heavy use.

Any thoughts?

1 - [https://www.envkey.com](https://www.envkey.com)

~~~
BartBoch
I have checked your pricing page, and I think you are penalizing larger users
without trying even to hide that.

You require large users to pay more for the same functionality, that $5/mo
user gets.

I would create 2 plans: 1) Regular, $9/mo per user 2) Enterprise, $29/mo per
user with some added functionality, like custom login page, branding and some
user management/sub-users.

This way you will give an actual value to enterprises, that justifies paying
more, while keeping smaller users happy, by removing confusing pricing.

~~~
danenania
Yeah, I was curious what people would think of that. My logic is that resource
usage for end-to-end encryption scales exponentially, not linearly, and it's
also a more expensive problem for a larger company to deal with (either in
terms of engineering time or dealing with a breach).

I've been planning to add additional perks to the larger tiers over time
though. For example, I'm now working on audit logs, and will likely limit the
amount of history for the lowest plan (sort of like Slack).

On the per-user pricing, how do you think about the possibility of a company
that signs up with just a few users but manages hundreds of servers through
the product?

~~~
BartBoch
I think this is a non-problem now. As of now, you want to grow your user base
as much as possible. Since all your users are paying, you are not carrying a
dead weight of freemium. Build up user count by any means possible. Only once
you will see a significant drop in growth of revenue try to upsell current
user base by adding important features.

Keep, for example, Cloudflare in mind. They have first built their user base,
and once they were used by thousands of companies, they started offering
additional options, Enterprise ($2K+) accounts etc. Focus on growth first, and
keep some aces in your pocket for the time your revenue will stall. This way
you will be able to be innovative whenever growth is slow, and there is a
possibility a competitor will show up and take your business.

~~~
mkarnicki
Thank you for this comment. I think it's spot on with keeping some aces in
your pocket for appropriate time. It's not fun to keep onto unreleased
features, but the product should continue to grow with time. If one wants to
increase prices, ideally this goes along with added features.

------
giarc
>it communicates cheapness; I’d suggest you drop the 0.99 accordingly here

>I’d probably increase your pricing to $99 / $499 / $2,499

Would the argument that $X.99 implies cheapness not apply to $X99 as well? I
feel like 99 anything is an old psychological trick to make the customer feel
like they aren't really paying $500... they are paying $499.

~~~
dangerboysteve
>they aren't really paying $500... they are paying $499.

I think most, if not all, business customers know the x99 pricing is a
psychological gimmick and since it's well known is it really a gimmick any
longer? When I see $499 I immediately think $500

~~~
jrs235
Because it still works. Even if a person knows the psychology hacks behind
things they are still susceptible to them. In fact, people that know about
them falsely believe that since they are aware of them they don't work on
them.

~~~
icebraining
Has that been studied? I frankly find it hard to believe.

------
AnabeeKnox
_" $50 per month is not an appropriate maximum price for this product ... the
best customers of Humble Dot would spend more on coffee discussing buying it
than they would on actually buying it; that seems like a poor allocation of
value."_

Great quote and great article!

------
biot
One part I'm not sure how to read:

 _" I would probably use the fact of the call and concierge onboarding to tell
everyone that of course you charge for your services, just like they charge
for their services, but that as a limited time offer you’ll retroactively
waive one month of fees if they can commit to a 15 minute conversation about
why the software didn’t work for your needs."_

What is the "why the software didn't work for your needs" part? Is this meant
to be a call with users who are canceling and offer to waive a month of fees
if they explain why? It seems out of place under the "To demo or not to demo?"
heading.

------
methyl
Great article, I love it analyses real-world cases.

A small nitpick: there is a section called "Selling to undifferentiated SMBs",
but there is no explanation what SMB is and it's pretty tough to google that.

~~~
gk1
> it's pretty tough to google that

Next time you see an unfamiliar acronym, google "define [acronym]" and you'll
get the most common definition. For example, "define smb" shows the correct
meaning: A small and midsize business (SMB).

~~~
avip
Not to be confused with `define: thing`, which should result in a by-
dictionary description, but in this case, gives me "server message block", a
term I've never heard of.

~~~
JetSpiegel
Server Message Block is the Microsoft file sharing protocol. Implemented in a
FLOSS way by the Samba project.

------
statictype
Unrelated - Our product is a high touch SaaS that requires some handholding -
is there any benefit in online advertising or marketing for this kind of
product?

------
KeepTalking
Very interestingly on a similar topic here is Netflix's pricing strategy.
[https://www.priceintelligently.com/blog/netflix-pricing-
stra...](https://www.priceintelligently.com/blog/netflix-pricing-strategy)

------
chasedehan
Anyone have recommendations for SaaS sales? I have done a lot of reading of
generic sales books, but they don't seem to align much with specifics of
selling in tech.

~~~
dfee
Jason Lemkin has a site dedicated to this: Saastr.com

I should also add that it’s a conference and a community. I’ve found the
reading there to be pretty good for quick reference (I don’t really hit the
site anymore) but there are some good SaaS pricing references that come up
through there, too.

------
antoniuschan99
Anyone have advice on pricing strategy on hardware/iot startup?

------
cronjobma
The single best advice Patio11 has given is "charge more". Seriously. It's
been one of the scariest thing to do in the beginning, but I've now 4X'd my
pricing (from 3 figures to 4 figures a month!) and the customers got 10X
better, complain less, I work less and earn more. Please! If you read this,
double your prices today. See what happens in the next 3-4 weeks.

~~~
ad_hominem
On the flipside of that I've seen patio11 specifically tell the tarsnap guy to
charge more, while his product already costs $0.25/GB while GCP Cloud Storage
Nearline and S3 Infrequent Access are $0.01/GB (and falling each year). When I
was recently looking at backup solutions I immediately discounted tarsnap due
to the pricing.

~~~
tomkarlo
That doesn't mean it's the wrong pricing, just that you're maybe not the
customer they want. A business loses some customers at _any_ pricing level,
it's just a question of whether the incremental revenue from the remaining
customers makes up for it.

When you charge a penny extra, that's all incremental margin from the
customers you keep, but for the customers you lose, some of lost revenue is
balanced by not having the costs associated with supporting them any more.

Pushing the most price sensitive customers out the door isn't that bad,
because they're also likely to be the least loyal down the road, and maybe the
highest maintenance relative to their spend.

~~~
ad_hominem
Sure, that's a good point especially considering he's a one-man show so it
probably makes sense to keep the user base as ruthlessly small as possible
just for support reasons alone.

It does make me curious though who the target customer is - somebody who's
comfortable setting up a Unix CLI tool for their backups (creating a cron job
etc.), yet who wants to cede bucket ownership to a 3rd party and pay a 25x
markup for the pleasure? I personally don't mind having to click "Create
Bucket" in the AWS console if I get to pay $3/mo instead of $75/mo on my 300GB
of data. _shrugs_

~~~
zeroxfe
But Tarsnap is much more than that -- it deduplicates, it encrypts, it has
settings for restricting network, memory, and CPU usage, it caches and
checkpoints, etc. I'm happy to pay the premium for the robustness I get from
it.

~~~
vsl
And let’s not forget and Tarsnap is still dirt cheap even then, because Colin
refuses to charge more. I’d happily pay something reasonable for my backing
needs, like a $30 or $50 monthly minimum on tiny sets; instead, I pay I don’t
know, something like $10 every year or two.

~~~
comex
What you're saying is that it's dirt cheap if you have a small amount of data.
On the other hand, if for whatever reason you need to back up, say, 1TB worth
of video files, it's extraordinarily expensive.

I think it's just the wrong pricing model to have a flat rate per gigabyte. A
flat rate looks simple, but far from being transparent or 'honest', it's
essentially arbitrary in this case. Other than backend storage, Tarsnap's main
non-fixed cost is Colin's time providing support - but that scales mainly with
the number of customers, barely at all with the amount of data they're using.
Thus, heavy data users are effectively subsidizing light data users, who pay
far less than their 'fair share' of costs.

~~~
dspillett
_> it's dirt cheap X. On the other hand, for Y, it's extraordinarily
expensive._

This may be intentional. Not every service tries to provide an optimal
solution for every use case.

 _> it's just the wrong pricing model to have a flat rate per gigabyte._

I have no axe to grind (I'm not associated with tarsnap in any way, I'm not
even a user though I have considered it) but some of the discussion here makes
people sound somewhat entitled: "I want X, and I don't want to pay more then
$Y for it, and any service charging more is silly/bad/ripoff".

Stating that something ins't the best choice (or even a good choice) in some
(or many) circumstances is fine, but "it is wrong for me so I don't see how
anyone can think that it is right" is an irritating stance.

The pricing model seems to work for plenty of users, enough that it works for
the service as it has been successfully running for some time. If you think he
is missing out on a huge amount of money from the users who are put off, why
not start your own service priced to be attractive to that userbase, and take
the profit you see that service as giving away.

 _> providing support - but that scales mainly with the number of customers,
barely at all with the amount of data_

Sometimes having lots of small customers works better than having a few large
ones, even if you have a few large ones _and_ lots of small ones. With large
customers you are sometimes beholden to their whims at the expense of the
smaller majority (or they _expect_ you to be beholden to their whims and get
difficult if you refuse!).

 _> but far from being transparent or 'honest', it's essentially arbitrary_

Being arbitrary in no way precludes being transparent or honest.

 _> heavy data users are effectively subsidizing light data users_

Only if they don't go elsewhere, which they are perfectly free to do. tarsnap
is not in a monopoly position such that people are effectively forced to use
it.

(I'm not intending to pick on you specifically, there are other comments I
could have responded similarly to, but this post just happened to be the one
that tipped the balance on my rant reflex!)

------
xstartup
We went from $100 to $1000. The first month, people were all angry. Within 3
months, we quadrupled our revenue. Some guys said, yea we looked at your
product initially but we thought you guys weren't serious. Our design, sales
pitch were not changed. So, how we started appearing more serious?

~~~
mkarnicki
It's quite amazing (and I've read that before) that increasing prices usually
increases perceived value of the product. If you charge too low, users may
consider it as "it can't be good if it's that cheap".

------
xstartup
There is no fair in a market. If you've survived in a market for over a year,
you are already at the probabilistic impossibility.

You price your product by looking at the resources you consume. We did that
initially too but it's a wrong way to price a product.

You are not taking into account that resources are available to everyone, you
are simply not factoring the "luck". Don't devalue your luck, I attribute 99%
of the prize we charge to luck.

Customers pay for the luck. We've made impossible possible, those who do not
agree can choose a different supplier.

