We listened to several challenges that founders went through in the last one year and here are some FAQs on the SaaS Pricing Strategy.
I have a lot of competition in the industry and how much should I care?
Having competition is the sign that there is demand and business. So, that’s a good thing. It is important to provide value to the customers and focus on solving customer problems. If you do this in an efficient and consistent way, the competition will be taken care of automatically.
My startup provides similar features as my competition. How can I differentiate?
Providing similar features does not mean you provide the same experience as your competitor. Always find a creative way to differentiate your “perceived” value. e.g. If the core feature set is similar, provide a better Buyer Experience or Customer Experience or User Experience.
Do whatever but differentiate.
My startup is competing with enterprise companies. How do I price it?
Do whatever but make sure that you show the value and perceived benefit to the customer. Especially when competing with enterprises, focus on the agility, technology and innovation. You may not be able to undercut the enterprise product in pricing but provide the value to increase the perceived value.
Should we offer Freemium version forever (w/ restricted features) or Limited time Free version (w/ full features)?
If your company is B2B and your goal is to convert the users/customers quickly to your paid membership, then “Free version with full features for a limited time” is best. This lets the users to fully experience the product and features before they make a decision quickly to signup for paid version. e.g. Adobe Sign (EchoSign), Shopify
If your company is B2C or B2B2C, your goal may be to acquire as many number of users as possible via direct acquisition or partnerships. In this case, "Freemium version with restricted features" will bring in many users and they can step up to paid version based on the value. e.g. Spotify, Pandora
How do I know if the pricing strategy is working for us?
If your startup just started selling and assuming that you have done basic analysis to set the pricing, wait for minimum of 2 quarters of sales data. Especially look at the number of potentials and if they have converted to paid customers. How many customers did not convert form Free version to paid version and why. Talk to potentials and customers on the perceived value compared to previous/existing solutions. If the feedback is that the product provides many features and customers perceive the product as “value” product, this means there is a scope to introduce another tier of pricing plan. If the feedback is that the product is too expensive, provide more features or perceived value in the same tier.
Are there any examples of the Freemium version from SaaS?
There are several successful SaaS companies that have adopted the Freemium version and still have it as part of their growth strategy.
Why should a company go for Freemium?
Phil Libin, CEO of Evernote says, “the easiest way to get 1 million people paying is to get 1 billion people using".
Freemium may not be for everyone but works for some startups.
If you are a startup, we would love to hear how you price your product and growth strategies you have. Send us a message at firstname.lastname@example.org. And we hope these FAQs for SaaS Startup Pricing Strategies from founder challengers, with a focus on various freemium versions of a product to succeed have been useful for you.
About the Author: Suresh Madhuvarsu is a serial entrepreneur and investor. He is the Managing Partner of Product10x Accelerator, a SaaS accelerator that helps founders build and launch successful startups. He is also the Co-Founder and CEO of Salestable, a purpose-built sales readiness platform for SMBs.
Suresh has over 20 years of experience in the technology/SaaS industry. He is a 4x founder with 2 exits. He is also an active angel investor and mentor to early-stage startups. Suresh is passionate about helping entrepreneurs build successful businesses. He believes that technology can be used to solve real-world problems and improve people's lives.
About Product10x: Product10x is a SaaS accelerator that helps founders build and launch successful startups. The accelerator is run by experienced operating partners who have "been there and done that." Product10x provides founders with mentorship, advisory, and access to a network of investors and partners. The accelerator focuses on Product Led Growth (PLG), Sales readiness, and Fundraise readiness, helping founders all the way from product to go-to-market.