.png)
Estd 4.22.2023
The Evolving SaaS Pricing Landscape
In today's competitive SaaS environment, pricing strategy has evolved from a simple afterthought to a critical strategic lever. Among the various pricing methodologies that have gained traction, account-based pricing has emerged as a powerful approach for B2B SaaS companies targeting enterprise clients. But with this model comes a fundamental question that many executives struggle with: should you custom quote every single deal?
This question sits at the intersection of sales efficiency, customer experience, and revenue optimization. Let's explore the nuances of account-based pricing and develop a framework for determining when custom quoting makes sense—and when it might be hindering your growth.
Understanding Account-Based Pricing
Account-based pricing tailors your pricing to specific accounts based on their unique characteristics, usage patterns, and value perception. Unlike one-size-fits-all pricing models, it acknowledges that different customers derive different value from your solution.
According to OpenView Partners' 2023 SaaS Benchmarks report, 67% of enterprise-focused SaaS companies now employ some form of account-based pricing for their larger customers, up from 42% just five years ago.
Core Components of Account-Based Pricing:
- Value-based assessment: Pricing based on the specific value your solution delivers to each account
- Usage considerations: Factoring in expected usage volumes and patterns
- Customer-specific requirements: Accommodating unique implementation, integration, or support needs
- Competitive positioning: Strategic pricing against competitive alternatives the customer is considering
- Future growth potential: Building in considerations for account expansion
The Case for Custom Quoting Every Deal
There are compelling reasons why many SaaS companies have gravitated toward quoting each deal individually:
1. Value Capture Optimization
When done correctly, custom quoting allows you to capture the maximum appropriate value from each account. Research from Price Intelligently shows that companies employing sophisticated value-based pricing typically achieve 30-40% higher average contract values than those with rigid pricing structures.
"We've seen a direct correlation between custom pricing approaches and improved annual contract values," notes Kyle Poyar, Partner at OpenView. "Companies that effectively align their pricing with customer value perception can often achieve price points 2-3x higher than market averages."
2. Enterprise Expectations
Enterprise customers typically expect some level of pricing customization. According to Gartner's 2022 B2B Buying Journey survey, 83% of enterprise software decision-makers anticipate being able to negotiate pricing based on their specific needs.
3. Competitive Differentiation
Custom pricing enables adaptation to competitive scenarios. If a strategic account is considering alternatives, having flexibility in your pricing approach allows you to position your solution more effectively against competitors.
4. Complex Value Propositions
For solutions with multiple modules, complex implementation requirements, or varying degrees of services, custom quoting provides the flexibility needed to package these elements appropriately for each customer's situation.
The Case Against Quoting Every Deal
Despite these advantages, there are significant downsides to having every deal flow through a custom quoting process:
1. Sales Cycle Elongation
Research from SaaS Capital indicates that companies with mandatory custom quoting processes experience sales cycles that are, on average, 32% longer than those with transparent pricing tiers for at least some customer segments.
2. Resource Intensity
Generating customized quotes requires significant resources. Sales representatives spend time gathering requirements, solution architects design custom configurations, and finance teams review deal structures – all activities that could be standardized with more consistent pricing approaches.
3. Potential for Inconsistency
Without strict governance, custom quoting can lead to pricing inconsistencies across similar customers, creating potential problems when customers discover pricing disparities.
Patrick Campbell, founder of ProfitWell (now Paddle), notes: "We've analyzed over 20,000 subscription companies and found that those with highly discretionary pricing consistently struggle with lower NPS scores and higher churn rates when customers discover pricing inconsistencies."
4. Scalability Challenges
As organizations grow, a "quote everything" approach becomes increasingly difficult to maintain. According to Bessemer Venture Partners' State of the Cloud report, companies that maintain fully customized pricing beyond $50M ARR typically require 30-40% more sales resources than those with more standardized approaches.
A Balanced Framework: When to Quote vs. When to Standardize
Rather than taking an all-or-nothing approach, leading SaaS organizations are implementing hybrid models. Here's a framework for determining when to customize pricing and when to standardize:
1. Segment-Based Approach
For SMB/Mid-market: Standardized pricing tiers with transparent pricing published on your website or available through a self-service quoting tool. This reduces friction for customers who want to move quickly while maintaining sales efficiency.
For Enterprise: Custom quoting that factors in specific value drivers, scale requirements, and implementation complexity. According to Forrester, 78% of enterprise SaaS purchases involve some level of customization in both solution and pricing.
2. Complexity-Based Approach
Simple deployments: Standard pricing with potentially volume-based discounting tiers that can be automatically calculated.
Complex deployments: Custom quotes that factor in implementation services, integration requirements, and success services.
3. Transaction Size Approach
Many organizations set thresholds at which deals require custom quoting:
- Below $25,000 ARR: Standard pricing
- $25,000-$100,000 ARR: Standardized pricing with pre-approved discount tiers
- Above $100,000 ARR: Fully custom quoting
Todd Olson, CEO of Pendo, shared in a recent SaaStr interview: "We publish our pricing up to a certain point, and beyond that, we transition to a consultative sales process. This gives us great velocity in the segments where speed matters while preserving our ability to capture full value in larger, more complex deals."
Implementing an Effective Hybrid Approach
To successfully implement a balanced approach to account-based pricing:
1. Develop Clear Value Metrics
Identify the specific elements that drive value for different customer segments. Research from Simon-Kucher Partners suggests that companies with clearly defined value metrics achieve win rates 23% higher than those with purely cost-plus or competitor-based pricing approaches.
2. Create Guided Selling Tools
Arm your sales team with tools that help standardize the quoting process even for custom deals. Configure-price-quote (CPQ) solutions can provide guardrails while still allowing necessary flexibility.
3. Establish Governance Processes
Implement clear approval workflows based on deal size, discount levels, or non-standard terms. Companies with effective pricing governance typically see 3-5% higher realized prices according to Boston Consulting Group's pricing excellence research.
4. Train Sales on Value-Based Conversations
Custom pricing is only effective if your sales team can articulate and defend the value. Invest in training programs that help sales representatives lead with value rather than discount conversations.
5. Regularly Review Pricing Effectiveness
Schedule quarterly reviews of your pricing approach, examining win rates, discount levels, and price realization across different segments and deal types.
Conclusion: Strategic Flexibility Over Universal Rules
The question of whether to quote every deal shouldn't be answered with a simple yes or no. The most successful SaaS companies are adopting nuanced approaches that balance efficiency with customization.
For smaller, less complex deals, standardized pricing accelerates sales cycles and improves scalability. For larger, more complex enterprise deals, custom quoting ensures you're capturing appropriate value while meeting sophisticated customer expectations.
As you refine your account-based pricing strategy, focus less on which approach is "correct" and more on which approach delivers the optimal combination of sales velocity, customer satisfaction, and revenue optimization for each segment of your market.
By developing a clear framework for when to quote and when to standardize, you can achieve the best of both worlds: the efficiency of transparent pricing and the value capture of account-based approaches.