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Estd 4.22.2023
In the competitive landscape of SaaS offerings, Configure, Price, Quote (CPQ) solutions have become essential tools for businesses looking to streamline their sales processes. However, developing the right pricing and packaging strategy for your CPQ SaaS can be the difference between market leadership and obscurity. A well-executed strategy not only maximizes your revenue potential but also aligns your offering with customer value perception.
Why CPQ Pricing Strategy Matters More Than Ever
According to Gartner, companies that implement effective pricing strategies see up to 11% higher profit margins than their competitors. For CPQ solutions specifically, the stakes are even higher as you're selling a tool that itself optimizes pricing decisions for your customers.
As OpenView Partners' 2023 SaaS Benchmarks report indicates, companies with well-aligned pricing and packaging strategies achieve 30% higher growth rates and significantly better customer retention metrics. Let's explore how to build a winning strategy for your CPQ solution.
Step 1: Research Your Market Position
Before revamping your pricing strategy, you need to understand where you stand:
Competitive Analysis
Map your competitors across several dimensions:
- Feature sets and capabilities
- Current pricing models
- Target customer segments
- Value propositions
Kyle Poyar, Partner at OpenView, notes that "The most successful CPQ vendors don't just look at competitor pricing—they analyze the entire ecosystem to identify gaps where they can deliver unique value."
Customer Value Research
Conduct interviews with existing and potential customers to understand:
- Which CPQ features deliver the most tangible ROI
- Pain points in their current quoting and pricing processes
- Willingness to pay for specific capabilities
- Implementation and adoption concerns
This research phase typically takes 3-4 weeks but establishes the foundation for all subsequent decisions.
Step 2: Define Your Value Metrics
The core of any SaaS pricing strategy is identifying the right value metrics—the units by which you charge customers that align with the value they receive.
For CPQ solutions, consider these potential value metrics:
- Number of users (sales reps, pricing managers, etc.)
- Quote volume generated through the system
- Revenue processed through the platform
- Configuration complexity supported
- Integration depth with other systems
According to Patrick Campbell, founder of ProfitWell, "The companies with the best retention rates charge based on value metrics that grow with customer success." Your primary value metric should reflect how customers experience increasing value from your CPQ solution.
Step 3: Design Your Packaging Architecture
With value metrics identified, it's time to structure your offerings:
Tiered Structure
Most successful CPQ solutions offer 3-4 tiers:
- Entry-level: For smaller businesses or teams getting started with CPQ
- Professional: For mid-market companies with moderate configuration complexity
- Enterprise: For large organizations with complex pricing rules and high quote volumes
- Custom: For unique enterprise needs requiring tailored solutions
Each tier should have a clear ideal customer profile and represent a meaningful step up in value.
Feature Differentiation
Strategically distribute features across packages based on:
- Customer segment needs
- Implementation complexity
- Perceived value
- Adoption patterns
A study by Simon-Kucher & Partners found that 72% of successful SaaS companies create packaging differentiation through features that have high perceived value but relatively low cost to deliver.
Step 4: Develop Pricing Models
With your packaging framework established, determine the actual pricing structure:
Pricing Models to Consider
- Subscription-based: Monthly or annual recurring fees
- Usage-based: Pay for what you use (quotes generated, revenue processed)
- Hybrid models: Base subscription plus usage components
- Value-based: Pricing tied to measurable business outcomes
For CPQ solutions specifically, Forrester Research indicates that hybrid models have gained traction, with a base subscription tied to user seats plus variable components based on quote volume or complexity.
Price Points
Setting specific price points requires balancing multiple factors:
- Competitor benchmarking
- Customer willingness to pay (from your research)
- Your cost structure
- Strategic positioning (premium vs. value)
- Growth objectives
Todd Janzen, pricing strategist at Salesforce, recommends that "CPQ vendors should price at a level that reflects 10-20% of the value they deliver to customers." This creates a clear ROI argument for potential buyers.
Step 5: Test and Validate
Before full-scale rollout, validate your new pricing strategy:
Methods for Testing
- Direct customer feedback on proposed packages
- A/B testing with website visitors
- Controlled rollout to a segment of new customers
- Sales team simulations with the new pricing model
During testing, closely monitor:
- Win rates
- Deal velocity
- Customer objections
- Sales team confidence
According to Software Pricing Partners, companies that conduct systematic pricing validation see 15-20% higher conversion rates when they launch new pricing.
Step 6: Develop Go-to-Market Strategy
Launching your new pricing isn't just an operational change—it requires strategic communication:
Internal Readiness
- Sales enablement: Train your team on value selling with the new pricing
- Updated collateral: Create battle cards, ROI calculators, and competitive positioning materials
- Incentive alignment: Ensure commission structures align with new pricing objectives
External Communication
- Current customers: Develop grandfathering or migration plans
- Prospects: Create clear value narratives for each package
- Market positioning: Update website, marketing materials, and sales decks
Steven Forth, co-founder of Ibbaka, emphasizes that "The narrative around your pricing is as important as the prices themselves. It must tell a story of value that resonates with decision-makers."
Step 7: Implement Measurement Framework
The final step is establishing ongoing measurement of your pricing strategy's effectiveness:
Key Metrics to Track
- Average revenue per user (ARPU)
- Customer acquisition cost (CAC)
- Expansion revenue
- Churn by package level
- Feature adoption across tiers
- Discounting frequency and depth
- Competitive win/loss rates
Plan to review metrics quarterly and make adjustments as needed. According to data from OpenView's SaaS benchmarks, companies that regularly review pricing performance outperform peers by up to 25% in growth metrics.
Conclusion: The Continuous Journey
Pricing strategy for CPQ SaaS solutions isn't a one-time project but an ongoing process of refinement. As your product evolves, market conditions shift, and customer needs change, your pricing strategy must adapt accordingly.
The most successful CPQ vendors revisit their pricing strategy annually and make incremental improvements based on data-driven insights. They avoid radical changes that might disrupt customer relationships but continuously optimize to maximize both customer value and company revenue.
By following this structured approach to developing your CPQ pricing and packaging strategy, you position your solution to capture appropriate value while creating compelling offerings for each segment of your market.
Remember that effective pricing isn't just about setting numbers—it's about creating a framework that communicates your value proposition, differentiates your offering, and scales with your customers' success.