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Estd 4.22.2023
Based on our book, Price to Scale, our approach to pricing a SaaS product starts by balancing competitive market realities with an honest assessment of internal costs and operational capabilities. Here’s how we set the initial price point and the factors we consider:
• Direct Costs & Implementation:
We begin by understanding the actual cost of implementing the software. For example, if it costs around $3000 per mid-sized customer (covering labor and other direct expenses), this baseline helps anchor the pricing discussion and ensures that the product isn’t priced below sustainable levels.
• Competitive Positioning:
Market demands and competitive pressure play a crucial role. In our book (see the discussion around “Sanity Check Your Strategy” on page 91), we highlight scenarios where competitive pressures can limit deal sizes (e.g., from $1000 to $10,000 per year). This means pricing must not only cover costs but also be positioned to thrive against competitors in segments like SMB or enterprise.
• Customer Acquisition & Sales Costs:
The cost to acquire a customer isn’t just the product implementation—it also includes sales and marketing efforts, which in some SaaS environments can range from $1000 to $3000. This factor ensures that the pricing strategy sustains growth while factoring in the investment made by SDRs and sales teams.
• Team Alignment and Operational Considerations:
As detailed in our book’s section on the role of the Pricing and Monetization Team, pricing isn’t merely a number-setting exercise. It requires input from product, sales, and finance teams to reconcile different biases (for instance, the product team’s view on feature value versus the sales team’s focus on customer acquisition speed). This collective alignment helps to operationalize the strategy effectively.
In summary, our initial pricing strategy is designed to cover our costs, support sustainable growth, and remain competitive. By evaluating implementation costs, market pressures, customer acquisition expenses, and aligning team perspectives, we ensure that the pricing delivers value both to our customers and our business. For further details, you may refer to Chapters on “Sanity Check Your Strategy” and “The Role of the Pricing and Monetization Team” in Price to Scale.