Thanks for your great comments. The biggest challenge for SaaS vendors seems to be combining value based pricing with a subscription based pricing model.

We work with other non-SaaS product vendors who are developing new services and its often easier then to quantify and price a service based on a customer value. As you point out, too many SaaS vendors fall back on market/competitor pricing which is really leaving your business model at the mercy of a competitors (unknown) pricing decisions.

Steve

I hope a lot of people read what you say about the use of value pricing and how many companies are in a “race to the bottom” with their pricing.

In our pricing practice, we find that many companies are not weak in customer understanding but weak in understanding their customers’ economics so they can set prices appropriately.

Furthermore, there is a fixation on the price level. “Give me a number”. The number does count but so does the metric, what packages are available at what price points and how you handle discounts.

Related to that is the financial modeling. The modeling that is done is often superficial and populated with incorrect assumptions which make the race to the bottom even faster.

A quick comment on following competitor prices… Competitors are often clueless about pricing. And, regardless of pricing capability, competitors do what’s best for their business model.

Therefore if you want to mimic a competitor you are admitting that your company, its cost structure, AND products are identical (which is — or should be — not true.)

Jim Geisman

PS I’d like to get feedback on this post. My e-mail is jimg@softwarepricing.com.

Yes pricing a SaaS offering (and understanding its true cost base) is a critical task and will help to drive success (or failure) of a business.

I just realised that I had not linked to a registration of interest form at the bottom of the post! I will update later. We have developed pricing tools that we use with customers for general service pricing and are working on a SaaS specific version that we hope to have ready for testing later this year – I will keep you informed of progress and give you access to the early release version once its ready.

Steve

But – you mention an upcoming product and I am very interested – now where is that link to that form you mention in the last sentence? Is my browser missing it?

All the best

Mike