What do I need, and how much does it cost?
Over the past few months, I have spoken with brilliant founders who have put out some bewildering pricing pages. Why? What makes them think these are good things?
I have found there are three fundamental problems with the thinking behind these pages. None of them are easy.
First, the founders do not know where the value is in their products. They rely on their gut that tells them there is value somewhere, and the evidence is that some people are buying it.
Many founders take a small, self-service SaaS principle to mean they are not accountable for how the product gets used, subject to certain ethical and legal obligations. But this is short-sighted: the product enables the value in a context. Messy pricing pages are often a sign of a founder not understanding that connection. When you hear yourself say, "that's not what we do," ask yourself, why does that matter? If your customers need to realize your value, the gap is part of the supply chain.
Second, the products are often SaaS businesses with minimal costs of goods sold or variable expenses. The technical components of a hosted service (compute, storage, and network bandwidth) are very cheap in most businesses! A "markup" model for setting a price floor is challenging in such a business.
Even worse is loose accounting, in which one books semi-variable costs (e.g., a founder providing technical support) as fixed costs. So it looks like variable expenses are super low, supporting a similarly low price point, but the actual gross margins are surprisingly thin! Either way, the pricing implication is clear as mud.
Third, much of the advice we get about setting up landing pages is more about the icing than the cake. Advice like, "show something too cheap and another that is too high-end so customers can pick the goldilocks choice," isn't so much bad advice as it is missing the fundamentals. We hear about "just raise your prices" and "provide value," but not how to align with value. The word from on high is, talk to the customers!
But the fundamental problem is that a messy pricing structure reflects customers that do not know what they need. "Ask the customer" is all well and good when the customer has the answer, but what do you do if they do not have it?
I love this situation. The entrepreneur has a fantastic opportunity to stand out sharply by becoming the market expert and utilizing pricing to help tell the story to a customer about what they need. Becoming a trusted advisor will generate longer-term relationships and revenues.
The question we must answer is, "what matters?" Where does value come from for the customer? Even big companies do not have a handle on this question.
So let's answer it! Try writing a blog post that owns "what does all this mean?" There could be a real expert marketing play in getting ahead of this to explain why each level makes sense for various use cases.
"Free is where you can tinker, but as soon as you hit meaningful development, you will see our rate limit (or whatever) kick in. That's why starter/professional/middle-tier is for getting deeper into your development, proividing the tools you need to do it right without paying for the scale benefits you don't need.
"It's even good for MVP! Then the scale-up pricing is what you want after you get those first hundred customers / thousand transactions. That's where you get service guarantees and our backing to make sure you stay up."
As the company helping customers think through what matters, they trust you more.
Further, this storytelling exercise will elevate the issues that separate high use from non-production use. For example, many SaaS businesses are most valuable when customers use them as part of a production process. That's where the money is! So high use would be putting your SaaS into a production use case. What do people care about in production use cases? Often, the biggest issue is safety and brand control.
Safety can come from features, but more often, it comes from support. Can you offer a super-short support turnaround at this next level? Can you put an insurance policy or an audit behind the service? These are not adding more technological surface area or volume: they are about the value of the service as a component of the customer's business or life.
Before then, they may care most about ease of use to adopt your technology on a partial basis, potentially in parallel to official production use or in its corner of the business. For here, the features most important are about ease of use.
One of the exciting aspects is that changing tiers does not just have to add features. You can take some away! Those features most useful in the tinkering or partial-deployment phase may be harmful in production. Remove them and make it not just "higher price" but also "for production use."
Implementation of this storytelling idea will depend on your startup, technology, and - most of all - your market. Start today. Take a stab at writing what matters at each step in the customer's journey. What do you have that drives maximum value for that step? That becomes a psychometric segmentation for pricing that will drive more value.
Figure out what matters in the market and tell them about it. Your economics will benefit, and the value to your customers will be priceless.
Photo by AbsolutVision on Unsplash