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- 8 steps (and prompts) to nailing SaaS pricing
8 steps (and prompts) to nailing SaaS pricing
Pricing models, free plans and more
Hey — It’s Hussein 👋
Last week, I attended the inaugural TechStars San Diego demo day. I got to listen to 12 San Diego founders pitch their startups and demo what they’ve been working on to a room filled with investors from SoCal.
This was another great milestone event for the San Diego tech scene! 🌊
TechStars San Diego Demo Day
Today’s article is on 8 steps (and prompts) to nailing SaaS pricing.
Let’s get to it.
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Step 1: Understanding pricing models
Before getting into pricing, the first step is to figure out what sales model you are following for your product (or business). There are four key sales models that most SaaS startups fall under:
Sales-led: you have a sales team that does demos, schedules meetings, and takes sales calls to complete a sale. Think Salesforce, Oracle, and other enterprise-level companies.
Sales-assisted: you have a sales team that encourages users to sign up for a paid plan, but they can do it themselves. Once a user opens an account, your sales team will reach out and get the user to convert. A good example of this is a company like Dropbox and Box.
Product-assisted: for the most part, the product sells itself and has built-in sales funnels, but you have a small sales team ready to jump in when needed. Slack and Linear are known to follow this model.
Product-led: you don’t have or need a sales team. Your product sells itself and all funnels are built into the product directly. Canva is a good example.
You might not be sure of which of these sales models you are in or maybe you are still early and thinking about which way to go. This is where ChatGPT can help you with the analysis and thinking.
Here is a quick prompt you can use:
Step 2: Segment your offerings
Segmenting your offering is the practice of splitting your product features into different categories and plans so that you can better satisfy the needs of a wider customer base. Some companies need all the bells and whistles and are willing to pay for them, while others might need a simpler solution. If you don’t segment your product and plans, you will be losing customers who are not the perfect match for your single product.
The most common approach here is to split your product and features into three or four plan:
Free (if you have one)
As you grow, you can add more plans, but from what research shows, you can rarely make a case for having more than six, and the most common is three or four.
You can use ChatGPT to help you determine segments. Start with this prompt:
For further reading on this, look at my last article on finding your Ideal Customer Profile (ICP), which goes into segmentation in detail.
Step 3: Determine Willingness-to-Pay (WTP)
Willingness-to-Pay is a critical aspect of SaaS pricing. It’s about figuring out the maximum amount customers are ready to pay for your product based on the perceived value they get from your product.
Willingness to Pay (WTP) influences not just revenue potential but also gauges customer satisfaction and potential market penetration. If you set it too high, you risk alienating potential users, if you set it too low then you might undervalue your service and customers might think it can’t be good enough to meet the value they think they are getting from your product.
If you already have customers and data, you can upload those to ChatGPT to perform an analysis based on how much customers are paying and how much they are using your product. For example:
If you don’t have customers or data yet, then you can come up with estimates to help you set initial prices. By going down this path, you’ll need to revisit your pricing often and make adjustments as you learn more from your users. Here’s a prompt to help you with initial estimates:
That response to that prompt will be a list of questions you’ll need to answer to get to your WTP number. WTP is a huge topic that can easily take up an entire article. Start with the above and work your way from there.
Step 4: Focus on your value metric
Your value metric is the key aspect of your product that customers are paying for. This could be per-user license (most likely the most common metric), or it can be more defined like GB used, bandwidth used, records created, accounts managed, transactions processed, features used, etc.
The value metric should be tied to your value propositions and be one that can be different for each of your target segments. As an example, it is very common for CRM tools to limit the number of contacts you can create in lower-priced plans since they know that being able to manage leads and contacts is one of their core value metrics.
In most cases, the main value metric you provide should be fairly straightforward to identify, but you can use ChatGPT to determine additional value metrics that can help you build out your pricing plans and packages for different segments.
Here’s the prompt to get you started:
Step 5: Analyze competitor pricing
Make a list of your competitors and see if you can get a hold of information about their pricing scheme. These days, most will publish pricing on their websites, but sometimes SaaS companies don’t publish pricing upfront. Your best bet is to search for online reviews, which sometimes mention pricing, or tap into your network to see if you can get connected to a customer willing to share info with you.
It’s important to know how your competitors are priced so you position yours effectively, but don’t rely on this as your only data point. It should be one of many data points you use.
ChatGPT can help kickstart some of your competitive analysis with this prompt:
Step 6: Embrace value-based pricing
Another important input into your pricing decision is understanding the value you are providing to your customers. The more quantifiable value you provide, the more you can charge for your product.
The way to determine how much value you are providing your customers is by running surveys, asking for feedback, and doing market research. Once you have the list of your value propositions, you can turn to ChatGPT to help you quantify them.
Once you have the value, you can take that into account for your pricing and also incorporate them into your marketing and sales assets.
A quick prompt to get you started:
Step 7: Experiment with free versions
There are multiple ways to experiment with free versions of your product: freemium, free trials, and reversal trials. Many companies succeed with these models since they make it low risk (and no cost) for prospects to try your tool. Slack, Dropbox, Linear, and countless SaaS companies have some sort of free plan or free period.
There is, however, a risk with free, especially if your costs per customer are high. For example, if you have an app that uses the OpenAI GPT-4 API, your costs could easily skyrocket if you get an influx of free users who never bother to pay.
Personally, I’ve always preferred Free Trials as opposed to a Free Plan, and I find that a short trial works better since it forces the users to try your product before the time runs out. The only exception is if your main value prop can’t be felt by the user in a short timeframe, in which case a longer trial is warranted.
You can use ChatGPT to help you analyze which way is better for you to go:
Step 8: Monitor and iterate
It is really hard to get pricing perfectly right from day one. Pricing is something you should continue to monitor, evaluate, and adjust as you learn more from your customers and build out your product.
One note of caution: don’t go on a building spree that increases your costs, which will then force you to increase prices without actually providing any new value props or value metrics to your customers.
Here’s a ChatGPT prompt that can help:
And there you have it, a comprehensive 8-step guide to figuring out your SaaS pricing with the help of ChatGPT and AI.
If you want to go deeper into the topics covered, take a look at these great articles on the topic:
See you next week — Hussein ✌️
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