A VP of Sales at a growing SaaS company recently asked me this question about SaaS pricing.

His company has an ARR of $1oK/customer.   He wants to increase it to $20-$30K.  

My advice is to break the challenge into two stages:

  1. Thinking
  2. Doing

Thinking

Answer the following questions.  The answers will be hard to get.  Try anyway.

What is the value of NOT having your product?
For example, if the customer is losing $40K per year by not having it, they should be willing to pay something less than $40K.

What prices do customers pay for competitive products?
Let’s say competitor A charges $15K and competitor B charges $40K.

If you are better, what is the value of that difference?
Let’s say you provide twice as much value as A.  You can theoretically charge $30K. Let’s say you provide provide $5K less value than B.  You can theoretically charge $35K.

Can you convince the buyer of the value?
This is where you need to really listen to what buyers tell you when you give them your pricing.  Keep asking for specific reasons why they will or won’t pay your price.

Let’s say the reason why you can charge $30K to A’s $15K is that you have two features X and Y which provide $5K and $10K respectively.    If your buyer doesn’t need feature X, they might only be willing to pay $25K.  This is an extremely rational case.

But people aren’t rational.  They buy for many other reasons.  And these reasons much more powerful yet hard to quantify.

People also buy one solution over another because they want to avoid risk.  Or avoid looking stupid.  Or avoid feeling left out.  Or avoid aggravation.  Or they trust you more.  And many other reasons.

SaaS pricing is no different.

So let’s say you are competing with B.  And let’s say their feature Z provides $5K more value.  If you can convince the prospect that your customers are happier and more successful, they might be willing to pay $40K for your product, not $35K.

Execution

Once you nail the answers above…

  1. Create your new SaaS pricing.
  2. Write responses to common questions, objections and situations.
  3. Role play with your team.  Make each person practice 10 times until it is natural.
  4. Accompany them on 10-20 sales calls to see how prospects respond.

And afterwards, use the prospects’ feedback and iterate by doing another Thinking-Doing loop

It never ends 🙂

Happy Selling!
David

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