Dear SaaStr: How Do I Price My SaaS Product in The Early Days, Before Product-Market Fit?
Just start with comps. With comparables.
Software is very expensive to build, but for the most part, costs almost nothing to ship. It might cost you $0.10 a month in hosting charges per user for an app that isn’t server or storage intensive.
So why is one app $5 a month and another $150 a month? The answer is value provided, yes (that’s why Salesforce and Workday can charge so much) … and also, comparables.
- If your app is about as valuable as Box, then price it like Box.
- If your app is about as valuable as Twilio, then price it like Twilio.
- etc., etc., etc.
At this point, every company has bought between 1 and 200 SaaS apps. You’re not the first. They are used to it, and used to certain organic price points.
Your prospects and customers are now veterans for the most part, and they “know” what an app should cost — based on the value they think it provides relative to other apps they pay for.
Imagine opening a new restaurant. If it looks like McDonalds, and tastes like McDonalds, it probably needs to be priced close to McDonalds. A $4-$5 hamburger, max. If it looks like a standard brasserie, maybe a $20 steak frite is OK. And maybe if it looks like French Laundry, and tastes like French Laundry, a $200 steak is maybe OK.
I may be taking the new restaurant metaphor too far, but the point is, give customers context. If pricing feels consistent with similar apps, then it will seem fair and correct, and pricing won’t be a huge issue.
And even more importantly, pricing that is similar to other similarly valuable apps will remove friction from the buying process. That’s critical in the early days. There are no leads to waste.
Later, you can raise prices and optimize. But 95 times out of 100, don’t innovate on pricing. Especially in the early days. That’s too clever by half.
A bit more here:
The 3 Types of Day 1 Pricing: Low End of Normal. Identical. And Anchor High.
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Jason Lemkin, Khareem Sudlow
