There may not be a truly perfect one-size-fits-all approach to SaaS pricing, but one startup’s new approach could be a big step forward toward bridging the gaps between product value and bottom line revenue.
When it comes to SaaS pricing models, two things are certain: 1) There’s nothing simple about it; and 2) opinions on the best way to approach SaaS pricing run the gamut.
Talk to one entrepreneur, and you might buy into the idea that freemium is the optimal way to acquire a large number of users (and gradually convert them into paying customers). Talk to another SaaS founder, and you might come away thinking that raising prices — as opposed to giving away a watered down version of the product — is a far more effective (and more sustainable) model.
Or, you could talk to Kurt Uhlir, co-founder and CEO of partnership marketing software company Sideqik, and suddenly feel motivated to adopt an entirely different SaaS pricing approach.
Like many SaaS companies, Sideqik offers three tiered versions of its product. The Basic package is designed to be easy to use and implement, while the Professional and Enterprise packages deliver increasingly advanced features and functionality.
Unlike some SaaS companies, however, Sideqik doesn’t publish pricing for any of those three packages. The company’s pricing model is also based on a hybrid transactional and traditional subscription model that Forbes’ John Greathouse recently termed “TranSaaSional pricing.” Simply put, Sideqik users pay a standard subscription fee for each package and then an additional amount on top of that based on the size of the digital audiences they choose to target.
“Basically, the idea is that our users pay more as the value they derive from our product grows,” Uhlir explains. “It’s a mutually beneficial system. We succeed as they succeed, and it allows us to scale our revenue alongside our customers’ growth.”
Why Sideqik Doesn’t Publish its Prices
One of the first things you notice when you look at Sideqik’s product page is that the company doesn’t show prices for any of its three packages. While some might suggest that approach unnecessarily confuses customers, Uhlir says the decision not to publish its subscription fees is intentional.
“We’re still in the early stages of our development and our goal is to get the pricing for each package as close to perfect as possible,” Uhlir says. “This approach lets us do some testing and gather feedback from customers. While we do have standard pricing, this allows us to deliver tailored pricing for every customer’s unique needs.”
Uhlir says Sideqik’s approach might change in the future, but for now it’s helping the business keep customer conversations focused on value, rather than cost.
“We fall squarely in the middle of a traditional subscription-based SaaS model and a transactional pricing model. We do have a traditional subscription-based model, although more customer discussions have shifted to our TranSaaSional model,” Uhlir says. “So, we think the best thing to do right now is educate prospective users about the value we can deliver and encourage them to contact us to learn more.”
Accelerating at the Speed of the Customer
One of the biggest benefits to Sideqik’s pricing approach is that the company doesn’t have to deal with sticker shock when customers upgrade to a new package or get a bill for their increased product usage. In fact, because Sideqik’s pricing is closely tied to quantifiable results and tangible growth, very few customers object to paying more when they know they’ll receive proportionately more value from that investment.
A good example is Sideqik’s work with the Made in America Movement.
Uhlir says the organization is laser-focused on a handful of specific KPIs around brand awareness, all of which Sideqik can track. If the organization wants to invest in audience growth, Sideqik can move about as fast as the customer wants to move. Likewise, if the company decides to scale back spending, Sideqik’s dynamic pricing will adjust to those needs.
“I think SaaS pricing is more art than science,” Uhlir says. “There’s certainly some psychology and math that goes into it, but it’s not something where you can say, ‘A+B=C.’ It’s an iterative, learning process. You need to understand your customers, product, market, and value. Those things influence how much someone’s willing to pay for something. The benefit of the TranSaaSional model is that it ensures you — and your customers — extract the appropriate amount of value for each incremental investment.”
Looking for More SaaS Pricing Tips?
OpenView’s Ultimate SaaS Pricing Guide for Expansion Stage Companies walks you through important pricing, packaging and positioning decisions at this vital stage so you can extract value from existing and prospective customers while delivering a fairly-priced product for which they are willing to pay. Read more.
Is your SaaS business facing a pricing crisis and you don’t even know it? Software pricing expert Jim Geisman shares three tips for developing a tiered pricing structure that clearly communicates the value of your various product options or editions. Read more.