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SaaS Pricing for Prosperity SaaS Pricing for Prosperity

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MarketShare, Inc. Wayland, MA 01778 Tel: (508) 647-0330 www.softwarepricing.com © 2008 MarketShare, Inc. SaaS Pricing for Prosperity SaaS Pricing for Prosperity Webinar Sponsored by Webinar Sponsored by OpSource OpSource Pricing and Packaging... Pricing and Packaging... ...Get the Growth You Need... ...Get the Growth You Need... ...Achieve the Success You Want ...Achieve the Success You Want
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Page 1: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

MarketShare, Inc.Wayland, MA 01778Tel: (508) 647-0330

www.softwarepricing.com

© 2008 MarketShare, Inc.

SaaS Pricing for ProsperitySaaS Pricing for Prosperity

Webinar Sponsored by Webinar Sponsored by OpSourceOpSource

Pricing and Packaging...Pricing and Packaging......Get the Growth You Need......Get the Growth You Need...

...Achieve the Success You Want...Achieve the Success You Want

Page 2: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

2© 2008 MarketShare, Inc.

IntroductionIntroductionMarketShareMarketShare

Unique focus since 1987Unique focus since 1987Pricing computer softwarePricing computer software

Practice areasPractice areasValueValue--Driven PricingDriven PricingValueValue--Based SellingBased SellingStrategic DiscountingStrategic Discounting

ResultsResultsImproved financial performanceImproved financial performanceMore value from products & services More value from products & services Increased sales effectivenessIncreased sales effectiveness

Page 3: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

3© 2008 MarketShare, Inc.

IntroductionIntroductionSaaS Adoption is GrowingSaaS Adoption is Growing

Figure 1: SaaS Application Adoption (Worldwide) 2008-2010 - % Companies deploying

Source: Saugatuck Technology - SaaS Survey Research 2008 www.saugatuck.com

Page 4: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

4© 2008 MarketShare, Inc.

IntroductionIntroductionSaaS is High Growth OpportunitySaaS is High Growth Opportunity

Source: 2007 Operating Metrics Survey, OPEXEngine LLC www.opexengine.com

Page 5: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

5© 2008 MarketShare, Inc.

IntroductionIntroductionValuation Related to Growth RateValuation Related to Growth Rate

Source: Q1 2008 Software Industry Equity Report, Software Equity Group LLC www.softwareequity.com

Page 6: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

6© 2008 MarketShare, Inc.

AgendaAgendaWhy weWhy we’’re herere hereDefine the offerDefine the offerAttract new customersAttract new customersEncourage unit growthEncourage unit growthStimulate upgrade growthStimulate upgrade growthWrapWrap--upup

Page 7: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

7© 2008 MarketShare, Inc.

Why We're HereWhy We're HereGrowth Means ProsperityGrowth Means Prosperity

"The way to make money in the stock market is to buy a stock and sell it when it goes up.

If it's not going to go up, don't buy it!“- Will Rogers

Page 8: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

8© 2008 MarketShare, Inc.

Why We're HereWhy We're HereGrowth Means ProsperityGrowth Means Prosperity

"The way to make money in SaaS is to start a company and sell it when it goes up.

If it's not going to go up, don't start it!“

Page 9: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

9© 2008 MarketShare, Inc.

Why We're HereWhy We're HereGrowth RequirementsGrowth Requirements

Attract more customersAttract more customers

Sell more unitsSell more units

Get more upgradesGet more upgrades

Page 10: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

10© 2008 MarketShare, Inc.

Why We're HereWhy We're HereRevenue SourcesRevenue Sources

Existing Customers

Upgrade Growth

Unit Growth

New Customers # New Customers x $ / Customer

# Customers x $ / Customer = Base revenue

# Customers x New $ / Customer= Growth revenue+

Page 11: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

11© 2008 MarketShare, Inc.

Why We're HereWhy We're HereRevenue Growth ProfileRevenue Growth Profile

Revenues

$0.0

$10.0

$20.0$30.0

$40.0

$50.0

1 2 3 4 5

Number of Years

Reve

nue

($M

)

Existing Customers Upgrade GrowthUnit Growth New Customers

Page 12: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

12© 2008 MarketShare, Inc.

Why We're HereWhy We're HereDriving Revenue Growth Driving Revenue Growth

Define the offerDefine the offerFocused app, meet needFocused app, meet need

Attract new customersAttract new customersEasy to try, buy, useEasy to try, buy, useEntryEntry--level level product(sproduct(s))

Encourage unit growthEncourage unit growthFair dealFair deal““BeachheadBeachhead”” configurationconfigurationBreadth of appealBreadth of appealReceptivity / contagionReceptivity / contagion

Stimulate upgrade growthStimulate upgrade growthValue stepValue stepBiteBite--sized addsized add--onsonsAttach rateAttach rate

Page 13: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

13© 2008 MarketShare, Inc.

AgendaAgendaWhy weWhy we’’re herere hereDefine the offerDefine the offerAttract new customersAttract new customersEncourage unit growthEncourage unit growthStimulate upgrade growthStimulate upgrade growthWrapWrap--upup

Page 14: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

14© 2008 MarketShare, Inc.

Define the OfferMore Than Product OnlyMore Than Product Only

ProductProductMust be attractiveMust be attractiveEasy to useEasy to useApparent depthApparent depthPromise of a futurePromise of a future

ServicesServicesUser supportUser supportImplementationImplementation

OtherOtherEcosystemEcosystemReliabilityReliabilityScalabilityScalability

Page 15: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

15© 2008 MarketShare, Inc.

AgendaAgendaWhy weWhy we’’re herere hereDefine the offerDefine the offerAttract new customersAttract new customersEncourage unit growthEncourage unit growthStimulate upgrade growthStimulate upgrade growthWrapWrap--upup

Page 16: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

16© 2008 MarketShare, Inc.

Attract New CustomersItIt’’s Not Just Prices Not Just Price

First impressions countFirst impressions countEasyEasy--toto--understand offeringunderstand offeringTCO estimate TCO estimate Clear pricing Clear pricing Pricing messagePricing message

Attractive entryAttractive entry--level productslevel productsHow much value?How much value?At what price?At what price?

Free vs. FeeFree vs. FeeSharp drop off from feeSharp drop off from feeFee means skin in the gameFee means skin in the gameImpulseImpulse-- vs. consideredvs. considered--buy price pointbuy price point

Page 17: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

17© 2008 MarketShare, Inc.

Attract New CustomersPrice Level and Value RangePrice Level and Value Range

Customer economicsSubstitutes

Competition

$

Impulse Prices

Costs

More development outputMore development output11--2% more output2% more output

•• Typical project 12 FTEs @ $100K/developer x 18 mos Typical project 12 FTEs @ $100K/developer x 18 mos •• $12$12--24K/year24K/year

Shorter timeShorter time--toto--benefitbenefitShave 2Shave 2--4 weeks off 18 month project4 weeks off 18 month project

•• Typical project (above) $1.8MTypical project (above) $1.8M•• $30$30--65K/year65K/year

33--5% more revenues or cost savings5% more revenues or cost savings•• ROI of 2X in 3ROI of 2X in 3--5 years5 years•• $25$25--40K/year (=340K/year (=3--5% x $3.6M/4 yrs.)5% x $3.6M/4 yrs.)

Start further down Start further down ““learning curvelearning curve””More mature codeMore mature code55--10% less debugging effort10% less debugging effort

•• Debugging = 5% project costs = $90K ($60K/year)Debugging = 5% project costs = $90K ($60K/year)•• $3$3--6K/year6K/year

Monetize Value - Example

Price Range

Page 18: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

18© 2008 MarketShare, Inc.

Attract New Customers

EntryEntry--Level ValueLevel Value

Price

Build Up

How much needed so free is attractive?

Take Away

How little needed to justify price?

Page 19: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

19© 2008 MarketShare, Inc.

AgendaAgendaWhy weWhy we’’re herere hereDefine the offerDefine the offerAttract new customersAttract new customersEncourage unit growthEncourage unit growthStimulate upgrade growthStimulate upgrade growthWrapWrap--upup

Page 20: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

20© 2008 MarketShare, Inc.

Encourage Unit GrowthGrowthGrowth Beyond EntryBeyond Entry--Level BuyLevel Buy

Customer purposeCustomer purposeAdd more unitsAdd more unitsPart of a pilot / trial programPart of a pilot / trial program

More unitsMore unitsFree or entryFree or entry--level productlevel productNew purchasersNew purchasers

Part of pilotPart of pilotEntry level Entry level pilotpilot packagepackage

•• Product Product andand servicesservicesSame initial purchaserSame initial purchaser

Page 21: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

21© 2008 MarketShare, Inc.

Encourage Unit GrowthCustomer IntimacyCustomer Intimacy

Understanding Understanding EssentialEssentialSaaS table stakesSaaS table stakes

Level of commitmentLevel of commitmentCurrent vs. futureCurrent vs. futurePilot installPilot installBake offBake off

Internal championInternal championCrucial Crucial -- find one!find one!

•• Heavy userHeavy user•• First to adoptFirst to adopt

Listen Listen Test, test, testTest, test, test

Page 22: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

22© 2008 MarketShare, Inc.

AgendaAgendaWhy weWhy we’’re herere hereDefine the offerDefine the offerAttract new customersAttract new customersEncourage unit growthEncourage unit growthStimulate upgrade growthStimulate upgrade growthWrapWrap--upup

Page 23: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

23© 2008 MarketShare, Inc.

Stimulate Upgrade GrowthNot Just Not Just ““Other Price PointsOther Price Points””

Product planning and packagingProduct planning and packagingCustomer value extraction is keyCustomer value extraction is keyFind price point to deliver value packageFind price point to deliver value package

Opportunity for segmentOpportunity for segment--based pricingbased pricingSpecialized users, usage, capabilitiesSpecialized users, usage, capabilitiesPremium price for premium valuePremium price for premium value

Features vs. addFeatures vs. add--onsonsProduct simplicityProduct simplicityGetting paid for valueGetting paid for value

All price points countAll price points countPrice stepsPrice stepsRelative valueRelative value

Page 24: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

24© 2008 MarketShare, Inc.

Stimulate Upgrade GrowthPackaging and ValuePackaging and Value

Usage versus Value

0%

50%

100%

0% 50% 100%

Component Value to User

% Using Component

Table Stakes Features

Add-onsHacks

Page 25: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

25© 2008 MarketShare, Inc.

Stimulate Upgrade GrowthPackaging and ValuePackaging and Value

Usage versus Value

0%

50%

100%

0% 50% 100%

Component Value to User

% Using Component

Mid-Point

Premium

Table Stakes Features

Add-onsHacks

Page 26: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

26© 2008 MarketShare, Inc.

Stimulate Upgrade GrowthFilling Out the Product LineFilling Out the Product Line

Functional Overlap

Options

Page 27: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

27© 2008 MarketShare, Inc.

Stimulate Upgrade GrowthChoosing Choosing ““MidMid--PointPoint”” PricePrice

Near Entry PriceNear Entry PriceAttract users of entry productAttract users of entry productBig jump to premium productBig jump to premium product

Near Premium PriceNear Premium PriceToo expensive for entry usersToo expensive for entry usersSteal from premium product salesSteal from premium product sales

Easy to modelEasy to modelPrice and value must alignPrice and value must align

Price testing Price testing Mix value delivered with price chargedMix value delivered with price chargedBilling and monitoring systems essentialBilling and monitoring systems essential

Page 28: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

28© 2008 MarketShare, Inc.

Stimulate Upgrade GrowthOptimize RevenuesOptimize Revenues

Estimated Demand (Units) + Price Points

0

100

200

300

400

500

600

$- $100.00 $200.00 $300.00 $400.00 $500.00 $600.00

Product Price

Est.

Dem

and

(Uni

ts)

Optimum

Page 29: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

29© 2008 MarketShare, Inc.

Stimulate Upgrade GrowthSet MidSet Mid--Point PricePoint Price

Estimated Demand (Units) + Price Points

0

100

200

300

400

500

600

$- $100.00 $200.00 $300.00 $400.00 $500.00 $600.00

Product Price

Est.

Dem

and

(Uni

ts) Best Case

Page 30: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

30© 2008 MarketShare, Inc.

AgendaAgendaWhy weWhy we’’re herere hereDefine the offerDefine the offerAttract new customersAttract new customersEncourage unit growthEncourage unit growthStimulate upgrade growthStimulate upgrade growthWrapWrap--upup

Page 31: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

31© 2008 MarketShare, Inc.

Limited feature setLimited feature setPackaging simplicityPackaging simplicityOffering flexibilityOffering flexibilityUniform ongoing revsUniform ongoing revsRelationship drivenRelationship driven

WrapWrap--upupSW Business In TransitionSW Business In Transition

Lots of featuresLots of featuresProduct complexityProduct complexityStandard termsStandard termsHi upfront; low ongoing revsHi upfront; low ongoing revsTransaction drivenTransaction driven

Page 32: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

32© 2008 MarketShare, Inc.

WrapWrap--upupNew Benefits From SaaSNew Benefits From SaaS

SaaS FeatureSaaS FeatureCustomer Benefit From SaaSCustomer Benefit From SaaS

SelfSelf--provisioningprovisioningEase of administrationEase of administration

Price levelPrice levelBilling termBilling termPayment flexibility Payment flexibility

Simple to use, installSimple to use, installFaster time to valueFaster time to value

Incremental releasesIncremental releasesLess operational disruptionLess operational disruption

AccessibilityAccessibilityEasy deploymentEasy deployment

Easy to trialEasy to trialCustomer service orientationCustomer service orientationLower implementation riskLower implementation risk

IT and SW in one placeIT and SW in one placeMore accountabilityMore accountability

Payments aligned with benefitsPayments aligned with benefitsSmall packaging incrementsSmall packaging incrementsLess financial riskLess financial risk

Page 33: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

33© 2008 MarketShare, Inc.

WrapWrap--upupRethink Business FeaturesRethink Business Features

SaaS FeatureSaaS FeatureCustomer Benefit From SaaSCustomer Benefit From SaaS

SelfSelf--provisioningprovisioningEase of administrationEase of administration

Price levelPrice levelBilling termBilling termPayment flexibility Payment flexibility

Simple to use, installSimple to use, installFaster time to valueFaster time to value

Incremental releasesIncremental releasesLess operational disruptionLess operational disruption

AccessibilityAccessibilityEasy deploymentEasy deployment

Easy to trialEasy to trialCustomer service orientationCustomer service orientationLower implementation riskLower implementation risk

IT and SW in one placeIT and SW in one placeMore accountabilityMore accountability

Payments aligned with benefitsPayments aligned with benefitsSmall packaging incrementsSmall packaging incrementsLess financial riskLess financial risk

Pricing &Packaging

Licensing &Billing

Product Development

Page 34: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

34© 2008 MarketShare, Inc.

WrapWrap--upupIndicators of Pricing SuccessIndicators of Pricing Success

Key business metricsKey business metricsNew customer acquisition rateNew customer acquisition rateInitial and followInitial and follow--on order sizeon order sizeUpgrade rateUpgrade rateViral expansion across or in customersViral expansion across or in customersRetention rateRetention rate

Sales revenue and growthSales revenue and growth

Page 35: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

35© 2008 MarketShare, Inc.

WrapWrap--upupRevenue Growth Is Balancing ActRevenue Growth Is Balancing Act

Slowed growth in new customers nowmeans less viral growth in future

Revenues

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

1 2 3 4 5

Number of Years

Rev

enue

($M

)

New customer growth doesn’t help if viral growth in existing customers isn’t there (units and upgrades / options)

Revenues

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

1 2 3 4 5

Number of Years

Reve

nue

($M

)

Existing Customers Upgrade GrowthUnit Growth New Customers

Revenues

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

1 2 3 4 5

Number of Years

Rev

enue

($M

)

Page 36: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

36© 2008 MarketShare, Inc.

WrapWrap--upupSaaS Packaging and Pricing PrinciplesSaaS Packaging and Pricing Principles

Align value with price paidAlign value with price paid

Add features that add valueAdd features that add value

Link payment to value deliveryLink payment to value delivery

Test prices, packages, offeringsTest prices, packages, offerings

Watch billing and usage dataWatch billing and usage data

Make the effort Make the effort –– ItIt’’s worth its worth it

Page 37: SaaS Pricing for Prosperity SaaS Pricing for Prosperity

37© 2008 MarketShare, Inc.

Thanks!Thanks!

Jim [email protected]

MarketShare, Inc.508-647-0330

www.softwarepricing.com

See also: http://www.softwarepricing.com/experts/SaaS-Practice-Details.cfm


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