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Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...
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Pricing a SaaS Product Pricing a SaaS Product What What ' ' s ...

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  • 1. Pricing a SaaS Product What’s the Big Deal? Barbara Nelson - bnelson@pragmaticmarketing.com Jim Geisman - jimg@softwarepricing.com Slides and other resources available at www.pragmaticmarketing.com/request © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com Introduction MarketShare Unique focus since 1987 Pricing software and systems Address client problems Slow sales cycles Money left on table Chaotic / confusing pricing Entry into new markets / segments Results Improve financial performance Strengthen competitive position Foundation for future growth © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 1
  • 2. Introduction License Landscape Types of licenses Usage / transaction Capacity Time-based Time-based license Perpetual Annual, multi-year Subscription (less-than-annual) • On premise • Hosted (“SaaScription”) © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com Introduction Where We’re Heading SaaS Value Add Sub Sub Value Value Add Add M&S M&S M&S SW SW SW Perpetual Subscription SaaScription © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 2
  • 3. Topics Value, Pricing and Payment SaaS Value and Pricing Pricing and the Product CEO © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com Value, Pricing and Payment Product Functionality Delivers Value Better Value ($) Faster Current solutions Cheaper Time to Value © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 3
  • 4. Value, Pricing and Payment Value and Payment Streams Value Delivery “Stream” 120% 100% % Value 80% 60% 40% 20% 0% 1 2 3 4 5 Year Perpetual Payment Stream (% Perpetual License) 120% Annual Fee 100% 80% License / RTU 60% M&S 40% 20% 0% 1 2 3 4 5 Year © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com Value, Pricing and Payment Some Assumptions Pricing tied to customer value delivered Quantify hard dollar value Value impact on revenue, cost Understand cost to realize value Cost and risks fit with value to be delivered Have done basic pricing Metric, packaging Price structure Price levels, discounts Basic pricing is solid © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 4
  • 5. Value, Pricing and Payment Subscription vs. Perpetual Perpetual license fees Up-front license + annual M&S Payment stream (example) • $1000 (license) + 4 x $250 (M&S @ 25%) • 5-year total = $2000 © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com Value, Pricing and Payment Subscription vs. Perpetual Perpetual license fees Up-front license + annual M&S Payment stream (example) • $1000 (license) + 4 x $250 (M&S @ 25%) • 5-year total = $2000 Subscription license fee Annual fees includes license + M&S Payment stream • Equal payments • 5-year total = ??? © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 5
  • 6. Value, Pricing and Payment Subscription Value and Pricing Subscription benefit / drawback Benefit Drawback* Payment flexibility Must upgrade * Prospects disqualify themselves. Reduced risk Keep paying Not a pricing consideration. Put price on value-add Absolute amount Percent of perpetual Subscription license fee equivalent Perpetual license fees • 5-year total = $2000 Plus subscription value-add © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com Topics Value, Pricing and Payment SaaS Value and Pricing Pricing and the Product CEO © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 6
  • 7. SaaS Value & Pricing SaaS vs. Subscription Subscription license fee Perpetual license fee Plus subscription value-add SaaS license fee equivalent Subscription license fee Plus SaaS benefits Less SaaS drawbacks How much is value-add worth? © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com SaaS Value & Pricing Added Value From SaaS SaaS Benefits Web-delivered application Low upfront cost Monthly payment Pay as you use No / low need for internal IT SaaS Drawbacks Off-site data Risk of downtime Security © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 7
  • 8. SaaS Value & Pricing Added Value From SaaS SaaS Benefits Web-delivered application Low upfront cost Monthly payment What are your objectives? Pay as you use More revenue? No / low need for internal IT Retain customers? SaaS Drawbacks Which customers benefit? Off-site data Risk of downtime Security © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com SaaS Value & Pricing Added Value From SaaS SaaS Benefits Customer Types to Target No / low need for internal IT No IT budget Web-delivered application Rapid deployment Monthly payment Cashflow sensitive Pay as you use Uncertain usage Low upfront cost Price sensitive SaaS Drawbacks Customer Types to Avoid Flexibility Need custom solution Integration Legacy apps Security Risk averse © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 8
  • 9. SaaS Value & Pricing SaaS Pricing s e y e k e e p e ck t ilit ns is ur or ap ic ric ic R ba ib ct ce pp ex ed Pr ed ru w Pr Li Su lP ra st Fl er uc e fra D & ar liv t n ed en n us ua e ftw In de tio R c tio ym rio an IT So eb et Pa Va en ip ip W nt rp cr cr ai Pe M aS bs Sa Su © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com SaaS Value & Pricing SaaS Pricing Example 5 Year Value* Payment Stream Perpetual $2000 $1000 + $250/year Subscription $2500 $500/year $1200/year SaaS $6000 $100/month * Specific configuration. Numbers are illustrative © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 9
  • 10. SaaS Value & Pricing SaaS Price Levels Normalize payment streams Configuration (e.g. # users) Time frame Value-add (subscription, SaaS delivery) SaaS price level SW + M&S + layers of value-add Calculate total annual or monthly price Determine “quantity 1” price • Adjust to market Develop discount schedule • Unit or dollar volume © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com Topics Value, Pricing and Payment SaaS Value & Pricing Pricing and the Product CEO © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 10
  • 11. Pricing & the Product CEO Pragmatic Marketing® Framework Business Case Positioning Marketing Plan Just another task? Distinctive Market Sales Customer Pricing Competence Sizing Process Acquisition Market Product Buy, Build Market Customer Research Performance or Partner Requirements Retention Market Operational Product Product Launch Problems Metrics Portfolio Roadmap Plan Strategic Tactical Market Quantitative Product Product Program Sales Channel Analysis Analysis Strategy Planning Strategy Readiness Support Technology Win/Loss User Buyer Channel Presentations Innovation Assessment Analysis Personas Personas Training & Demos Competitive Success Collateral & “Special” Use Scenarios Analysis Stories Sales Tools Calls Release Thought White Event Milestones Leaders Papers Support Lead Competitive Answer © 2008 MarketShare, Inc. Generation M Write-UpARKETSHARE, inc. Desk www.SoftwarePricing.com Pricing & the Product CEO Pricing Needs Market Facts Business Marketing Positioning Case Plan Distinctive Market Sales Customer Pricing Competence Sizing Process Acquisition Market Product Buy, Build Market Customer Research Performance or Partner Requirements Retention Market Operational Product Product Launch Problems Metrics Portfolio Roadmap Plan Strategic Tactical Market Quantitative Product Product Program Sales Channel Analysis Analysis Strategy Planning Strategy Readiness Support Technology Win/Loss User Buyer Channel Presentations Innovation Assessment Analysis Personas Personas Training & Demos Competitive Success Collateral & “Special” Use Scenarios Analysis Stories Sales Tools Calls Release Thought White Event Milestones Leaders Papers Support Lead Competitive Answer © 2008 MarketShare, Inc. Generation M Write-UpARKETSHARE, inc. Desk www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 11
  • 12. Pricing & the Product CEO Understand Customer View of Value Value elements Hard dollar (net) • Revenue increases, cost savings Soft dollar • Prevent revenue erosion, cost avoidance • Reduce risk Pricing influencers Elements Amount Timing Likelihood / risk © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com Pricing & the Product CEO Scale Value With Customer per loan +++ per ad +++ per patient +++ per bill +++ per user ++ per claim +++ per user ++ per customer +++ per user +++ per employee +++ per property +++ per employee +++ Per user + per employee +++ per student +++ Per gallon of fuel +++ Vertical markets per user ++ per loan +++ per customer +++ per patient +++ Aligned with per user +++ per patient +++ per user per patient +++ +++ per patient +++ customer’s business per property +++ per employee +++ per property +++ per user + per reservation +++ per user ++ per shareholder +++ per claim +++ per student +++ per bill +++ per member ++ Per gallon of fuel +++ per user +++ per patient +++ per user +++ per shareholder +++ per user +++ per user +++ per user +++ per employee +++ per user ++ per user per ad + +++ per user per user ++ ++ Horizontal and vertical per property per user +++ + per user per user ++ + markets per reservation +++ per employee +++ per user Per user + + Sometimes aligned per member ++ per user + per user + per user + per user + per user + per user + © 2008 MarketShare, Inc. per user + MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 12
  • 13. Pricing & the Product CEO Payment Streams Are Convertible $45.0 $40.0 $35.0 Perpetual Perp + M&S Fee Software Fee Cume Payments ($K) $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $- 0 4 8 12 16 20 # Quarters © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com Pricing & the Product CEO Payment Streams Are Convertible $45.0 $40.0 $35.0 Perpetual Perp + M&S Fee Software Fee Cume Payments ($K) $30.0 $25.0 $20.0 $15.0 SaaS Breakeven $10.0 $5.0 $- 0 4 8 12 16 20 # Quarters © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 13
  • 14. Pricing & the Product CEO Payment Streams Must Be Comparable $45.0 $40.0 $35.0 Perpetual Perp + M&S Fee Software Fee Cume Payments ($K) $30.0 $25.0 $20.0 $15.0 SaaS Software-Only Breakeven SaaS Software $10.0 PLUS Hosting Breakeven $5.0 $- 0 4 8 12 16 20 # Quarters © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com Pricing & the Product CEO Include Value-Add in Price Perpetual Payments Subscription Payments Value $ SaaS Payments Value $ Time Value $ Time Time © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 14
  • 15. Barbara Nelson bnelson@pragmaticmarketing.com Jim Geisman jimg@softwarepricing.com Slides and other resources: www.pragmaticmarketing.com/request © 2008 MarketShare, Inc. MARKETSHARE, inc. www.SoftwarePricing.com © 2008 MarketShare, Inc. Page 15

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