Making Money with Saas @ Seattle Startup Day

you’ve decided to So, make a living with SaaS Jeff Lawson jeff@twilio.com @jeffiel

simple, universal pricing formula value created - some discount = your price

Consumer OR B Business

Consumers Are Not Rational

Businesses are Pretty Rational Every decision driven two factors...

Reduce Costs Measurable Value OR Increase Revenue

No measurable value? Stick ad s on it! X Whiten your teeth with Colgate Dental Pro learn more advertisement

so business customers Neat! have a framework for measurable value

Be Proud and put a price on the value you’re generating

Start No Does my service Yes generate value? Back to the drawing How Much Value? board

Cost Based Pricing

Proﬁt Margin = Price Proﬁt = Price - Cost Price = Cost / (1-m )

Target Margin: 50% (0.5) Costs: $10 Price = $10 / (1-0.5) = $20 Price = Cost / (1-m )

What if your unit costs are basically zero? Web Server Web Server MySQL $200 / mo

Value Based Pricing

Are they... ...saving money by replacing a more expensive solution? HOW MUCH? ...saving money on eﬃciency because of you? HOW MUCH? ...generating more revenue because of you? HOW MUCH?

Competitive Pricing Red Herring, see previous slide.

Cost Based Value Based sanity $$$ check: do they Competition converge?

Is It?

Customer Feedback Loops

Split Testing

$1,000 Mo + + 0.001 / Msg $0 / / Mo 0.10 / Msg

Talk to potential customers, learn the value prop during private beta (which can be free)

Raise prices if merited, but don’t fool people :) Start conservative, drop prices if needed

Is It?

If you’re unsure, just make more pricing options.

Maybe I need mustard instead

Figure out value generated Test with Potential Customers Free Private Beta Go Public with a Price Tag Adjust as necessary, ideally down.

Jeff Lawson jeff@twilio.com @jeffiel

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