The presentation for a session I delivered internally to our team at WUZZUF about picking the suitable pricing strategy and techniques for a SaaS product startup

1. Pricing Strategies
for
SaaS Startups

2. Hello!
I am Abdullah Al Nady
I build products at BasharSoft / WUZZUF

3. What is SaaS?And all this cloud computing stuff

4. “I don’t need a hard disk
in my computer if I can
get to the server faster.”
~ Steve Jobs

5. Cloud
Computing
Infrastructure as a
Service
(IaaS)
Software as a
Service
(SaaS)
Platform as a
Service
(PaaS)
How about Pizza as a Service?

8. Type of service changes
=
Pricing strategy changes

9. SaaS Pricing Models
Balance value and revenue

10. Pricing Models
Flat Rate Per User Freemium
Usage Based Per Active User
Tiered Per Feature

11. Flat Rate
⊸ Single product, a single set
of features, and a single
price.
⊸ Example: CartHook

12. Flat Rate
• Easier to sell
• Easier to communicate
• Difficult to extract value
from different users
• One shot at securing
customers

13. Usage Based

14. Usage Based
⊸ Also known as Pay as You
Go.
⊸ If you use more of the
service, your bill goes up;
use less, and your spend
decreases.
⊸ Example: Chargify
Usage rate
Price

15. Usage Based
• Price scales alongside
usage
• Reduces barriers to use
• Accounts for "heavy user
costs"
• Disconnects value from the
product
• Harder to predict revenue
• Harder to predict customer
costs

16. Tiered Pricing

17. Tiered Pricing
⊸ The most popular model used in SaaS
⊸ Offer multiple "packages", with different
combinations of features offered at different
price points
⊸ Example: WUZZUF

19. Tiered Pricing
• Appeal to multiple personas
• Leave less money on the
table
• Clear upselling route
• Potentially confusing
• Appeals to too many people
• "Heavy user risk"

20. Per User Pricing
$
$$
$$$

21. Per User Pricing
⊸ A single user pays a fixed monthly price;
add another user, and that price doubles
⊸ Example: Microsoft Office 365

22. Per User Pricing

23. Per User Pricing
• Simple
• Revenue scales with
adoption
• Predictable revenue
generation
• It limits adoption
• It makes it easy to churn
• It doesn't reflect the real
value

24. Per Active User Pricing
$
$$
$$$
$$

25. Per Active User Pricing
⊸ A variant of the Per User Pricing
⊸ Encouraging customers to sign-up as many
users as possible, with the safeguard that
only active users will actually be billed for.
⊸ Example: Slack, Microsoft TFS

27. Per Active User Pricing
• Customers only pay for
active users
• Reduces the risk of
widespread adoption
• Doesn't work so well for
SMBs

28. Per Feature Pricing
$
$$$
$$
$$$$

29. Per Feature Pricing
⊸ Separates out different pricing tiers
according to the functionality available in
each
⊸ Higher priced packages = Greater number
of available features
⊸ Example: Evernote

31. Per Feature Pricing
• Strong upgrade incentive
• Compensate for delivery-
heavy
• Difficult to get right
• Leaves a bad taste

32. Freemium Model

33. Freemium Model
⊸ Offering a free-to-use product, supplemented by
additional paid packages
⊸ Typically used as part of a tiered pricing strategy: the
regular paid packages are supplemented with a free,
entry-level tier.

34. Freemium Model

35. Freemium Model
• It's a foot in the door
• Viral potential
• A real revenue killer
• It's easier to churn on a free
package
• It can devalue your core
service

36. Pricing Strategies
Achieve your growth goals

37. Pricing Strategies
Penetration Prestige Value-Based
Captive Free Trial
Competitor-
Based
Skimming
Cost Plus Decoy Pricing

38. Reducing prices to rapidly gain adoption in a target
market, and secure the "first mover" advantage
Penetration Pricing

39. Penetration Pricing
Low
Price
High
Growth

40. Offer a “core” product for a lower-than-expected
price but charge extra for extra required products
Captive Pricing

41. Captive Pricing

42. Setting a high initial price for a new product,
before slowly lowering the price over time
Why would success in SaaS?
Answer: Tech. Adoption Lifecycle
Price Skimming

43. Answer: Tech. Adoption Lifecycle
Price Skimming

44. Maintaining high prices, in order to convey a sense
of quality, exclusivity or luxury
Example: WUZZUF ReDirect
Prestige Pricing

45. “What’s the difference between an $8,000 Rolex and a
$40 Seiko watch?
The Seiko is a better time piece. It’s far more accurate. The
difference is your ability to sell”
Prestige Pricing

46. Free Trial Pricing

47. Offering the product for free, for a limited time, you
provide a quick foot-in-the-door
typically time-limited (the most common length is 30 days), but it's also possible to
restrict it by usage
Free Trial Pricing

48. Adding a target profit margin to the costs (say,
20%), and setting that as the price for your product
Cost Plus Pricing
100
20 120
Total Cost Profit Margin Price

49. Using the perceived value of the product as the
benchmark for price setting, instead of costs,
competitors or target margins
Value Based Pricing

50. Value Based Pricing

51. Pricing depends on offerings of other businesses
This may not yield maximum benefits to your brand as you
may tend to ignore nuances of your own product
Competitor Based Pricing

52. Cost Plus vs. Competitor Based vs. Value Based

53. a phenomenon where people tend to have a change in
preference between two options when presented
with a third option that is asymmetrically
dominated
Decoy Pricing

54. Decoy Pricing
Restaurant #1
Restaurant #2
Restaurant #4

55. Thanks!
Any questions?
Feel free to reach out
Tweet @abnady - Connect @LinkedIn - Drop an email

56. References
⊸ The Ultimate Guide To SaaS Pricing Models, Strategies & Psychological Hacks by
Ryan Law, cobloom
⊸ SaaS Startup Strategy | Three SaaS Sales Models by Joel York, Chaotic Flow
⊸ Picking a pricing strategy for your product by Des Traynor, Co-Founder & CSO,
Intercom
⊸ An Enormous Guide to Pricing Psychology by Nick Kolenda
⊸ The Pricing Strategy Guideline Framework for SaaS Vendors by Marco Spruit &
Nizar Abdat The Research Gate

57. Credits
⊸ Presentation template by SlidesCarnival