SaaStr Podcast #211: The Ultimate Guide To SaaS Pricing From Investors @ Benchmark, Matrix, Upfront Ventures & Operators @ Figma, Snyk and Kustomer
Update: 2019-02-15
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This post is by Harry Stebbings from SaaStr
Click here to view on the original site: Original Post
Welcome to Episode 211!
In Today’s Episode:
- David Skok, General Partner @ Matrix Partners: Why does David believe that all good products have at least one variable pricing axis? How can founders determine which variable they should choose for their product? What are the pros and cons?
Chetan Puttagunta, General Partner @ Benchmark: Why does Chetan believe we have seen a strong decline in the per seat pricing model? What are the major drawbacks of it? What are we seeing replace it? What has Chetan seen work well amongst his portfolio?
Mark Suster, General Partner @ Upfront Ventures: What were Mark’s two biggest lessons on pricing from seeing the hyper-growth of Salesforce first hand? What does Mark advise founders when it comes to price anchoring and discounting? How does Mark view the sale of professional services with this in mind?
Amanda Kleha, Customer Officer @ Figma: What were Amanda’s biggest learnings from running the Zendesk pricing playbook? What does Amanda mean when she says that successful pricing is broken up into 3 separate product features?
Brad Birnbaum, Founder & CEO @ Kustomer: Why does Brad push back on the common suggestion of a “no man’s land in SaaS pricing”? Why is innovation in pricing actually detrimental to sales in most cases?
Guy Podjarney, Founder & CEO @ Snyk: How does Guy think about having a large enough base to test pricing strategies? How does Guy think about the balance between freemium and paid? Does one have to come first?
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Jason Lemkin
Harry Stebbings
SaaStr
David Skok
Chetan Puttagunta
Mark Suster
Amanda Kleha
Brad Birnbaum
Guy Podjarney
Transcript
Harry Stebbings: Hello and welcome back to the official SaaStr Podcast with me, Harry Stebbings at HStebbings1996 with two Bs on Instagram. It would be awesome to see you there. Today, we’re doing something very different on the show. The other day, a founder of an angel investment of mine said, “Harry, you know, you have all these awesome shows, but if I want to learn about SaaS pricing, well honestly the content is pretty segregated and in a ton of different episodes.” I thought that’s quite a good point, actually. Why don’t we bring that together? So, today we bring you an episode that discusses the biggest lessons, experiences, and advice when it comes to SaaS pricing from founders to investors to C-suite execs on everything you need on SaaS pricing. It’s in this episode.
Harry Stebbings: So we’re going to kick off today with a legend of SaaS in the form of David Skok, General Partner at Matrix Partners discussing the relationship between negative churn and price.
David Skok: What I’ve found by doing models of different businesses and working with different companies that have achieved this negative churn is that it is transformative to a SaaS business. The top piece of advice I would give to SaaS entrepreneurs once they’ve gotten product market fit and are well on their way to understanding the sales and marketing process is that they should turn their attention to figuring out how to get negative churn. You know, how to find a way to upsell and cross-sell into their installed base. Even though they lose some customers that ultimately they’re still going to end up with more revenue from the cohort that began when they signed up that group of customers a year later than they started with at the beginning.
Harry Stebbings: What does that do to the pricing axes?
David Skok: Excellent question. Yeah, well spotted Harry because that is … The first question I get from many startups is well, wait a second, we’ve only got one product and it all costs $2,000 so how are we going to get more money out of those customers? This was actually the exact story at HubSpot. It took us a while to educate ourselves about this. We had a single product that sold at $500 a month, and there was nothing to upsell there. We couldn’t go back to the install base and get more money out of them. The first thing you realize with this is how do we sell something more to them? The answer is there’s two things you could do. You can take your current product and have variable pricing axes so that even though they’re using the same product, you’re not selling them something different.
David Skok: You’re going to get more money from them as they use it more. A good SaaS product will have at least one variable pricing axis and possibly more. A common one you’ll hear is how many seats of people are using this, but in many cases that’s not a good metric because you don’t actually add more users, but you can be still be delivering more value. In HubSpot’s case, they chose to pick the number of leads that are in the database as a good method of determining how much value the customer is getting out of the system. As you add more leads, you pay more money to them. You’ll find many different things. Dropbox, for example, uses the amount of storage that you’re using as a metric for increasing how much you pay them. I’m sure all of you are familiar with different pricing schemes out there, but the important factor there is to look at your pricing scheme and ask if you’ve got variable pricing axes.
David Skok: Don’t worry about doing this if you’re a very, very early stage company because actually in truth, in the really early stage, you just want to keep things simple and sign up customers. This is kind of a slightly secondary thing you start to work on as you get a more mature and successful SaaS company. The second thing you could obviously do is you could add more products. You can have a pro version and you could have a enterprise version and you could charge more money for those. You have different feature breakouts. Those are different versions of the primary product, and then you could have some some add-on products which are really cross-sells to a different thing. You’re selling them a reporting module. I think ultimately when when you look at mature SaaS businesses, even though the customers may not love this, mature SaaS businesses probably have to break their products down into lots of different modules and price that way.
David Skok: The reason for this is pretty simple. You’re going to find that some customers are very comfortable and happy to pay you $2 million a year for your product and yet some other customers will only be willing to pay you $10,000 a year. How on earth do you come up with pricing that lets you sell to both of those without accidentally finding that instead of getting the $2 million from the high-end custome
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