Thoughts on SaaS Product Pricing

Pricing is very important to the overall value of a product offering. It’s a first-order property of a product alongside its feature set that’s required to build the formula of value for any customer. In no real order, they pay attention to design, features, and price when making a purchasing decision. For pricing, it directly relates to the value that a user/customer will derive from that product.

For any product I’ve managed, I’ve been lucky enough to have pricing responsibility and owned it outright. Typically, SaaS-based organizations like to move price modeling off to finance or other groups. Product manager owns the success of the product; that means they own the price too. Just like with design and engineering, they need to work with cross-functional teams to find the right model (sales, finance, business systems, etc.). That includes customer research, modeling, and institutionalizing pricing to succeed out in the market. It’s required to set up a product and have it evolve as quickly and easily as possible with Sales and their customers.

Selfishly, I’ve been developing a price modeling and strategy template over the years. Want to share it out and make it available as a draft to iterate on. Hopefully, other PM’s out there find it useful.

Tabs/Views:

  • Pricing Scenarios – Lists out various pricing strategies for a product you’re aiming to ship to a customer base. Segments out price models based off of target adoption and purpose of the pricing strategy.
  • Customer Monthly SaaS Tiered Blend – Spreadsheet input form for various MRR, Upfront, customer adoption, and top-level SaaS metrics you’ll need to accurately model and strategically align your product with its pricing methodology. Below lists the top values you’ll need to input into this sheet to model it all.
  • Tier Blend – Annualized view of key inputs and metrics set up in the above tab that applies a table-based view of the various customer segments, run-rates, and customer base growth across a five-year span.

Key Metrics (a primer on key SaaS metrics):

  • MRR – Monthly recurring revenue you expect to charge for the product applied on a tier-based view.
  • Upfront – Tier-segmented initial price to the customer for the product.
  • Total % of Customer Base – Segmentation of the customer base, in the initial year, that adopts the product.
  • Customer Base Adoption – Segmentation of the customer base, for subsequent years, that adopts the product.
  • Customer Base – Total initial count of customers expect to adopt the product in the first year.
  • Annual Growth Rate – Expected growth rate of the customer base on an annualized basis.
  • Churn – Expected churn rate of product’s entire customer base on an annualized basis.

The modeling template has helped quite a bit just looking into various models for customer research, modeling, and communications out to business teams who are ensuring its success. There’s a deeper question just how useful it is to a product manager to do this compared to just handing it off. I’ve always been of the opinion that you a pm puts their teams in the best position possible and that means to being over-prepared and know context better than any other team member. Take a look at the modeling and strategy template, let me know what you think via Twitter @aakashhdesai or Linkedin @aakashhdesai.

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