SaaS Pricing for Prosperity SaaS Pricing for Prosperity
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Transcript of SaaS Pricing for Prosperity SaaS Pricing for Prosperity
MarketShare, Inc.Wayland, MA 01778Tel: (508) 647-0330
www.softwarepricing.com
© 2008 MarketShare, Inc.
SaaS Pricing for ProsperitySaaS Pricing for Prosperity
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Pricing and Packaging...Pricing and Packaging......Get the Growth You Need......Get the Growth You Need...
...Achieve the Success You Want...Achieve the Success You Want
2© 2008 MarketShare, Inc.
IntroductionIntroductionMarketShareMarketShare
Unique focus since 1987Unique focus since 1987Pricing computer softwarePricing computer software
Practice areasPractice areasValueValue--Driven PricingDriven PricingValueValue--Based SellingBased SellingStrategic DiscountingStrategic Discounting
ResultsResultsImproved financial performanceImproved financial performanceMore value from products & services More value from products & services Increased sales effectivenessIncreased sales effectiveness
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IntroductionIntroductionSaaS Adoption is GrowingSaaS Adoption is Growing
Figure 1: SaaS Application Adoption (Worldwide) 2008-2010 - % Companies deploying
Source: Saugatuck Technology - SaaS Survey Research 2008 www.saugatuck.com
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IntroductionIntroductionSaaS is High Growth OpportunitySaaS is High Growth Opportunity
Source: 2007 Operating Metrics Survey, OPEXEngine LLC www.opexengine.com
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IntroductionIntroductionValuation Related to Growth RateValuation Related to Growth Rate
Source: Q1 2008 Software Industry Equity Report, Software Equity Group LLC www.softwareequity.com
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AgendaAgendaWhy weWhy we’’re herere hereDefine the offerDefine the offerAttract new customersAttract new customersEncourage unit growthEncourage unit growthStimulate upgrade growthStimulate upgrade growthWrapWrap--upup
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Why We're HereWhy We're HereGrowth Means ProsperityGrowth Means Prosperity
"The way to make money in the stock market is to buy a stock and sell it when it goes up.
If it's not going to go up, don't buy it!“- Will Rogers
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Why We're HereWhy We're HereGrowth Means ProsperityGrowth Means Prosperity
"The way to make money in SaaS is to start a company and sell it when it goes up.
If it's not going to go up, don't start it!“
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Why We're HereWhy We're HereGrowth RequirementsGrowth Requirements
Attract more customersAttract more customers
Sell more unitsSell more units
Get more upgradesGet more upgrades
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Why We're HereWhy We're HereRevenue SourcesRevenue Sources
Existing Customers
Upgrade Growth
Unit Growth
New Customers # New Customers x $ / Customer
# Customers x $ / Customer = Base revenue
# Customers x New $ / Customer= Growth revenue+
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Why We're HereWhy We're HereRevenue Growth ProfileRevenue Growth Profile
Revenues
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Why We're HereWhy We're HereDriving Revenue Growth Driving Revenue Growth
Define the offerDefine the offerFocused app, meet needFocused app, meet need
Attract new customersAttract new customersEasy to try, buy, useEasy to try, buy, useEntryEntry--level level product(sproduct(s))
Encourage unit growthEncourage unit growthFair dealFair deal““BeachheadBeachhead”” configurationconfigurationBreadth of appealBreadth of appealReceptivity / contagionReceptivity / contagion
Stimulate upgrade growthStimulate upgrade growthValue stepValue stepBiteBite--sized addsized add--onsonsAttach rateAttach rate
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AgendaAgendaWhy weWhy we’’re herere hereDefine the offerDefine the offerAttract new customersAttract new customersEncourage unit growthEncourage unit growthStimulate upgrade growthStimulate upgrade growthWrapWrap--upup
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Define the OfferMore Than Product OnlyMore Than Product Only
ProductProductMust be attractiveMust be attractiveEasy to useEasy to useApparent depthApparent depthPromise of a futurePromise of a future
ServicesServicesUser supportUser supportImplementationImplementation
OtherOtherEcosystemEcosystemReliabilityReliabilityScalabilityScalability
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AgendaAgendaWhy weWhy we’’re herere hereDefine the offerDefine the offerAttract new customersAttract new customersEncourage unit growthEncourage unit growthStimulate upgrade growthStimulate upgrade growthWrapWrap--upup
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Attract New CustomersItIt’’s Not Just Prices Not Just Price
First impressions countFirst impressions countEasyEasy--toto--understand offeringunderstand offeringTCO estimate TCO estimate Clear pricing Clear pricing Pricing messagePricing message
Attractive entryAttractive entry--level productslevel productsHow much value?How much value?At what price?At what price?
Free vs. FeeFree vs. FeeSharp drop off from feeSharp drop off from feeFee means skin in the gameFee means skin in the gameImpulseImpulse-- vs. consideredvs. considered--buy price pointbuy price point
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Attract New CustomersPrice Level and Value RangePrice Level and Value Range
Customer economicsSubstitutes
Competition
$
Impulse Prices
Costs
More development outputMore development output11--2% more output2% more output
•• Typical project 12 FTEs @ $100K/developer x 18 mos Typical project 12 FTEs @ $100K/developer x 18 mos •• $12$12--24K/year24K/year
Shorter timeShorter time--toto--benefitbenefitShave 2Shave 2--4 weeks off 18 month project4 weeks off 18 month project
•• Typical project (above) $1.8MTypical project (above) $1.8M•• $30$30--65K/year65K/year
33--5% more revenues or cost savings5% more revenues or cost savings•• ROI of 2X in 3ROI of 2X in 3--5 years5 years•• $25$25--40K/year (=340K/year (=3--5% x $3.6M/4 yrs.)5% x $3.6M/4 yrs.)
Start further down Start further down ““learning curvelearning curve””More mature codeMore mature code55--10% less debugging effort10% less debugging effort
•• Debugging = 5% project costs = $90K ($60K/year)Debugging = 5% project costs = $90K ($60K/year)•• $3$3--6K/year6K/year
Monetize Value - Example
Price Range
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Attract New Customers
EntryEntry--Level ValueLevel Value
Price
Build Up
How much needed so free is attractive?
Take Away
How little needed to justify price?
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AgendaAgendaWhy weWhy we’’re herere hereDefine the offerDefine the offerAttract new customersAttract new customersEncourage unit growthEncourage unit growthStimulate upgrade growthStimulate upgrade growthWrapWrap--upup
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Encourage Unit GrowthGrowthGrowth Beyond EntryBeyond Entry--Level BuyLevel Buy
Customer purposeCustomer purposeAdd more unitsAdd more unitsPart of a pilot / trial programPart of a pilot / trial program
More unitsMore unitsFree or entryFree or entry--level productlevel productNew purchasersNew purchasers
Part of pilotPart of pilotEntry level Entry level pilotpilot packagepackage
•• Product Product andand servicesservicesSame initial purchaserSame initial purchaser
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Encourage Unit GrowthCustomer IntimacyCustomer Intimacy
Understanding Understanding EssentialEssentialSaaS table stakesSaaS table stakes
Level of commitmentLevel of commitmentCurrent vs. futureCurrent vs. futurePilot installPilot installBake offBake off
Internal championInternal championCrucial Crucial -- find one!find one!
•• Heavy userHeavy user•• First to adoptFirst to adopt
Listen Listen Test, test, testTest, test, test
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AgendaAgendaWhy weWhy we’’re herere hereDefine the offerDefine the offerAttract new customersAttract new customersEncourage unit growthEncourage unit growthStimulate upgrade growthStimulate upgrade growthWrapWrap--upup
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Stimulate Upgrade GrowthNot Just Not Just ““Other Price PointsOther Price Points””
Product planning and packagingProduct planning and packagingCustomer value extraction is keyCustomer value extraction is keyFind price point to deliver value packageFind price point to deliver value package
Opportunity for segmentOpportunity for segment--based pricingbased pricingSpecialized users, usage, capabilitiesSpecialized users, usage, capabilitiesPremium price for premium valuePremium price for premium value
Features vs. addFeatures vs. add--onsonsProduct simplicityProduct simplicityGetting paid for valueGetting paid for value
All price points countAll price points countPrice stepsPrice stepsRelative valueRelative value
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Stimulate Upgrade GrowthPackaging and ValuePackaging and Value
Usage versus Value
0%
50%
100%
0% 50% 100%
Component Value to User
% Using Component
Table Stakes Features
Add-onsHacks
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Stimulate Upgrade GrowthPackaging and ValuePackaging and Value
Usage versus Value
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50%
100%
0% 50% 100%
Component Value to User
% Using Component
Mid-Point
Premium
Table Stakes Features
Add-onsHacks
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Stimulate Upgrade GrowthFilling Out the Product LineFilling Out the Product Line
Functional Overlap
Options
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Stimulate Upgrade GrowthChoosing Choosing ““MidMid--PointPoint”” PricePrice
Near Entry PriceNear Entry PriceAttract users of entry productAttract users of entry productBig jump to premium productBig jump to premium product
Near Premium PriceNear Premium PriceToo expensive for entry usersToo expensive for entry usersSteal from premium product salesSteal from premium product sales
Easy to modelEasy to modelPrice and value must alignPrice and value must align
Price testing Price testing Mix value delivered with price chargedMix value delivered with price chargedBilling and monitoring systems essentialBilling and monitoring systems essential
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Stimulate Upgrade GrowthOptimize RevenuesOptimize Revenues
Estimated Demand (Units) + Price Points
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Stimulate Upgrade GrowthSet MidSet Mid--Point PricePoint Price
Estimated Demand (Units) + Price Points
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AgendaAgendaWhy weWhy we’’re herere hereDefine the offerDefine the offerAttract new customersAttract new customersEncourage unit growthEncourage unit growthStimulate upgrade growthStimulate upgrade growthWrapWrap--upup
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Limited feature setLimited feature setPackaging simplicityPackaging simplicityOffering flexibilityOffering flexibilityUniform ongoing revsUniform ongoing revsRelationship drivenRelationship driven
WrapWrap--upupSW Business In TransitionSW Business In Transition
Lots of featuresLots of featuresProduct complexityProduct complexityStandard termsStandard termsHi upfront; low ongoing revsHi upfront; low ongoing revsTransaction drivenTransaction driven
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WrapWrap--upupNew Benefits From SaaSNew Benefits From SaaS
SaaS FeatureSaaS FeatureCustomer Benefit From SaaSCustomer Benefit From SaaS
SelfSelf--provisioningprovisioningEase of administrationEase of administration
Price levelPrice levelBilling termBilling termPayment flexibility Payment flexibility
Simple to use, installSimple to use, installFaster time to valueFaster time to value
Incremental releasesIncremental releasesLess operational disruptionLess operational disruption
AccessibilityAccessibilityEasy deploymentEasy deployment
Easy to trialEasy to trialCustomer service orientationCustomer service orientationLower implementation riskLower implementation risk
IT and SW in one placeIT and SW in one placeMore accountabilityMore accountability
Payments aligned with benefitsPayments aligned with benefitsSmall packaging incrementsSmall packaging incrementsLess financial riskLess financial risk
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WrapWrap--upupRethink Business FeaturesRethink Business Features
SaaS FeatureSaaS FeatureCustomer Benefit From SaaSCustomer Benefit From SaaS
SelfSelf--provisioningprovisioningEase of administrationEase of administration
Price levelPrice levelBilling termBilling termPayment flexibility Payment flexibility
Simple to use, installSimple to use, installFaster time to valueFaster time to value
Incremental releasesIncremental releasesLess operational disruptionLess operational disruption
AccessibilityAccessibilityEasy deploymentEasy deployment
Easy to trialEasy to trialCustomer service orientationCustomer service orientationLower implementation riskLower implementation risk
IT and SW in one placeIT and SW in one placeMore accountabilityMore accountability
Payments aligned with benefitsPayments aligned with benefitsSmall packaging incrementsSmall packaging incrementsLess financial riskLess financial risk
Pricing &Packaging
Licensing &Billing
Product Development
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WrapWrap--upupIndicators of Pricing SuccessIndicators of Pricing Success
Key business metricsKey business metricsNew customer acquisition rateNew customer acquisition rateInitial and followInitial and follow--on order sizeon order sizeUpgrade rateUpgrade rateViral expansion across or in customersViral expansion across or in customersRetention rateRetention rate
Sales revenue and growthSales revenue and growth
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WrapWrap--upupRevenue Growth Is Balancing ActRevenue Growth Is Balancing Act
Slowed growth in new customers nowmeans less viral growth in future
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New customer growth doesn’t help if viral growth in existing customers isn’t there (units and upgrades / options)
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WrapWrap--upupSaaS Packaging and Pricing PrinciplesSaaS Packaging and Pricing Principles
Align value with price paidAlign value with price paid
Add features that add valueAdd features that add value
Link payment to value deliveryLink payment to value delivery
Test prices, packages, offeringsTest prices, packages, offerings
Watch billing and usage dataWatch billing and usage data
Make the effort Make the effort –– ItIt’’s worth its worth it
37© 2008 MarketShare, Inc.
Thanks!Thanks!
MarketShare, Inc.508-647-0330
www.softwarepricing.com
See also: http://www.softwarepricing.com/experts/SaaS-Practice-Details.cfm