Enterprise SaaS pricing

Key takeaways

1. Pricing is a story
   Pricing should tell a compelling story about the value and outcomes customers will achieve. If discounting feels necessary, change your positioning and packaging, not your pricing. The maximum price customers will pay depends on their buying power, your value proposition, and how you are positioned.
2. Price outcomes, not usage
   Focus pricing on the specific outcomes and problems you solve for customers, not generic usage of your product. Embrace your customers’ context to make pricing feel fair. User-based pricing lacks empathy, while context-based pricing aligns better.
3. Differentiate with guarantees and convenience
   Bold guarantees that make you nervous can strongly differentiate you and justify premium pricing to customers. Offering elements of convenience, like fast and easy implementation, can also make your pricing feel premium and desirable.
4. Leverage scarcity
   Introduce genuine elements of scarcity that increase value, quality or experience for customers. This could include exclusive access to peers, experts, or early access programs. Scarcity makes customers feel special and privileged.
5. Understand your pricing power
   Pricing power starts by clearly understanding and articulating your ideal customer’s unique dynamics, fears, values and aspirations. Get clear on where you have the ability to charge a premium by providing compelling value to the right customers.

Table of Contents

1. How desirable is your SaaS pricing?
2. Get clear about where you have pricing power
3. Price outcomes to problems, not usage of product
4. Embrace your customers’ context
5. Position for scarcity
6. Stack more guarantees (not features)
7. Leverage value of convenience

One of the biggest problems I see Enterprise SaaS companies struggle with is the wrong debates about their pricing.

The value delivered is often entirely out of sync with the charged price. And with that, the bulk of SaaS companies leave money on the table.

Now, I am not saying we should be ripping off customers; on the contrary.

Pricing is complicated. But if we challenge our pricing around specific rules, it can become a fun exercise.

As mentioned above, price is a story. And virtually all SaaS companies forget this.

Concerning this, I love Jonathan Stark’s simple Max Price formula:

If you analyze its components, you’ll see this is about the foundation of your business (As you know, I like to refer to this as your Traction Foundation):

• Buying power: segmentation, i.e., clarity of who you’re for / not for
• Desire: your compelling value proposition
• Available Options: positioning or better: taking position

It’s precisely what many Enterprise SaaS companies forget when they design their pricing. Instead, too many make pricing a boring numbers game where only SaaS cost, contribution margin, and competitors’ pricing play a role.

Key takeaway: Stop approaching your SaaS pricing from a Cost+ perspective; Start approaching it from a Desire+ perspective

So, what the big question becomes: How to embrace that?

Below, I’ll dig into the core ingredients that I always aim to optimize around. Let’s start with step 1.

Example of pricing Enterprise SaaS software #3

“We learned something quite interesting on pricing. We started by saying we would give people an unlimited price to start with so that we got our handful of customers in, and then we’ll come up with a pricing model after that. And people hated it, which was weird because I was like, at least you can see how much this thing costs, and you’re not gonna get over it.

We changed it to another pricing model, which is we priced based upon the number of customers our customer has, and people loved it. Now, I always wanted to do that because I wanted to align the way that we increased our revenue and the way that we became successful with our customers’ success. Historically, in this industry, people used to price it per user. The challenge with doing that is that I need to have more CSMs for me to make more money, and therefore, it was counterintuitive. 

And it was interesting because when we found the pricing point and the pricing wave that landed while with our customers, it was just immediate. People immediately said I get it. If I have more customers, I make more money, and I ingest customer data. Therefore, if I have more customers, it costs you more money. And it’s easy also for my CFO to account for it, because he just needs to take one little percentage number on a deal. And that’s the end of figuring it out.”

Here’s the thing:

Customers only care about their specific problem. And if you can solve that as pain-free as possible, they’re going to be very interested. That then becomes the thing they’ll evangelize for you

It requires a mind-shift, though, but once you embrace that, other levers are at your disposal – such as the way you can tune your Enterprise SaaS pricing model. Here’s how this panned out for CLEVVA:

It enabled us to introduce what we call a ”Virtual agent as a service’ offering. We’ve moved away from a software-as-a-service play into offering customers the outcome of our software.

This means we are taking full accountability for the virtual agent. That’s about owning the outcome of our software, as opposed to expecting somebody else to do magic with our software. The measure of our success is impact, not usage.

Key takeaway: Price outcomes to problems, not usage of product.

One of the most commonly used pricing mechanisms in SaaS is ‘user-based.’

I understand, but my experience tells me it’s the least effective pricing concept available.

Let me give you an anecdote from my own experience when I headed up Global Product Marketing & Product Management at Unit4 (which included our pricing strategy).

In my previous job, I was responsible for pricing – and yes, like all our competitors, we applied user pricing in different flavors: Employee Self Service, Professional users, and Enterprise users.

In short – always debates. No one understood it. And it was never perceived as fair.

Let me illustrate: We sold to the services industry, organizations that delivered their value through people, not products. Think about Government, education, not-for-profit, management consultancies, engineering companies, etcetera.

A small local authority typically employed 1000 employees – the same as a mid-sized professional service company. Both required +900 self-service licenses to enter time, expenses, their absence, and what have you.

As you can imagine, that same license had a different perceived value for Local Government than for a professional service firm. For one, it was a cost of doing business. For the other one, it was their primary source of income (time tracking).

And that illustrates the dilemma.

Even though your SaaS solution can be divided into functional slices, they still have a different perceived value for each customer.

The solution: Price context. 

Context your ideal customer understands, relates to, and trusts. That way, you can speak the correct language for each customer segment, charge a price that’s perceived fair and valuable, and speed up the sales cycle.

That meant we started pricing professional services based on # of FTE, Local Government based on # of citizens, Education based on # of students – and so on.

It allowed us to bundle functionality properly and grow with the customers’ core business. And this is a crucial point. Local Government, f.ex., will often develop in # citizens, but decline in # of employees. With user-based pricing, you’re stuck. Context-based pricing models remain fair and provide an incentive to leverage the power of the software even more.

Key takeaway: User-based pricing indicates a lack of customer empathy, frustrates everyone, and costs you money.

A question for you to reflect upon:

Is your user price perceived of similar value for each customer segment? If not – you might have a context problem.

Scarcity is an ingredient we often overlook when it comes to pricing.

Referring to Jonathan Stark‘s Max Price formula, he points to three essential ingredients: buying power, desire, and available options.

When it comes to ‘available options,’ we often think about ‘the competition’ – because, ultimately, that’s what a customer can choose from.

• But what if your prospects don’t even look at the competition?
• What if they have already made up their mind and want your solution?
• What if they’re already a happy customer that wants to expand?

In that case, throttling ‘Available options,’ i.e., introducing elements of scarcity, could be an instrument to create differentiated and desirable value for your customers.

Personally, I am not a big fan of time-limited offers. But I am a big fan of genuine elements of scarcity that increase value, quality, or experience.

Think about

• Getting access to an exclusive group of peers
• Giving exclusive access to experts within your company
• Becoming part of an early access program to new features

Leveraging scarcity the right way can accelerate the number of advocates for your SaaS suite – simply because it feels special and a privilege to be supported in this way.

Question for you to reflect upon:

What scarcity options would your customers stand in line for beyond the everyday use of your product? What if you’d make that a premium, limited-available offer?

Let me ask you this: What guarantee would make you sweat – but your customers cheer?

Why do I ask? Because answering this question can change your SaaS business for good.

Here’s the thing:

In Enterprise SaaS, we often promise the moon – but don’t back it up with guarantees. And with that, the industry as a whole has lost trust. Overpromise, underdeliver. Obviously, our prospects spot this as well. The result? Skepticism. And that … drives your price down, not up.

So what if we’d address this and not only make a bold promise but instead guarantee it? Here are some ideas:

Imagine what would happen…

• … in the mind of prospects.
• … to our competitive position
• … to our ability to monetize premium levels
• … to our ability to shorten sales cycles and increase win rates

The rule: the more it makes you sweat – the bigger your defensible differentiation – and the bigger the likelihood for a customer to happily pay a premium.

Key takeaway: Don’t fall into the trap of stacking ‘more features’ in your pricing models – stack more guarantees.

Question for you to reflect upon:

What guarantee would make you sweat – but your customers cheer? What if you’d blend that into your pricing options?

Last but not least, an ingredient that’s very effective to make customers happily pay a premium, but hardly utilized in Enterprise SaaS: Convenience

When we think of convenience in SaaS, we often move into the direction of self-service and with that, the perception of ‘cheaper options.’ That might be true in the low end of the market, but there, the incentive is different: Scale for us (instead of more value for the customer).

Imagine you’d sell an enterprise SaaS solution. The average deal size is well over $100K ACV, with a growing number of deals that cross the $250K ACV bar.

It’s a complex technology that requires integration with many applications in the Tech stack of your customers. Therefore, the typical implementation cycle is 6-9 months, and sometimes will last over a year. That’s the norm in the market.

What if you’d be able to offer the same solution with the guarantee a customer will be live in less than 4 weeks – or even less than 1 day?

What story would that tell your customers? What value would that bring them?

The convenience of not having to go through months and months of implementation work:

• avoiding the 1000s of hours of effort
• avoiding the risks of everything that can go wrong
• avoiding the delay in getting value from their investment

There are many ways you can differentiate with ‘convenience.’

1. By shrinking the time to value – like Stargazr is doing in Manufacturing
2. By focusing on what your customer WON’T have to do anymore, like Paddle does
3. By eliminating the need for proof of concept – like Senzing invested in during the pandemic
4. By linking customers to a dedicated expert to ensure maximized impact – like SALESmanago does

The luxury feeling this gives to your customers has a magical effect on them to opt for you – instead of the alternatives. Done well, it makes your offer irresistible.

Question for you to reflect upon:

What convenience could you offer that would spark a ‘high-five’ with your customers?

In Summary: Developing Enterprise SaaS pricing strategies that work for you

I wrote this blog intending to answer the big question: How to approach pricing if you want customers to happily pay a premium?

I started by getting back to basics: Pricing is a story.

A story about:

…a better future – a future they desire
…the end of their frustrations
…gaining an advantage

As Margo Mulvihill recently wisely summarized it: “Pricing: a delicate balance of value, psychology, and perception.”

When this story is absent, you can’t blame your prospect for starting to demand more scope for a far lower price – or worse, postponing the deal, ghosting you, or even buying nothing at all.

Assuming your product is solid, creating that story is very much a positioning opportunity.

In other words: When discounting starts to feel like your only weapon – don’t change your pricing; change your positioning.

But assuming your positioning is there, then what can you do to be able to use your pricing as a lever in the mix as well?

I highlighted 6 ingredients – each ingredient will help to do one thing: Make your pricing more desirable.

Frequently asked questions on Enterprise SaaS pricing