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How to Price a SaaS Offer

In this episode of the ProfitWell Report, Patrick Campbell discusses best practices for pricing SaaS offers, emphasizing the significant impact of value metrics on business growth and customer retention.

This episode might reference ProfitWell and ProfitWell Recur, which following the acquisition by Paddle is now Paddle Studios. Some information may be out of date.

Originally published: April 4th, 2018

Value metrics are what you charge for, where it could be some measure of usage, some per user pricing, or even a cut of cash made from a product. So to answer Zeal's question, we looked at over 6,000 companies and data from nearly 600,000 subscriber buyers, and here's what we found.

But first, if you like this kind of content and want to learn more, subscribe to get in the know when we release new episodes.

Deeper insights into value metrics

For one, it’s hard to deny the impact of value metrics on a business, particularly when it comes to growth. When we compare companies utilizing some sort of value metric versus those who are strictly utilizing feature differentiation, those who have value metric based pricing are growing at nearly double the rate as their feature differentiated counterparts - and the gap is widening. 

Comparing Growth by Pricing Model

Growth Differential

This growth differential for value metric companies is because you’re baking expansion revenue directly into your pricing model. If you’ve aligned your value metric correctly with your target customer base, then as they use more of that metric, they’ll naturally be inclined to pay more, because they’re getting more value. Plus, you won’t have to fight tooth and nail to convince them to upgrade for a feature they probably don’t need.

Gross logo churn rates of those companies who are utilizing a value metric are actually half those of those pricing based on feature differentiation.

Gross Churn Across Different Pricing Models

Gross Churn Across Different Pricing Models

Plus, just raw expansion revenue as a proportion of overall revenue is higher - with value metric companies seeing roughly 10 to 25% higher expansion revenue on an absolute basis. 

Expansion Revenue Across Different Pricing Models

Signs You Have the Right Value Metric

Clearly a value metric is the way to go, but what are some signs you’ve hit the right one? First, I’d make sure you’re seeing this type of throughput from an expansion revenue perspective. If you’re seeing less than 15% of your revenue from expansion, you’re probably using the wrong metric.

Ultimately, the beauty of the subscription model is that with more and more technology coming into the billing mix, we now have the ability to fulfill the dream of commerce, which is to bake the relationship of our users directly into our pricing model, allowing a symbiosis to germinate and grow as that user continues to be nurtured by the value we’re providing. 

Want to learn more? Check out our recent episode: How Discounts Impact Retention and subscribe to the show to get new episodes.

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You've got the questions,

and we have the data.

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Each week,

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we dive deep on benchmarks

of the subscription economy that

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you just can't get any else?

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This is the profit well report.

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Yo Patrick, it's zero

with publicity dot ai. Curious.

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What are the best practices

for pricing your SaaS offer in

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today's landscape? Zeal,

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that's an amazing backdrop

and also an amazing question

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because it gets to one of my

favorite topics of all time, value metrics.

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Value metrics are

what you charge for,

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where it could be some measure

of usage, some per user

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pricing, or even a cut of

cash made from a product.

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So to answer Zeeel's question,

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we looked at over six

thousand companies and data from nearly

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six hundred thousand

subscriber buyers,

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and here's what

we found. For one,

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it's hard to deny the impact

of value metrics on a business,

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particularly when

it comes to growth.

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When we compare companies

utilizing some value metric to

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those who are strictly

using feature differentiated pricing,

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those who use a value

metric are growing at nearly double

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the rate as their feature

differentiated counterparts.

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And the gap is widening.

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The growth differential for

value metric companies is

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because you're baking expansion

revenue directly into your

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pricing If you've aligned

your value metric correctly with

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your target customer base,

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then as they use

more of that metric,

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they're naturally inclined to

pay you more because they're

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getting more value. Plus,

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you won't have to fight tooth

and nail to convince them to

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upgrade for a feature

they probably don't need.

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Gross logo churn rates of

those companies who are utilizing a

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value metric are actually

half those of feature differentiated

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pricing models plus just

raw expansion revenue proportion of

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overall revenue was higher

with value metric companies seeing

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roughly ten to twenty

five percent higher expansion

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revenue on an absolute basis.

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Clearly, a vow you

metric is the way to go,

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but what are some signs you've

hit the right one? First,

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I'd make sure you're seeing

this type of throughput from an

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expansion revenue perspective.

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If you're seeing less than

fifteen percent of your revenue

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from expansion, you're probably using

the wrong value metric. Ultimately,

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the beauty of the subscription

model is that with more and

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more technology coming

into the billing mix,

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we now have the ability to

fulfill the dream of commerce,

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which has debate the

relationship of our users

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directly to our pricing model,

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allowing a symbiosis to

germinate and allowing those

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customers to grow as you

continue to provide them more you.

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Well, that's all for now.

If you have any questions,

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shoot me an email or video

to p c at profitable dot com.

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Let's also thank Zeal

for sparking this research by

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clicking the below to share on

LinkedIn to give him a nice

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little shout out. We'll

see you next week.

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This episode of the Proposal Report

is brought to you by GoSquared,

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intelligent software to convert

clothes and delight customers,

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GoSquared dot com.