#29- Pricing your early-stage B2B SaaS product
Yes indeed, it is a hard journey, but eventually aim to hit the sweet spot.
This is a guest post from Chetan Indap, founder & CEO of Callify.ai. Chetan has over two decades of enterprise sales and, and decade of startup experience. Having sold a startup in 2016, he currently runs Callify.ai out of Mumbai and works with most of the top 50 companies in India and the world along with one from FAANG!
A wealth of experience and learnings to learn from.
While a lot has been written about product-market-fit in the early stages of a B2B start-up, very little is articulated for pricing-market-fit. From my experience of running multiple start-ups in the B2B Enterprise SaaS domain (not freemium/free-to-pay SaaS), I have realized that ironically, pricing-market-fit is the right measure of your product-market-fit. When you have a great pricing market fit, you can safely assume you have achieved a reasonable degree of product market fit.
Pricing-market-fit is a price discovery process. However, one has to be very careful with pricing. Below are some of my learnings in the Indian enterprise market. Hopefully, you will be able to find some takeaways from this based on your specific situation.
Launch pricing
This assumes that you do not have real customers to showcase as yet, maybe a few from your initial beta trials or friends and family connections. Generally, these are not big names that can establish your credentials in the mind of your real buyer. So what should be the launch pricing?
Since you are just launching, one assumes, you have something different to offer. So some early adopters will spot you and explore what you have to offer. Initially, their motivation to buy your product is less to do with whether it will bring value to their operations or not; but more to do with being seen as someone initiating technology initiative within the company. And hence since it is the experimental stage, they are most comfortable taking a risk of up to Rs.10,000 per month kind of price point (Rs.1.2 lacs per year SaaS).
Work-in-progress pricing
When you garner 8 to 10 decent logos at the launch pricing; you need to now look at increasing your price point by more than 100%. This is irrespective of whether you added more features to your product or not. The next set of 10 customers who will pay you this price point is the ones, who will help you indirectly strengthen your product-market-fit.
Why, because these buyers are looking at achieving true ROI and they are going to be vocal when they do not see your product performing to the sales promise you made. Mind you, even at a 100% increased price point, the absolute value of the deal is still very minuscule for these enterprises; but post-closing the deal, now these customers are truly looking at ROI, and time for you to focus on great customer success efforts. This is exactly the time you feel that probably you left some more money on the table and you could have pitched at a higher pricing point.
Moving up the price value chain
You probably have spent about 18 to 24 months in the market onboarding yet another 20-30 customers. You have a visible customer portfolio of 40-50 customers, some of them recognizable brand names. Your product now has provable ROI and testimonials from some marquee customers. You now have a good sense of what is the commercial value your product is delivering to the customers. If you are targeting high-end enterprise customers, trust me your product invariably delivers value in crores of rupees to these customers (cost-saving, revenue growth, opportunity costs, etc). This is the time to now peg your pricing as a percentage of the potential value/ROI that your product would be delivering (you will need to start articulating this value in their sales collateral/presentations etc).
This is the time when you are likely to be talking about your pricing point in lacs per month (making your product pricing upwards of Rs 12 - 24 - 36 lacs per annum).
Pricing-market-fit
Once you start getting such large annual deals from marquee brands, without significantly investing in enhancing the product (probably moving from a Minimum Viable Product (MVP) to Minimum Saleable Product (MSP). Further, you have been frugally reaching this stage with no more than 10-15 total team; minimal marketing/sales & ops efforts; still hustling via spammy emails and hammering free social media, that’s when you truly have achieved product-market-fit with the help of price-market-fit.
This is the time for you to raise your seed round; not only to strengthen the product so that you can truly start justifying your higher pricing points (increasing it further); but also to expand your customer base, geography, new use-cases, etc.
Finally always remember, customers, assume that the price you are quoting must be the right one, else why would others be buying your product?
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Awesome article Siddharth! Insightful. Am eager to know the founder who wrote it. But thanks for getting this article to us. Chetan