Developing the right pricing strategy for your software as a service (SaaS) business is absolutely crucial, as it’s the one lever businesses leaders can pull that immediately and directly impacts revenue.
It’s a complex and ongoing process which requires businesses to strike the fine balance between simplicity, while maximising revenue potential. The good news is that if you get your pricing strategy right you can create growth that rockets your business to the next level.
Given the huge impact pricing strategy can have on a SaaS business it is perhaps surprising, alarming even, that 80% of leading SaaS businesses do not publish their pricing. While that particular study looked at the Montclare SaaS 250, a list of established SaaS businesses, the same trend appeared among 386 companies on the AngelList SaaS startups list, which Dharmesh Shah, HubSpot co-founder analysed. While an improvement and welcome step in the right direction, just 39% of companies on the AngelList SaaS startups list have publicly available pricing.
Why are SaaS businesses reluctant to publish pricing?
In my mind two forces are at play here. First up, there appears to be something akin to Groupthink among the SaaS community - the prevailing wisdom is that keeping pricing information private is a best practice. In fact, the opposite is true and keeping this information hidden has no place in the world of modern SaaS sales. It is a hangover from the old, closed world of hardware.
Secondly, and somewhat related to my first point is that SaaS businesses are fearful of publishing their pricing information. They fear by publishing this information they are giving up an important edge that a competitor may leverage against them. But this fear is misplaced - business leaders are often basing their decision on emotion and fear of the unknown, and defaulting to a defensive position, rather than considering the advantages of taking the proactive step to publish pricing.
In the interests of balance, I appreciate there are some legitimate reasons why a small number of SaaS businesses would not want to make pricing information available, such as if the product is genuinely bespoke or the types of deals are long and convoluted, and don’t lend themself to clear pricing. But these are the exception, rather than the rule and not typical of the majority.
In addition, the perception that discounting becomes difficult when you publish pricing and that enterprise clients are less price sensitive is not necessarily accurate, and far less a valid reason to keep pricing information underwraps. If you’re selling to the enterprise and by that I mean, deals which are over $100K per year, there may be reasons to keep the information unpublished, especially if deals are bespoke. But if you’re selling to SMBs or mid-market and your product requires little customisation, then the excuses we typically hear don’t pass muster.
A thoughtful pricing strategy can have a transformational impact on a business, but it’s important to recognise that it’s a gradual process which requires continual fine tuning. It typically starts as an art and evolves into a science. The process of refining your pricing strategy can turn pricing into a competitive advantage for your organisation. And in the increasingly competitive world of SaaS, you can and should leverage every available strategy to your advantage.
Here’s five reasons SaaS businesses must publish their pricing:
1. Quicker qualification of leads
By showing prospects your pricing they can quickly and easily understand if they can afford your product. Prospects can literally do this in seconds. Making pricing information available leads to quicker self-qualification, and while it may not increase the speed of the sale, understanding who isn’t a good fit early on and disqualifying them from your sales pipeline is extremely valuable. It frees up time to focus on the best-fit prospects.
2. Reduces friction in the buying process
Conversely, asking everyone who wants to discover your pricing to speak with a sales rep, will increase the number of touches a rep has with a prospect and likely increase your customer acquisition cost (CAC). Asking people to get in touch in this way is hopelessly inefficient. It adds a step to the sales process that does not to be there. Publishing your pricing removes a layer of friction and with it a bunch of inefficiencies from the qualification process.
3. It’s more customer-centric
Fundamentally, publishing your pricing feels like the right the thing to do for your prospective clients. Not being able to find something on a website is frustrating. It’s even more frustrating when you cannot find something as critical to the buying process as price. If someone doesn’t know the price, how do they know the product is right for them? Rather than frustrating people and forcing them to speculate, you should make things easy by publishing your pricing. It’s not an unreasonable expectation.
4. Helps align personas to pricing
At HubSpot we publish our pricing and you’ll notice we have distinct personas that are aligned to each package (Basic, Pro and Enterprise). By aligning prospects to a persona and package we make it easier for sales to quality and tailor their discussions. Aligning personas to pricing in this way is helpful for sales reps - they immediately understand the type of prospect they’re selling to.
5. Only a veneer of advantage by not publishing price
By keeping your pricing information secret, there’s only a veneer of (rather than actual) advantage to be gained. Importantly, this perceived advantage is diminishing thanks to software review websites like TrustRadius and G2 Crowd, as well as question and answer websites like Quora - in a matter of minutes prospects can find out pricing information about a company.
I’m a firm believer that publishing your pricing information will help you sell more. In the age of mass media and easily available information, there’s little advantage to be gleaned from hoarding information like price. While that’s noteworthy, the most pertinent point remains that if you don’t publish your pricing, you’re leaving money on the table, and no sales organisation wants that.