- The pricing strategy for your SaaS business
impacts more than you realize.
It impacts your ideal customer profile,
it impacts how you build your product,
it impacts what your sales or marketing model
is going to be,
it impacts your competitive dynamics,
it impacts your win rates,
your ability to actually win deals or convert customers.
And it even impacts churn.
The price that you decide on can impact all of these things
in your go-to-market in the success of your SaaS product.
And yet, so often, we as founders, we as SaaS leaders,
randomly choose a price, or maybe we choose a price
just by looking at the competitors
without being thoughtful about what is our pricing strategy.
Over the last couple years,
I've worked with over a hundred SaaS companies
in revamping their pricing strategy.
There have been cases where we increased their prices by 5x
and their win rates actually went up.
So, based on all of my experience,
based on actually starting companies,
and based on helping founders revamp their pricing
on their companies,
I'm gonna walk you through the three principles
that you absolutely need to know
to find the best pricing strategy for your SaaS business.
And when you follow these principles,
you'll start to think about pricing strategy,
you'll start to revamp your pricing strategy,
and you'll actually be able to accelerate your growth
to that next stage.
Intro.
(dramatic music)
What's up, everybody? Welcome to Unstoppable.
I'm TK, and on this channel,
I help SaaS founders like you
grow your SaaS businesses faster
with an unstoppable strategy.
Now, if you are new to this channel, welcome.
I drop an episode every single Sunday
with actionable strategies and tactics from the trenches
on how to grow your SaaS business,
so be sure to hit that subscribe button and that bell icon.
That way, you'll get notified
every single time I drop an episode with the TK energy.
Now, if you're already part of this community,
if you're part of my SaaS go-to-market coaching programs,
my people, welcome back.
It's really awesome to see you over here.
So there I was, I was on this coaching session
with a founder inside of my go-to-market program,
and they didn't join the program for pricing.
They joined to revamp their go-to-market strategy.
But very quickly,
as we were putting the go-to-market strategy together,
we realized that pricing was something we needed to revisit.
And so, we have an entire module
on exactly how to revamp your pricing strategy
inside of the program, so they started following it.
And I remember, we were on this coaching call,
we were reviewing all the data,
we were trying to make some decisions,
and it was super scary
because all the data, the process showed
that we needed to increase their price by 5x
based on the competitive dynamics, based on the space,
based on the metrics, we needed to 5x their pricing.
And it made sense.
All the data and all the research are like,
yep, we can do this.
This is the right thing to do for the customers,
for the business, everything.
And it was super scary.
And so, we looked at each other,
we created a plan and we went for it.
And believe it or not, fast forward to today,
because of that 5x price increase,
their win rates and their growth actually went up.
That's gonna be a video for another case study
we'll be bringing you on.
But what I learned from that
and from countless other pricing strategy sessions
is that we tend to undercharge for our product
and it holds back growth.
So in this episode, I'm gonna walk you through
the three principles that you absolutely need to know
on how to revamp your pricing strategy
based on everything that I've learned
in helping founders like you,
and also from being an actual founder,
not just some guy that read about SaaS businesses
on YouTube.
Anyway, if you're excited to dig into Principle Number 1,
go ahead and smash that like button
for the YouTube algorithm,
it really likes it when you do that,
and let's get right into it.
So Principle Number 1 is understanding
what pricing strategy entails.
Ultimately, there's really two pricing strategies
that exist.
You are either the cheapest in the market
or you are the most expensive.
It's one of the two, and there are gradations in between,
but what you wanna understand,
this is kind of Principle Number 1,
is you're either the cheapest or the most expensive,
or somewhere in between.
If you are just squarely in between,
customers don't quite know what to think of you.
'Cause people know when they're buying something,
that's the most expensive, it's a premium brand,
or they know when they're being the cheapest
and they're being frugal.
It's somewhere in the middle where it gets muddy.
Another thing that's super important in this dynamic
is when you are the cheapest,
you tend to be high volume.
And when you are the most expensive,
you tend to be low volume.
So the core of every pricing strategy for SaaS businesses
is understanding this Principle No. 1.
As soon as you start to think about it in these terms,
it starts to help you make a whole bunch of decisions.
Because the reality is,
if you're going to be the cheapest in the market
or you're gonna be in this spectrum
where you're leaning towards the cheapest,
you're building a business that attracts
a certain kind of customer, you're building a business where
you don't have a lot of margins because you're so cheap,
and because you're building that kind of business,
you have to make up that lack of margin,
that certain type of customer who tends to be cheap,
because you're selling the cheapest thing, with high volume.
You need a lot of customers
to be able to sustain this business.
On the flip side, if you decide, you know what?
I don't want a high volume of customers,
I want a low volume business.
I wanna work with the best people,
I wanna provide a premium experience,
and I wanna have high margins,
then you go for the most expensive
and you differentiate yourself through that premium brand.
And when you're doing that,
you are gonna have less customers,
but the average customer value
is gonna be significantly higher.
This alone helps you start to have a conversation
about what kind of company you want to be in the market.
Do you wanna be the cheapest?
Do you wanna be the most expensive?
Even if you're going into the most crowded market
in the planet right now,
let's just say you decide you wanna go
into the landing page market, right?
Landing page markets are very, very complicated.
There's a billion of these products.
You would have to decide, do we want to be the cheapest
or do we want to be the most expensive?
And why?
Just starting with this conversation
with your fellow team members, with your founder,
with your leadership team, will help you understand,
okay, what kind of business are we building?
Without getting into the PhD of pricing economics.
So that's Principle Number 1.
Just pick, pick one,
where do you fit in this spectrum
of cheapest versus expensive?
Because that will dictate,
if you're cheapest,
you're probably gonna have to be high volume,
and what kind of business does that mean for you?
If you're the most expensive, you can be low volume,
you can have a lot of high margins,
and you can do a lot of cool things.
It depends, there's no right or wrong answer,
it depends on the market you're in,
but that's one step to actually start thinking about.
The second principle you wanna understand
is because of the pricing strategy you choose,
it will impact your delivery model.
And so, this is Principle Number 2.
Principle Number 2 is
if you are being the most expensive and low volume,
you're likely going to be a sales-driven model.
If you are being the cheapest and high volume,
you're most likely going to be a PLG model.
And can you have both?
Yes, there are lots of SaaS companies
that start with PLG and then upsell through sales.
There are lots of companies that started with sales-driven
and went down market to PLG,
but those are mature companies
that are intentionally going into different segments.
For you, if you're an early stage founder,
you'll have to make a decision
on what your first entry point is going to be.
Meaning, if you're saying, "You know what?
Our pricing strategy is going to be the most expensive one
and that's how we're gonna differentiate.
We're gonna be this premium brand,
it's gonna be way better." Then you can say, "You know what?
We're the most expensive. We're gonna do low volume.
Each customer's gonna be worth a lot to us,
so let's go with sales-driven."
If you are choosing to be the absolute cheapest
and the highest volume,
you literally cannot afford salespeople.
You can't pay them.
You don't make enough money per customer.
You can't pay enough commissions.
You can't hire enough of them.
You won't be able to support their ramp times.
You can't even afford SDRs
because you can't do the outbound and pay them
because the deal sizes are so small.
You'll have to figure out how to go a PLG route.
If you are somewhere in the middle,
let's just say you're not the most expensive,
you're not the cheapest, you're somewhere in the middle,
well, then you'd have to have a real conversation about,
"Well, first of all, is this a good idea?
Are we ending up neither here nor there,
where customers will look at us,
'Well, they're not the cheapest,
they're not the most expensive.'
Are they just right?'"
Or "I have no idea what to think of them."
Or are they like,
"You know what? This is totally spot on.
It fits all our needs.
They're differentiated enough, so I'm gonna buy."
And you can choose whether you can swing a PLG model
or you have to go towards a sales model.
You can make those decisions.
But Principle Number 2 is
your price impacts delivery, right?
On how you're gonna deliver your product.
Because people have different expectations
from different dollar amounts that they're spending.
If they're spending a lot of money,
if it's a super expensive product,
they're gonna want the white glove service.
If it's a super cheap product,
they may still want the white glove service,
but you literally don't have
the business model to sustain that,
so you have to be conscious about that
and serve those customers.
And this is something that,
because you don't think about pricing in a specific way,
it's very easy to overlook.
And based on that,
you may have unprofitable delivery models.
You may be running a sales team
for a product that literally has a price point
that can't sustain it,
or you may be trying to do PLG,
selling to a customer base that wants a VIP experience.
And so, this is why
starting to think about the pricing strategy
and even starting with cheapest versus expensive,
high volume versus low volume,
helps you start to make some decisions.
And you're also starting to see how choosing the price,
whether it's cheapest or more expensive,
has second order implications
on your-go-to market and how you deliver your product.
Before I go to Principle Number 3,
which really brings this together,
let me just pause here for a second.
Are you starting to see the power in this?
Are you starting to see the power in why
I work with founders and leaders, SaaS leaders too,
and we do a whole pricing exercise?
And then their eyes come out like, "Oh my God,
this impacts so many things.
We're making all these micro-decisions
without thinking about the broader picture of pricing."
And you starting to see the power
of actually revamping your pricing strategy?
If you're starting to see the power of this,
can I just get a yes in the comments below?
And also, smash that like button for the YouTube algorithm,
it really likes it when you do that.
Also, if you're at the stage where you're starting to think,
"Hey, how do we revamp our go-to-market strategy?
How do we revamp our pricing strategy?
How do we actually unlock growth?"
This is exactly why I run
my SaaS go-to-market coaching program.
The details of it are in the link below,
I'll tell you more about it at the end of this episode.
Let's go to Principle Number 3,
and if you haven't already,
be sure to smash that like button for the YouTube algorithm,
it really likes it when you do that, and so does my team,
we put a lot of love into these videos.
Principle Number 3 is a second order effect of Number 2,
the choice that you make on being the cheapest
versus the most expensive,
high volume versus low volume,
also impacts your ability to market.
Regardless of whether you're product-led growth
or your sales-driven, you still need to do marketing.
Marketing, simple definition of it is
more people in your ideal customer profile
know about you today than they did yesterday.
That's marketing.
And so, if your product is a start free trial product,
you still need to do marketing
so people actually discover that free trial.
If you're a sales-driven product,
you still need to do marketing so they discover you
and book a sales call.
Marketing is something you're gonna have to do
no matter where your delivery model lies.
However, if you happen to be the most expensive
and you actually have low volume,
and let's just say you have high margins,
which tends to happen in the more premium brands,
that means you have more dollars.
For every customer you bring on,
it's a bigger deal size,
for every customer you're bringing on,
you make a bigger profit on a unit economic basis,
and because of that, you have more money
more free cash flow, to spend in marketing.
The more you can spend in marketing,
the more you can beat the competition
because more people will know about you
and the more people will buy.
And the more people that buy,
the more money you make,
the more you can spend on marketing.
The company that can spend the most in marketing, wins,
because more people are gonna know about that company.
Simple. It's literally that simple.
It's not about, oh, our product's not that great
so we have to overcompensate with marketing.
It's not about that.
Your product could be the best product in the world,
but if you're not spending money on marketing,
if no one knows about it,
if new people aren't finding out about it every single day,
then you'll lose.
And so, this is the third order thing,
where this impacts marketing and your ability to spend.
So, if you're gonna be the cheapest in the market
and you're gonna do high volume,
and you make a little, like a penny,
on every single customer,
you need to have a hyper efficient go-to-market strategy
that can actually compensate for that.
If you start to move this way a little bit,
let's just say you're in the sweet spot,
you find the perfect sweet spot.
We're not the cheapest, we're not the most expensive,
but we're very differentiated
and we share that in our messaging.
If you're starting to find that
and you make good amounts of profit per customer
as they buy, then you actually can put that into marketing
and you can get more customers.
And this is why pricing is super important,
because you may be charging a price
and you may be winning a deal,
but if it's not the right pricing strategy
that introduces free cash flow into the business,
or the unit economics are strong,
you will not be able to invest enough in marketing
regardless of how much money you raise,
because you won't get that flywheel going.
And so, this is the third piece
where not only is choosing the pricing strategy
helping you determine what kind of delivery model
we're gonna do, it also helps you determine,
well, how much can we spend on marketing?
Because ultimately, the difference between
the cost of you providing that service
and the amount of money you're making per customer,
whether it's immediately or over a period of time,
impacts how much you can spend on marketing,
and that will impact
whether you're gonna be successful or not.
If you can't spend money on marketing,
then more people are not gonna know
about your amazing product and you will lose.
Whereas your competitors,
if they do a pricing strategy exercise,
and they price it properly,
and they are actually getting those unit economics in place,
then they get that free cash flow,
they're able to invest it into marketing,
and they'll be able to eclipse you.
I go back to that example I provided
right in the beginning of this video.
I've worked with a company where they 5x'd their pricing
and they knew what their competitors' pricing was,
and I've been in the other side
where there were competitors of mine that charged more,
and they still won more,
and then I had to raise my prices.
What I've noticed over and over,
is the cheapest is not always the answer.
Customers, when they buy SaaS software,
they're entrusting the success of their own careers
by betting on your software.
They're trusting the operations of their business,
their department, their team, by using your software.
When they're making a decision like that,
it's not the cheapest that's making the decision.
They actually want to go for the right one.
So more often than not,
they're looking not on the price sensitivity,
they're looking at what's gonna be the company
that really supports me,
that has the best brand, that has a good reputation,
that has great G2 reviews, that is well supported,
that I can bet my career on?
And this is why that company was able to 5x their pricing,
they got the free cash flow going
and they were able to invest more into their growth.
And this is why,
when you start to think about, are we the cheapest?
Are we the most expensive?
How do we validate our pricing?
What is the impact of that in our delivery model?
In our marketing model?
All of these things start to come together
on making actual decisions.
If you don't do pricing strategy
and you just randomly just pick a number
that maybe your competitor shows, it may be the wrong number
and now you're playing a game that's hyper competitive
for no good reason.
There may be a way to differentiate on price,
which I've seen over and over and over.
And so, to recap, here are the three principles
you absolutely need to know
when you are thinking about revamping your pricing strategy.
This is based on me having worked with
over a hundred founders and SaaS companies.
In total, I've worked with over 250.
Not all of them have gone through pricing revamps,
but a good number of them have.
And so, number one, you want to figure out
are you the cheapest or the most expensive?
It sounds simple, but simple is not always easy.
This is a tough decision
and you want to have that conversation.
Principle Number 2,
based on whether you're the cheapest or the most expensive,
what does that mean for your volume levels
and what does that mean for your delivery model?
If you're the most expensive,
people may expect a sales-driven model.
If you're the cheapest,
people may want a sales-driven model
but you can't afford to give them that,
so you have to go with the product line model,
so you have to think about that.
And then, based on the sales model
and based on the choice you make on Principle Number 1,
Principle Number 3 is,
hey, what does that mean for marketing?
Meaning, if we're the expensive,
what is the unit economics that come out
based on our price and our delivery of software
and the cost of sales and marketing?
Do we have enough to invest more into marketing?
And so, the more you can invest into marketing,
the more you're gonna grow.
And that will help you identify,
do we have the right pricing strategy?
Or at least, start to have that conversation.
And now you know exactly how to have the conversation
about revamping your pricing strategy.
What you may not know is,
hey, how do we actually do a full exercise
and get to a number on how much we should charge?
How should we break down the plans that we offer?
Offering different packages
is a great way to actually increase conversions.
How do we communicate the value of what we're providing
so that when we give the price, it all matches up?
This is exactly why I created
my SaaS go-to-market coaching program.
Inside of this program, I work with you
to actually revamp your go-to-market strategy.
And as part of that,
we also dig into your pricing strategy, if it's appropriate.
Inside of the program,
we work you through three steps
to actually revamp your go-to-market strategy.
Number one, we help you flesh out
your ideal customer profile.
Number two, we then help you re-craft
your strategic narrative, your manifesto, your messaging,
so that you can actually communicate the value
and the transformation you're bringing into the market.
This is the point where we often do
pricing strategy exercises,
because it helps us really hone in on the narrative
on how we're gonna differentiate against the competition.
Then, once you have your manifesto
and your ideal customer profile,
we then help you run a consistent set
of marketing and sales activities
that are called a Broadway Show,
to actually bring your manifesto to your ICP
on a consistent basis, and drive growth.
And if you have the right pricing strategy,
then you'll improve your unit economics,
which means that you can invest more
in your Broadway Show and scale faster.
It's an incredible program,
we've had so many success stories come out of the program
that we've published in this channel.
It's literally one of the best things
I've ever done in my career. I enjoy it so much
and I love all the founders that I get to work with.
So, if that's you,
if you're looking to revamp your go-to-market strategy
and drive growth,
accelerate your path to that next stage growth,
I encourage you to check out
my SaaS go-to-market coaching program.
Just go to getunstoppable.com/gtm.
Getunstoppable.com/gtm.
And inside of that page, you'll get all the details,
you'll be able to fill out a little bit of information
and get on a call with us
where we'll review if you're a right fit,
and if you are, we're off to the races.
We'll get working right away
so we can revamp your go-to-market strategy
and accelerate your growth.
Also, if you got value from this video,
please smash that like button for the YouTube algorithm,
it really likes it when you do that.
I also drop an episode every single Sunday,
with actionable strategies and tactics
on how to grow your SaaS business
from the trenches, from actually being a founder,
having scaled companies, having exited companies,
and now helping other founders be founders.
So be sure to hit that subscribe button
and that bell icon,
you'll get notified every single time I drop an episode.
And lastly, if you've got a fellow founder,
a team member that will get value from this,
please share this video with them.
It just means the world to us,
we wanna help as many founders as possible.
And lastly, remember,
everyone needs a strategy for their life and their business,
when you are with us, yours is gonna be unstoppable.
I'm TK, I'll see you in the next episode,
or inside our go-to-market program.
Take care, everybody.
(melodious music)
The pricing strategy...
Whoop.
All right, let's do this.
The pricing strategy for your impact...
Nope, that's not it either.
I help SaaS founders like you.
Oh, I forgot to turn on the lights. Hold on.
Alexa, lights.
There we go.