This document provides guidance on pricing SaaS products. It suggests starting with either simple consumer or business pricing models that are based on either cost or the measurable value generated for customers. The key factors for business customers are whether the service saves costs by replacing more expensive options or increases efficiency or revenue. It also recommends determining pricing through competitive analysis, customer feedback loops, split testing, and private betas to learn the true value before setting public prices, with the goal of starting conservatively.

1. you’ve decided to
So,
make a living
with
SaaS
Jeff Lawson
jeff@twilio.com
@jeffiel

2. simple, universal pricing formula
value created
- some discount
= your price

3. Consumer
OR B
Business

4. Consumers
Are
Not
Rational

5. Businesses
are
Pretty
Rational
Every decision driven
two factors...

6. Reduce
Costs
Measurable Value
OR
Increase
Revenue

7. No measurable value?
Stick ad
s on it!
X
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advertisement

8. so
business customers
Neat!
have a framework for
measurable
value

9. Be Proud
and put a price on
the value you’re
generating

10. Start
No Does my service Yes
generate value?
Back to the drawing
How Much Value?
board

11. Cost Based Pricing

12. Profit
Margin =
Price
Profit = Price - Cost
Price = Cost / (1-m )

13. Target Margin: 50% (0.5)
Costs: $10
Price = $10 / (1-0.5)
= $20
Price = Cost / (1-m )

14. What if your unit costs are basically zero?
Web Server Web Server
MySQL
$200 / mo

15. Value Based Pricing

16. Are they...
...saving money
by replacing a more expensive solution?
HOW MUCH?
...saving money
on efficiency because of you?
HOW MUCH?
...generating more revenue
because of you?
HOW MUCH?

17. Competitive Pricing
Red Herring, see previous slide.

18. Cost Based Value Based
sanity
$$$
check:
do they
Competition converge?

19. Is
It?

20. Customer Feedback Loops

22. Split Testing

24. $1,000 Mo + + 0.001 / Msg
$0 / / Mo 0.10 / Msg

25. Talk to potential
customers,
learn the value prop
during private beta
(which can be free)

29. Raise prices if
merited, but
don’t fool
people :)
Start conservative,
drop prices if needed

30. Is
It?

31. If you’re unsure, just
make more pricing
options.

33. Maybe I need
mustard instead

34. Figure out value generated
Test with Potential Customers
Free Private Beta
Go Public with a Price Tag
Adjust as necessary, ideally down.

35. Jeff Lawson
jeff@twilio.com
@jeffiel