SaaS Pricing: Supercharge revenue with a value-based pricing strategy by Patrick Campbell (CEO, Price Intelligently)

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How Growth is Changing
WEBINAR - JANUARY 2018

Housekeeping Items
• What this webinar IS:
• A look into:
• Why Pricing is so Important right now in your business
• How to quantify your buyer personas to set you on a path of value based pricing
• A detailed playbook for increasing your revenue substantially
• What this webinar IS NOT:
• A magic formulas that requires zero effort on your part that whimsically makes you a m/billionaire
• A pitch zone
• Some answers to frequently asked questions:
• The webinar is being recorded and the recording will be distributed
• All slides and reference materials will be distributed
• We will have time for questions
#PricingParty Brought to you by your friends at@PriceIntel

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Who in the world are you?

Churn Insights
Attribution Data
Financial Data
Unit Economics
Demographics
Price Sensitivity
Survey Data
Willingness to Pay
In-App Usage Data
Drastically reduce churnRETAINTM
Actionable, accurate insights to make
you smarter about your business
SAAS METRICS
Proprietary pricing software for
monetization
MONETIZE

We’ve seen inside more software
companies than anyone else on the planet.

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What we think works doesn’t actually work.
This has dire consequences for your business.
HOW GROWTH IS CHANGING

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We’re living on another planet.

CONSUMERS ARE GETTING HAMMERED
Number of Competitors in First Year in Business
Companies started more than a year ago had far fewer competitors in their space than companies
started today.
AVERAGE#OFCOMPETITORSINTHEIR1STYEAR
AGE OF COMPANY
2016 SOFTWARE MARKET SURVEY
0
5
10
5 YEARS OLD 3 YEARS OLD 1 YEAR OLD
9.7
4.8
2.6
N = 1432 software founders and executives
Brought to you by your friends at

Sales & Marketing channels were plentiful.

MARKETING CHANNELS ARE PLENTIFUL
Number of Sales & Marketing Channels Utilized
Sales & Marketing channel utilization has expanded rapidly, giving the rise of more opportunities to
acquire customers from numerous different places.
AVERAGE#OFCHANNELSUTILIZED
YEARS AGO
SOURCE: 2017 MARKETING STUDY
0
5
10
15
15 YEARS OLD 10 YEARS OLD 5 YEARS OLD 3 YEARS OLD 1 YEAR OLD TODAY
13.89
13.22
12.43
8.31
4.72
2.31
N
1168

Businesses have lost their power.

CAC is Steadily Increasing Over Time

UNIT ECONOMICS AREN’T WHAT THEY USED TO BE
Customer acquisition cost has increased significantly
Customer acquisition cost has increased significantly over the years due to market saturation of
marketing vying for consumer attention.
BLENDEDCACRELATIVETOFOURYEARSAGO
SOURCE: 2017 CAC STUDY
-18%
0%
18%
35%
53%
70%
5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEARS AGO Today
B2B
B2C
WHEN MEASUREMENT WAS TAKEN
N
743
N = 743 companies

The relative value of features is declining.

THE MARKET IS DROPPING OUT BENEATH US
Consumer Willingness to Pay has Declined Over Time
Software willingness to pay has declined significantly over the past few years due to increased options
and higher demands.
WTPAS%OFWTP4YEARSAGO
SOURCE: 2017 CONSUMER WILLINGNESS TO PAY STUDY
0%
30%
60%
90%
120%
5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEAR AGO TODAY
Core Features
Single Sign On
Integrations
Analytics
WHEN MEASUREMENT WAS TAKEN
N = Varies by line, but minimum of 10,000 customer respondents per line
N
921k

Despite Amazing Advances, NPS is Actually Down Overall
Average NPS scores are actually falling pretty dramatically over the past five years, indicating either
we’re just getting worse at our jobs or consumers re expecting more
AVERAGENPSSCORE
YEARS AGO
SOURCE: 2017 SAAS STUDY
0
7
13
20
27
33
40
5 YEARS AGO 3 YEARS AGO 1 YEAR AGO
10.2
19.5
33.8
N = 1,784 software companies
N
1,784

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What once worked is no longer working.

Our playbook was acquire, acquire, acquire.

WE MAKE MATTER SO MUCH WORSE
Which Pillar is the Most Important in Your Business
Founders and software executives overwhelmingly put their support behind acquisition based growth
instead of caring about monetization or retention.
%OFTOTALRESPONDENTS
PILLAR OF THE BUSINESS
0%
50%
100%
MORE LOGOS MORE $ PER CUSTOMER KEEP CUSTOMER LONGER
21.1%
7.58%
71.32%
N
1578

Acquisition is now table stakes.

WE FOCUS ON THE WRONG FUNDAMENTALS
Impact of Improving Each Pillar of Your Business
Monetization and retention based growth far outpaces acquisition based growth. This impact is getting
greater over time.
%IMPACTONREVENUE
SOURCE: 2016 STUDY ON COMPANY UNIT ECONOMICS
0%
5%
10%
15%
20%
ACQUISITION MONETIZATION RETENTION
3.32%
2008 - 2012 2013 - 2016
N
734
N = Data from 734 software companies

greater over time.
%IMPACTONREVENUE
0%
5%
10%
15%
20%
2.35%
3.32%
2008 - 2012 2013 - 2016
N
734

greater over time.
%IMPACTONREVENUE
0%
5%
10%
15%
20%
2.35%
6.71%
12.7%
3.32%
2008 - 2012 2013 - 2016
N
734

greater over time.
%IMPACTONREVENUE
0%
5%
10%
15%
20%
9.32%
15.89%
2.35%
6.71%
12.7%
3.32%
2008 - 2012 2013 - 2016
N
734

It was ok to be lazy
with customer development.

Customer Development Conversations Per Month
SaaS founders and executives indicated that their companies are primarily only talking to less than 10
customers in a cust dev capacity per month.
%OFTOTALRESPONDENTS
# OF CUSTOMER DEVELOPMENT CONVERSATION PER MONTH
0%
50%
100%
10 or less 11 to 25 26 to 50 51+
3.9%
10.1%
17.7%
68.3%
N
1647

Experiments and Tests Per Month
SaaS founders and executives indicated that their companies are overwhelmingly running less than 10
experiments per month.
%OFTOTALRESPONDENTS
# OF EXPERIMENTS OR TESTS PER MONTH
0%
50%
100%
0 1 to 3 4 to 10 11+
2.71%
12.1%
37.81%
47.8%
N
1647

Yet, we’re building the wrong product.

-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5
Revenue Drivers
Measuring consumer sentiment to what we’re building
DEVIATIONFROMMEDIANWTP
RELATIVE PREFERENCE MAGNITUDE

-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5
Revenue Drivers
WE’RE BUILDING THE WRONG PRODUCT
Calculating the expected impact of product on growth
Differentiable Features
High Value/High WTP

-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5
Revenue Drivers
High Value/High WTP
Add-Ons
Low Value/High WTP

-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5
Revenue Drivers
High Value/High WTP
Add-Ons
Low Value/High WTP
Core Features
High Value/Low WTP

-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5
Revenue Drivers
High Value/High WTP
Add-Ons
Low Value/High WTP
Core Features
High Value/Low WTP
Trash Land
Low Value/Low WTP

-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5
Revenue Drivers
2017 SOFTWARE MARKET SURVEY - N = 5K+ INPUTS FROM 1282 DIRECTOR, VP, OR C-LEVEL PRODUCT LEADERS
What we think we're building

-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5
Revenue Drivers
2017 SOFTWARE MARKET SURVEY - N = COMPOSITE DATA FROM 1.2M CUSTOMER INPUTS
What we're actually building

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There are clear winners and losers
in this environment.

CLEAR WINNERS AND LOSERS
Comparing Cust Dev Strategies of Companies
Acquisition based growth companies grow at a smaller rate than those with a balanced growth
approach (growth from all three pillars of growth).
YOYGROWTHRATE
SOURCE: 2017 STUDY ON CUST DEV
0%
25%
50%
75%
100%
2012 2017
44.821%
31.72%
Minimal Customer Development
Aggressive Customer Development
N
687
N = Minimum of 687 companies per segment pulled from the middle 2/3 of companies in terms of
growth rate. This, along with a dampening model was used to control for outlier spikes in growth rate.

CLEAR WINNERS AND LOSERS
Comparing Cust Dev Strategies of Companies
Acquisition based growth companies grow at a smaller rate than those with a balanced growth
approach (growth from all three pillars of growth).
YOYGROWTHRATE
SOURCE: 2017 STUDY ON CUST DEV
0%
25%
50%
75%
100%
2012 2017
59.08%
44.821%
17.43%
31.72%
Minimal Customer Development
Aggressive Customer Development
N
687
N = Minimum of 687 companies per segment pulled from the middle 2/3 of companies in terms of
growth rate. This, along with a dampening model was used to control for outlier spikes in growth rate.

Buyers are the central tenet of your business
POINT OF CONVERSION
DRIVE CUSTOMERS
OFFER PRODUCT A
JUSTIFY PRICE A
OFFER PRODUCT B
JUSTIFY PRICE B
OFFER PRODUCT C
JUSTIFY PRICE C
$ $$

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Too many of us acquire all we can
without thinking of the customer.

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That doesn’t work anymore.

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How do we fix this?

Let’s walk through an example….

PROFITWELL
Free financial metrics for
subscription businesses

“Ohhh…you’re like…”
#SaaSEconomy @PriceIntel Brought to you by your friends at

Stop building. Stop buying ads.
Stop guessing and checking.

For the love of God. Talk to your customer.

QUANTIFIED BUYER PERSONAS
PRICING STRATEGY
DATA COLLECTION & SEGMENTATION ANALYSIS & DECISIONSEXPERIMENTAL DESIGN
Your pricing process needs to be data driven
DATA DRIVEN PRICING
Basic Statistical
Models

DATA COLLECTION & SEGMENTATION ANALYSIS & RECOMMENDATIONS
Data Collection & Segmentation
PHASE TWO
EXPERIMENTAL DESIGN
Basic Statistical
Models

“Surveys? Ugh. I hate surveys.”

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What do people value?
RELATIVE PREFERENCE

When utilizing Max Diff, you get both rank order and magnitude, which
allows you to save yourself from costly false positives on preferences.
WHAT TYPE OF FEEDBACK WILL YOU GET WITH MAX DIFF?
— RELATIVEPREFERENCEDATA

-0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4
ProfitWell is built and supported by
a team with strong expertise
ProfitWell has great uptime,
reliability, and speed
ProfitWell gives me actionable
insights
ProfitWell is free
ProfitWell is the most accurate
solution out there
MORE IMPORTANTLESS IMPORTANT

-0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4
0-50K MRR
51-100
101-250
251-500
501+
insights
ProfitWell is free
solution out there

-0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4
STARTUP STEVE
MIDERPRISE MARY
ProfitWell is built and supported by
a team with strong expertise
insights
ProfitWell is free
solution out there

Quantified buyer personas are data driven profiles of the
customers you’re targeting or choosing to ignore.
FIRST DRAFT OF YOUR BUYER PERSONAS
Startup Steve
VALUED FEATURES
‣ Price
‣ Design
LEAST VALUED
‣ Actionability
‣ Depth
LIFETIME VALUE $XXX
WILLINGNESS TO PAY $XX/month
CUSTOMER ACQUISITION COST $XXX
TARGET PERSONA
Miderprise Meredith
VALUED FEATURES
‣ Accuracy
‣ Depth
LEAST VALUED
‣ Price
‣ Design
LIFETIME VALUE $XXXX
WILLINGNESS TO PAY $XXX/month
CUSTOMER ACQUISITION COST $XXXX
IGNORED PERSONATARGET PERSONA

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How much are people willing to pay?
PRICE SENSITIVITY

• At what (monthly) price point does [PRODUCT] become too expensive that you’d never
consider purchasing it?
• At what (monthly) price point does [PRODUCT] start to become expensive, but you’d still
consider purchasing it?
• At what (monthly) price point does [PRODUCT] a really good deal?
• At what (monthly) price point does [PRODUCT] too cheap that you question the quality of it?
HUMANS THINK ABOUT VALUE AS A
SPECTRUM - WE CAN USE THIS EFFICIENTLY
— YOUREXPERIMENTALDESIGN

Ranged questions allow your to get the best answers from respondents,
but also ensure you’re able to properly segment and measure elasticity.
WHY IS ASKING IN RANGES THE MOST EFFECTIVE WAY TO ASK PRICING QUESTIONS?
Optimal Price Band
$363.86 - $434.58
$406.01
Indifference Price Point
POTENTIAL PRICE
%OFRESPONDENTS
PRICE POINT
%OFSALESLOST
— OURMETHODTOCUSTOMERVALUE
HIGHLOW
Profits lost Customers lost
PRICE
Optimal Price Band

EATING OUR OWN DOG FOOD
Buyer WTP for a SaaS Metrics Products
Customers weren’t willing to pay as much as we thought for a SaaS Metrics solution. This was especially
bad when looking at the multiple between the lower end customers and the upper end customers.
WTPFORASAASMETRICSSOLUTION
SOURCE: 2017 CONSUMER WILLINGESS TO PAY
$0
$75
$150
$225
$300
$0 - $50k $51k - $100k $101k - $250k $251k - $500k $501k+
Upper
Lower
Median
COMPANY’S MRR
N = ~300 companies

• Body Level One
• Body Level Two
• Body Level Three
• Body Level Four
• Body Level Five
0
25
50
75
100
0 200 400 600 800 1000 1200 1400
MAXIMIZE
PROFITABILITY
Top 25% Sensitivity Curve
MAXIMIZE
ACQUISITION

Startup Steve
VALUED FEATURES
‣ Price
‣ Design
LEAST VALUED
‣ Actionability
‣ Depth
LIFETIME VALUE $XXX
WILLINGNESS TO PAY $50/month
CUSTOMER ACQUISITION COST $XXX
TARGET PERSONA
Miderprise Meredith
VALUED FEATURES
‣ Accuracy
‣ Depth
LEAST VALUED
‣ Price
‣ Design
LIFETIME VALUE $XXXX
WILLINGNESS TO PAY $150 - $200/month
CUSTOMER ACQUISITION COST $XXXX
IGNORED PERSONATARGET PERSONA

Startup Steve
VALUED FEATURES
‣ Price
‣ Design
LEAST VALUED
‣ Actionability
‣ Depth
LIFETIME VALUE $600
WILLINGNESS TO PAY $50/month
CUSTOMER ACQUISITION COST $550
TARGET PERSONA
Miderprise Meredith
VALUED FEATURES
‣ Accuracy
‣ Depth
LEAST VALUED
‣ Price
‣ Design
LIFETIME VALUE $1,500
WILLINGNESS TO PAY $150 - $200/month
CUSTOMER ACQUISITION COST $3,000
POOR PERSONAPOOR PERSONA

EATING OUR OWN DOG FOOD
Consumer WTP for a SaaS Retention Solution
Customers were willing to pay much more for a SaaS Retention solution. Of particular note is the fact
that low end customer who weren’t willing to pay much for metrics were willing to pay 2-4x more for a
performance based solution.
WTPFORASAASRETENTIONSOLUTION
SOURCE: 2017 CONSUMER WILLINGESS TO PAY
$0
$1,250
$2,500
$3,750
$5,000
$0 - $50k $51k - $100k $101k - $250k $251k - $500k $501k+
Upper
Lower
Median
COMPANY’S MRR
N = 612 companies

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Bringing it all together
DATA CONSOLIDATION & ANALYSIS

DATA COLLECTION & SEGMENTATION ANALYSIS & RECOMMENDATIONSEXPERIMENTAL DESIGN
Your “Pricing Profiles” for your target market, ensure you
properly identify how customers will grow with you
YOUR BUYER GROWTH JOURNEY IS CRUCIAL

Start small.
You can always test more.
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12 hours. $2089.
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Saved us 18 months.
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• Quarterly research process run by a PM for XX% of their
time
• Make changes every 6-9 months
• Don’t “grandfather” your pricing
• Use a value metric of some kind
• Freemium is not a pricing model
OTHER KEY PRICING PIECES FOR
SUCCESS
— RETENTIONINTHENEWECONOMY

Next Steps
Free Pricing Audit
profitwell.com#audit
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SaaS Pricing: Supercharge revenue with a value-based pricing strategy by Patrick Campbell (CEO, Price Intelligently)

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