So you Want to Package and Price Your B2B SaaS Product?
Here is Everything you Need to Consider
Below are some thoughts I put together on approaching the question of a B2B product’s packaging and pricing strategy and how it impacts its performance. It’s not a definitive guide but a collection of thoughts based on research and experience managing the product marketing function for companies including Yogurtistan, Shopamani, mobilike, CreatorDen, Lumeos, Omneky, and 150birds.
Self-examination questions
It would help if you asked yourself the following questions before embarking on the specific details of your pricing strategy:
- Who is your audience? Pricing strategies will differ depending on whether you target enterprise, mid-market, or small and medium businesses.
- What is your growth motion? Are you a product-led, sales-led, or marketing-led company? Each will generate different approaches to growth.
- What is your cost structure? You must consider your company’s cost structure when planning your strategy.
- What is the time-to-value of your product? As with the previous point, if a customer’s time-to-value is short, then specific approaches might be more effective than others. The same goes for the opposite situation.
- What is the perceived value of your product or feature? Perceived value is a customer’s perception of a product or service’s merit or desirability, especially compared to a competitor’s product. Perceived value is measured by the price the public is willing to pay for a good or service.
Things to consider
After you answer the questions above, several marketing activities connected to your packaging and pricing will need to be addressed. As you proceed, it will become clearer how this should look for your product.
Packaging
It would be best if you had members from marketing, sales, product, and customer success around the table when discussing the packaging piece of your strategy, as each one will have valuable insight to share.
Who are your market segments?
Identifying your market segments is the first thing you need to do. If you are looking at your target market, is it uniform? Or is it divided into several distinct segments? Each segment is its own world, or do they have a connection between them? For example, do the companies you target progress from one segment to another?
Segments help to forecast market interest for a product or service. As soon as you have determined your segments, answer the question of what each segment looks for and how your product fulfills it. This will guide your approach.
What approach should you take?
The term “approach” refers to the monetization strategy and determines the parameters you will use to evaluate whether to focus on a single or tiered pricing model.
Here are three strategies I’ve seen pop up often when it comes to building your product package:
- Feature-based — A feature-based approach entails determining which features make your product valuable to each segment of customers.
- Quantity-based — Build your packages around quantifiable metrics such as the number of users, the number of records, and the database size.
- Usage-based — Customers pay as they use more of the key benefits you have identified.
Your packaging should be single or tiered. If your segments are progressive, you will eventually find a company in more than one segment as it matures and should opt for a tiered model.
A tiered approach might be right for you if the segments you’ve identified are progressive, whereas it may be better to use one approach if the segments are completely heterogeneous.
The two keys to a tiered approach are:
- You need to leave room for customers to grow from one tier to the next. For example, SalesForce’s user-based pricing allows customers to move among tiers as their sales teams grow.
- What are the tradeoffs your customers will be making? For example, Constant Contact’s email sends in its packaging can create a dilemma for its customers. To avoid overage charges, users must decide whether to send the next email, jump to the next tier, or not send it at all.
Packaging strategies are often built by combining aspects of different approaches.
Your packages
Following the definition of your segments and the value they are looking for, you can begin thinking about your packaging. In other words, what will be included in your product’s packaging, and what will be left to be sold as an add-on (if applicable). At Yogurtistan, we charged a fixed monthly fee for the 3D storefront within the virtual world and a commission off of every eCommerce transaction. Here is a copy of the press kit I assembled and circulated to communicate the beta launch of the platform to the world:
Below are a few examples of frameworks to compare and contrast competitor product lines, a feature value matrix to understand what customers are most likely to pay for, and good/better/best package recommendations to serve alternative customer segments.
Pricing
In this section, I will not discuss the specifics of determining a product’s price but the factors to consider as you plan your pricing strategy.
Price structure
Having decided on the packaging, it’s time to determine how you will price it. Before setting a specific price, consider how you will structure it. Some choose a simple price, where the product or tiers are priced similarly.
In other cases, customers may decide that they will pay different prices based on specific brackets, such as $5 for the first 2 projects, $3 for the next 10, and $2 for each subsequent project. Another approach might be to create a matrix that combines both aspects, setting a set price for customers in each tier based on brackets.
For example, customers in tier 1 with under 5 users pay X, up to 10 users pay Y, and above 10 users pay Z. With each approach, the complexity for your customers (and your sales team) grows, but each has its pros and cons. Below is a template you can use to assist in positioning products based on their perceived place in the market relative to the competition. This model relates pricing to the quality delivered.
Overage management
Having established your structure, you must decide whether to handle overages or allow them. An overage is when a company exceeds its subscription level and has to pay for active user use above the original subscription level as overage. The price is typically 25% more than the subscription price.
Here are some of my favorite approaches to this problem:
- No overage — The customer is not allowed to exceed the limit — this may be the best option in some cases.
- Simple payment — The price-per-extra credit of whatever metric you choose is clear and concise.
- Packaged Overages — some companies offer “overage packages” that provide extra volume for a specific price. For example, Constant Contact combines more contact records and core functionalities.
Other options include allowing some leeway if the customer goes over by a small percentage or forfeiting the overage fee altogether if the customer renews the same or a larger contract at the current contract’s end.
Discount policy
If your company has a sales department, they will likely give discounts to get deals done. To ensure your entire packaging and pricing strategy stays intact when put to the test by anxious sales reps, it is essential to establish and enforce a clear discount policy.
Stakeholder impact
The following three stakeholders are critical when implementing a new packaging and pricing strategy.
Existing customers
Before changing your packaging or pricing, consider what happens to customers who have already purchased your product and have contracts that are still active. Here are some questions to ask:
- Do we migrate customers automatically or respect their contracts?
- Are the new structures you’re planning accelerating/decelerating churn?
- Are specific capabilities they currently use going to be lost?
This was especially of concern at ArrowStream, where the average contracts consisted of multiple years, which made it a delicate limbo to know when to impose the new pricing on existing customers. Considering we were operating in an industry with a small TAM and the company had a net retention score of 100%+, it was crucial to navigate this initiative delicately. The account management team was instrumental in putting personal touches to communicate the new pricing most effectively.
Current pipeline
Changing your sales process might accelerate deals and turn off some prospects. It would be best if you considered the following:
- How does the new strategy affect the pipeline?
- Is it appropriate to sell the new package/price to prospects deep in the sales cycle?
- Are there any changes you need to make to your contracts?
Sales managers
Especially if you’re not a product-led growth company, your changes will impact your sales team in more than one way. It would help if you considered the following:
- Is it necessary to adjust your compensation model?
- How do you account for future deal size growth in a tiered approach? How does the sales rep that sold the initial deal receive compensation as they move up the tiers?
- Who is responsible for upselling and expansion?
If you are embarking on changes, it is well worth reconsidering some of these questions, even if you have already answered some of them in your existing practices.
Marketing
Pricing publicity
There is value in full transparency, but it is not the best approach for all markets. After you have completed all of the above, consider how open you will be about your pricing policy. If you chose a tiered approach with a simple price per tier and targeted the SMB market, then you should put your price-per-tier on your website. If, on the other hand, you have a matrix pricing model and you are targeting the Enterprise market, it may be best to have someone from the sales team reach out so that you can find the right match. Here is an example of the “Request Demo” form we used at ArrowStream to generate demand from quick-service restaurant chains.
Sales enablement
As a result of the above, you will want to consider the following:
- Creating a pricing page for your website
- Shareable collateral for your sales team
- Calculator to assist in determining the final price (remember that discount policy)
- Training for relevant teams so they can speak confidently about the new strategies
In addition, consider the impact of this on your lead generation efforts; for example, you might have to adjust budgets based on tiers or change messaging and creatives to match a new single package. Here is a copy of the sales deck my team and I put together at 150birds:
Customer enablement
You should do the same for your customers as you would for your sales and prospects. Take into account:
- What will you do to inform existing customers of these changes?
- Are there any changes you need to make to your knowledge base/help center?
- Is your in-product experience (guides, tooltips, tours) outdated?
Final thoughts
Thinking about packaging and pricing holistically is important to avoid facing more challenges than you need to. Despite not including the product in your considerations in these thoughts, it is important to give the product some thought too. At the highest level, you must consider what new capabilities are required to support your packaging strategy and what tradeoffs must be made if you choose to develop those capabilities. Also, don’t forget that as your product evolves, your pricing will change, so while it’s essential to lay a strong foundation be open to rapid iteration. If you are working on a sales-led SaaS solution, building a company-wide solution, and ready to go to market, check out my previous post, where I explain in a step-by-step playbook how you can succeed.
