making money with saas @ seattle startup day

youmake a living

with SaaS

decided toSo, ’ve

Jeff Lawsonjeff@twilio.com

@jeffiel

value created - some discount

= your price

simple, universal pricing formula

Businesses: mostly rationalMake Money

orSave Money

BOTTOM LINE

Consumer

OR

Business

ConsumersAreNotRational

Businessesare PrettyRationalEvery decision driven two factors...

IncreaseRevenue

ReduceCosts

ORMeasurable Value

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No measurable value?Stick ads on it!

measurable value

business customersNeat!

have a framework for

so

Be Proudand put a price on

the value you’re generating

Start

Does my service generate value?

Back to the drawing board How Much Value?

YesNo

Cost Based Pricing

Margin =ProfitPrice

Profit = Price - Cost

Price = Cost / (1-m )

Price = Cost / (1-m )

Price = $10 / (1-0.5)

Target Margin: 50% (0.5)Costs: $10

= $20

What if your unit costs are basically zero?

Web Server Web Server

MySQL

$200 / mo

Value Based Pricing

Are they......saving money

by replacing a more expensive solution?  

...saving money on efficiency because of you?  

...generating more revenue because of you?

HOW MUCH?

HOW MUCH?

HOW MUCH?

Competitive Pricing

Red Herring, see previous slide.

$$$

Cost Based Value Based

Competition

sanity check:

do they converge?

IsIt?

Customer Feedback Loops

Split Testing

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

Talk to potential customers, learn the value prop during private beta

(which can be free)

Start conservative, drop prices if needed

Raise prices if merited, but

don’t fool people :)

IsIt?

If you’re unsure, just make more pricing

options.

Maybe I need mustard instead

Figure out value generated

Test with Potential Customers

Free Private Beta

Go Public with a Price Tag

Adjust as necessary, ideally down.

Jeff Lawsonjeff@twilio.com

@jeffiel