pricing a saas product pricing a saas product what what ' ' s

© 2008 MarketShare, Inc.

© 2008 MarketShare, Inc.www.SoftwarePricing.com

MARKETSHARE, inc.

Pricing a SaaS Product Pricing a SaaS Product WhatWhat’’s the Big Deal?s the Big Deal?

Barbara Nelson - [email protected] Geisman - [email protected]

Slides and other resources available at www.pragmaticmarketing.com/request


MARKETSHARE, inc.

IntroductionIntroductionMarketShareMarketShare

Unique focus since 1987Pricing software and systems

Address client problemsSlow sales cyclesMoney left on tableChaotic / confusing pricingEntry into new markets / segments

ResultsImprove financial performanceStrengthen competitive positionFoundation for future growth



MARKETSHARE, inc.

Introduction Introduction License LandscapeLicense Landscape

Types of licensesUsage / transactionCapacityTime-based

Time-based licensePerpetualAnnual, multi-yearSubscription (less-than-annual)

• On premise• Hosted (“SaaScription”)


MARKETSHARE, inc.

IntroductionIntroductionWhere WeWhere We’’re Headingre Heading

Perpetual

SWM&S

Subscription

SubValueAdd

SWM&S

SaaScription

SaaSValueAdd

SubValueAdd

SWM&S



MARKETSHARE, inc.

TopicsTopicsValue, Pricing and PaymentSaaS Value and PricingPricing and the Product CEO


MARKETSHARE, inc.

Value, Pricing and PaymentValue, Pricing and PaymentProduct Functionality Delivers ValueProduct Functionality Delivers Value

Time to Value

Value ($)

Current solutions

Faster

Cheaper

Better



MARKETSHARE, inc.

Value, Pricing and PaymentValue, Pricing and PaymentValue and Payment StreamsValue and Payment Streams

Perpetual Payment Stream

0%20%40%60%80%

100%120%

1 2 3 4 5Year

Ann

ual F

ee(%

Per

petu

al L

icen

se)

License / RTU

M & S

Value Delivery “Stream”

0%20%40%60%80%

100%120%

1 2 3 4 5Year

% V

alue


MARKETSHARE, inc.

Value, Pricing and PaymentValue, Pricing and PaymentSome AssumptionsSome Assumptions

Pricing tied to customer value deliveredQuantify hard dollar valueValue impact on revenue, costUnderstand cost to realize value

Cost and risks fit with value to be deliveredHave done basic pricing

Metric, packagingPrice structurePrice levels, discounts

Basic pricing is solid



MARKETSHARE, inc.

Value, Pricing and PaymentValue, Pricing and PaymentSubscription vs. PerpetualSubscription vs. Perpetual

Perpetual license feesUp-front license + annual M&SPayment stream (example)

• $1000 (license) + 4 x $250 (M&S @ 25%)• 5-year total = $2000


MARKETSHARE, inc.

Value, Pricing and PaymentValue, Pricing and PaymentSubscription vs. PerpetualSubscription vs. Perpetual

Perpetual license feesUp-front license + annual M&SPayment stream (example)

• $1000 (license) + 4 x $250 (M&S @ 25%)• 5-year total = $2000

Subscription license feeAnnual fees includes license + M&SPayment stream

• Equal payments • 5-year total = ???



MARKETSHARE, inc.

Value, Pricing and PaymentValue, Pricing and PaymentSubscription Value and PricingSubscription Value and Pricing

Subscription benefit / drawback

Put price on value-addAbsolute amountPercent of perpetual

Subscription license fee equivalentPerpetual license fees

• 5-year total = $2000Plus subscription value-add

Keep payingReduced riskMust upgradePayment flexibility

Drawback*Benefit

* Prospects disqualify themselves. Not a pricing consideration.


MARKETSHARE, inc.

TopicsTopicsValue, Pricing and PaymentSaaS Value and PricingPricing and the Product CEO



MARKETSHARE, inc.

SaaS Value & PricingSaaS Value & PricingSaaS vs. SubscriptionSaaS vs. Subscription

Subscription license feePerpetual license feePlus subscription value-add

SaaS license fee equivalentSubscription license feePlus SaaS benefitsLess SaaS drawbacks

How much is value-add worth?


MARKETSHARE, inc.

SaaS Value & PricingSaaS Value & PricingAdded Value From SaaSAdded Value From SaaS

Security

Risk of downtime

Off-site data

No / low need for internal ITPay as you useMonthly paymentLow upfront costWeb-delivered applicationSaaS Benefits

SaaS Drawbacks



MARKETSHARE, inc.


Security

Risk of downtime

Off-site data

No / low need for internal ITPay as you useMonthly paymentLow upfront costWeb-delivered applicationSaaS Benefits

SaaS Drawbacks

What are your objectives?More revenue?Retain customers?

Which customers benefit?


MARKETSHARE, inc.


Security

Integration

Flexibility

Low upfront costPay as you useMonthly paymentWeb-delivered application No / low need for internal ITSaaS Benefits

SaaS Drawbacks

No IT budgetCustomer Types to Target

Price sensitive

Rapid deployment

Legacy apps

Risk averse

Need custom solution

Uncertain usageCashflow sensitive

Customer Types to Avoid



MARKETSHARE, inc.

SaaS Value & Pricing SaaS Value & Pricing SaaS PricingSaaS Pricing

Mainten

ance

& Suppo

rt

Reduc

ed R

isk

Subscrip

tion Pric

e

IT Infra

struc

ture

Web

delive

red ap

p

Variou

s Draw

back

s

SaaScri

ption Pric

e

Perpetu

al Pric

e

Paymen

t Flex

ibility

Software

Lice

nse


MARKETSHARE, inc.

SaaS Value & Pricing SaaS Value & Pricing SaaS Pricing ExampleSaaS Pricing Example

$1200/year$100/month$6000SaaS

$500/year$2500Subscription

$1000 + $250/year$2000Perpetual

Payment Stream5 Year Value*

* Specific configuration. Numbers are illustrative



MARKETSHARE, inc.

SaaS Value & Pricing SaaS Value & Pricing SaaS Price LevelsSaaS Price Levels

Normalize payment streamsConfiguration (e.g. # users)Time frameValue-add (subscription, SaaS delivery)

SaaS price levelSW + M&S + layers of value-addCalculate total annual or monthly priceDetermine “quantity 1” price

• Adjust to marketDevelop discount schedule

• Unit or dollar volume


MARKETSHARE, inc.

TopicsTopicsValue, Pricing and PaymentSaaS Value & PricingPricing and the Product CEO



MARKETSHARE, inc.

Pricing & the Product CEOPricing & the Product CEOPragmatic MarketingPragmatic Marketing®® FrameworkFramework

Pricing

Buy, Build or Partner

Operational Metrics

BusinessCase

SalesProcess

Product Portfolio

Market Requirements

MarketSizing

MarketingPlan

Product Roadmap

Customer Acquisition

Market Research

Market Problems

Distinctive Competence

Product Performance

Customer Retention

Positioning

LaunchPlan

Thought Leaders

Use Scenarios

Innovation

Success Stories

Presentations & Demos

Win/Loss Analysis

Competitive Write-Up

EventSupport

Channel Training

Collateral & Sales Tools

WhitePapers

User Personas

“Special”Calls

Release Milestones

AnswerDesk

Technology Assessment

Competitive Analysis

Lead Generation

Buyer Personas

Market Analysis

Product Strategy

Program Strategy

Product Planning

Quantitative Analysis

Channel Support

SalesReadiness

Stra

tegi

c Tactical

Just another task?


MARKETSHARE, inc.

Pricing & the Product CEOPricing & the Product CEOPricing Needs Market FactsPricing Needs Market Facts

Pricing

Buy, Build or Partner

Operational Metrics

BusinessCase

SalesProcess

Product Portfolio

Market Requirements

MarketSizing

MarketingPlan

Product Roadmap

Customer Acquisition

Market Research

Market Problems

Distinctive Competence

Product Performance

Customer Retention

Positioning

LaunchPlan

Thought Leaders

Use Scenarios

Innovation

Success Stories

Presentations & Demos

Win/Loss Analysis

Competitive Write-Up

EventSupport

Channel Training

Collateral & Sales Tools

WhitePapers

User Personas

“Special”Calls

Release Milestones

AnswerDesk

Technology Assessment

Competitive Analysis

Lead Generation

Buyer Personas

Market Analysis

Product Strategy

Program Strategy

Product Planning

Quantitative Analysis

Channel Support

SalesReadiness

Stra

tegi

c Tactical



MARKETSHARE, inc.

Pricing & the Product CEOPricing & the Product CEO

Understand Understand Customer View of ValueCustomer View of ValueValue elements

Hard dollar (net)• Revenue increases, cost savings

Soft dollar• Prevent revenue erosion, cost avoidance• Reduce risk

Pricing influencersElementsAmountTimingLikelihood / risk


MARKETSHARE, inc.

Pricing & the Product CEOPricing & the Product CEOScale Value With CustomerScale Value With Customer

+++++++++++++++++++++++++++++++++++++++++++++++++++++

+++++++++++++++++++++++++++

Vertical marketsAligned with customer’s business

Horizontal and vertical marketsSometimes aligned

per loan +++per patient +++per user ++per user ++per user +++per property +++Per user +per student +++per user ++per customer +++per user +++per user +++per patient +++per employee +++per user +per user ++per claim +++per bill +++Per gallon of fuel +++per patient +++per shareholder +++per user +++per employee +++per user +per ad +++per property +++per user +per reservation +++per employee +++per member ++per user +per user +per user +

per adper billper claimper customerper employeeper employeeper employeePer gallon of fuelper loanper patientper patientper patientper propertyper propertyper reservationper shareholderper studentper memberper userper userper userper userper userper userper userper userper userper userPer userper userper userper userper user



MARKETSHARE, inc.

Pricing & the Product CEOPricing & the Product CEOPayment Streams Are ConvertiblePayment Streams Are Convertible

$-

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

0 4 8 12 16 20

# Quarters

Cum

e Pa

ymen

ts ($

K)

Perpetual Software Fee

Perp + M&S Fee


MARKETSHARE, inc.

Pricing & the Product CEOPricing & the Product CEOPayment Streams Are ConvertiblePayment Streams Are Convertible

$-

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

0 4 8 12 16 20

# Quarters

Cum

e Pa

ymen

ts ($

K)


Perp + M&S Fee

SaaS Breakeven



MARKETSHARE, inc.

Pricing & the Product CEOPricing & the Product CEOPayment Streams Must Be ComparablePayment Streams Must Be Comparable

$-

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

$45.0

0 4 8 12 16 20

# Quarters

Cum

e Pa

ymen

ts ($

K)

SaaS SoftwarePLUS Hosting

Breakeven


Perp + M&S Fee

SaaS Software-OnlyBreakeven


MARKETSHARE, inc.

Time

$Value

Time

$Value

Time

$Value

Pricing & the Product CEOPricing & the Product CEOInclude ValueInclude Value--Add in PriceAdd in Price

Perpetual Payments

SaaS Payments

Subscription Payments



MARKETSHARE, inc.

Barbara Nelson [email protected]

Jim [email protected]

Slides and other resources: www.pragmaticmarketing.com/request

pricing a saas product pricing a saas product what what ' ' s

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