Are you in the business of selling software as a service? Join the fast-growing club! Not for nothing did “there’s an app for that” become one of the most popular catchphrases of the last decade.
Here in Australia and around the world, thousands of developers have focused their efforts on creating intuitive, user-friendly software that addresses common consumer challenges and significant business pain points.
And they’ve gained mind and market share by offering it to their target markets on subscription, rather than selling it outright.
So successful is the SaaS sector that research house Gartner estimates it to be worth in excess of $145 billion globally, with a growth rate that’s likely to accelerate as businesses of all shapes and sizes continue to digitise almost every aspect of their operations.
Priced to sell
But succeeding in the SaaS space isn’t as simple as developing a – hopefully! – killer app and waiting for customers in your target market to start signing up in droves. There are multiple ways for enterprises like yours to price their solutions and choosing the optimum revenue strategy for your offering can be ‘make-or-break’, when it comes to scaling your operations and achieving profitability.
Slap a steep monthly price ticket or high per-user charge on your offering and, chances are, you’ll see few potential customers joining your subscription queue and even fewer sticking with your solution long term.
Conversely, making your software too affordable may result in a flood of subscriptions – and a cashflow crunch when the revenue coming through the door isn’t sufficient to cover your operating costs.
Selecting a pricing strategy to suit
Long-term success is most likely to be attained when you walk the line between unacceptably expensive and unsustainably cheap.
For some enterprises, that may be achieved via a traditional cost-plus pricing strategy. Also known as mark-up and cost-based pricing, it is as it sounds: enterprises calculate their total production cost and add on whatever they deem to be an acceptable profit margin.
It’s a straightforward way for traditional businesses to ensure they don’t send themselves broke but it may not necessarily be the best way to gain mind and market share in the SaaS arena, where scaling at speed can take precedence over profitability, particularly in the early months and years.
Other SaaS start-ups may adopt a competitor-based pricing strategy, researching the price points at which broadly equivalent solutions are offered and ensuring theirs is in the same ballpark. While taking this tack will mean you’re not eliminated from customers’ shortlists on cost grounds, it won’t necessarily ensure you’re achieving the optimum return on your software development investment.
A value-based pricing strategy, on the other hand, can do just that. Put simply, it enables you to determine exactly what your customers want and to price your flexible offerings according to the value they generate for customers. It’s more individualised and complex than other approaches but, for SaaS businesses in particular, it can be a pathway to profitability and growth based on that most compelling of imperatives – keeping the customer satisfied.
Tools to make the task easy
Whatever pricing strategy you choose to adopt, monitoring its effectiveness is vital. Fail to do so and you’ll find your enterprise missing opportunities to maximise revenue, profitability and growth.
Implementing a cloud-based revenue management solution with sophisticated data analysis capabilities can provide you with complete visibility of your pricing and billing. It will enable you to implement any revenue model – or, indeed, multiple revenue models on a single platform – and to monitor its effectiveness on a monthly, weekly, even daily basis.
If you’re serious about turning your SaaS start-up into a successful, sustainable business, it’s foundation technology you can’t afford not to have in your ICT stack.
