This section is all about pricing while staying competitive. If you have structured your product around a free service, the following information can help your strategy for the products you do sell.
Price starting point
Working out pricing is always an interesting aspect of a SaaS company – or any company, for that matter. It can be one of the most important factors determining how your company will fare in terms of revenue and profits.
A wise man once told me, “Set your prices as high as your customers are willing to pay.” This means you have to know your customers’ bargaining power, the alternatives to your product, the quality of your product and other factors that can affect the customers’ way of evaluating your company and its offerings.
As an extension of the phrase above, your prices should be set so you realize the greatest possible revenues. For instance, if you have 100 customers, each paying $1,000 USD per month, you have a total monthly revenue of $100,000 USD. If you lowered your price to $100 USD, you’d need 10 times as many customers to bring in the same amount of revenue. This is a very simple example, of course, but the point is that you can optimize your business by testing and adjusting price levels. Aside from adjusting your base price, you can add extra features, services or products if customers are willing to pay for them, thus raising the total revenue per customer.