Dan Martell - June 11, 2018


How To Perfect Your SaaS Pricing Using The 10-5-20 Rule


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When it comes to pricing your SaaS business, it is one of those black arts that is focused specifically on the early days. I remember when I was building my company Flowdown.com, we had just raised a bunch of funding and I was trying to figure out how should we price our product. Should we charge 1 cent per e-mail? Should we be charging 5 cents per email? $20 per month? $100 a month? Should we up that to $100? In this episode, I'm going to share with you how to perfect your pricing and be sure to stay to the end where I tell you how you can get a copy of my Rocket Demo Builder. If you re doing product demos, this framework will help you crush those.

Transcript

Transcript generated with Whisper (turbo).
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00:00:00.160 Hi, I'm Dan Martell, serial entrepreneur, investor and
00:00:02.300 creator of SaaS Academy and in this video I'm going to share
00:00:04.920 with you how to perfect your SaaS pricing and be sure to stay
00:00:08.540 to the end where I tell you how to get a copy of my Rocket Demo
00:00:12.500 Builder.
00:00:13.300 If you're doing product demos, this framework will help you
00:00:16.880 crush those. 0.86
00:00:31.000 So when it comes to pricing your SaaS business,
00:00:33.880 it is one of those black arts, okay?
00:00:37.340 So this framework is specifically focused on the early days.
00:00:41.380 I remember I was building my company flowdown.com.
00:00:43.880 We had just raised a bunch of funding and I was trying to
00:00:46.180 figure out like how should we price our product?
00:00:48.060 We're a social marketing application for email.
00:00:50.260 So you give us email addresses,
00:00:51.920 we'd add social data on top of it and we were like,
00:00:54.020 should we charge one cent per email?
00:00:56.160 Should we charge five cents per email?
00:00:57.860 Should we charge $20 a month?
00:00:59.740 Should we up that to $100 a month?
00:01:01.480 Because the truth is, is if you think about pricing,
00:01:04.620 it says a lot about the product.
00:01:06.240 To ask somebody what they feel about a product
00:01:09.280 without mentioning the pricing is like asking somebody
00:01:11.780 to buy a pair of jeans without trying them on.
00:01:13.720 It really makes no sense because we don't know
00:01:16.720 if it's gonna be a fit.
00:01:18.220 You know, one of the things that I get to do
00:01:20.560 when I coach software founders is to look at
00:01:24.760 their current pricing structure and their adoption rate
00:01:27.600 and just offer some quick advice.
00:01:29.440 I mean, at a low-hanging fruit opportunity level,
00:01:33.380 every one of you watching this
00:01:35.140 could probably raise your prices by 20%.
00:01:37.300 That's the low-hanging fruit.
00:01:38.340 I'm actually gonna give you the three steps
00:01:41.000 and really it's a formula for figuring out
00:01:45.800 your pricing fast in the early days.
00:01:48.180 Step number one, 10X value.
00:01:51.100 I remember one time I was listening to a podcast
00:01:53.000 and the founder was explaining their pricing structure
00:01:55.580 and they started at $1,000 a month.
00:01:57.700 Now, for most B2B SaaS businesses, that's on the high end.
00:02:00.700 Most of them are kind of 197 and onward and the argument
00:02:04.740 from the founder was that they were a Q&A software.
00:02:08.620 So essentially, they allowed companies to reduce
00:02:11.280 their deficiencies and their argument was that, you know,
00:02:16.280 for $12,000 a year, we help them save one full-time
00:02:20.520 engineer's cost and I don't know about you but in most
00:02:24.200 major cities, that's, we're talking six figures.
00:02:26.320 so 100,000 plus, 120,000, so they pass the 10x value.
00:02:30.220 So you need to ask yourself, it doesn't matter
00:02:31.860 if it's $30 a month or $100 a month,
00:02:34.100 is can you get every customer to perceive
00:02:38.360 and feel 10x value?
00:02:40.760 Number two, 5% more.
00:02:43.800 One of my quick rules of thumb is that every time
00:02:46.340 you talk to a customer in the early days,
00:02:48.840 just raise your prices by 5%.
00:02:50.840 Now some people are like, Dan, that's crazy,
00:02:52.520 we're gonna get out of whack really quick.
00:02:54.420 Look, here's the deal is maybe you do it every 10 customers,
00:02:57.560 but if you're not continuously testing the next price limit,
00:03:00.920 look, your product's changing.
00:03:02.360 You're adding new features.
00:03:03.400 You're creating more value for your customers.
00:03:05.060 So by adding or increasing your prices by 5%,
00:03:08.700 you're gonna start testing the upper limit
00:03:11.040 of what customers are willing to pay for
00:03:13.680 and that just sets the process and team structure
00:03:18.080 to think about like how does our product add value
00:03:20.780 and can we justify the increase in price?
00:03:23.320 But like I said, most of you guys are underpricing
00:03:25.380 so just start there.
00:03:26.800 Do it for the next 10 customers.
00:03:28.720 See if there's any pushback and keep going onward.
00:03:33.140 Number three, 20% pushback.
00:03:36.260 So yes, increase your prices by 5%.
00:03:38.840 Maybe you want to do it for every net new customer
00:03:40.640 or you want to do it in blocks of 10
00:03:42.340 or if you're feeling a little afraid,
00:03:44.540 you go in blocks of 50, whatever your jam is.
00:03:46.940 But the key is to keep pushing up
00:03:49.380 until you get 20% or so of the customers
00:03:52.620 pushing back and saying no.
00:03:54.060 Like, I can remember talking to a founder once
00:03:56.860 and they were like, everybody we talked to
00:03:58.700 has bought the product.
00:03:59.700 And I'm like, put your prices up.
00:04:01.020 They're like, why would we do that?
00:04:02.200 I was like, well, if everybody's buying.
00:04:04.240 You know, if you're not losing 20 to 30% of your customers
00:04:08.900 that you approach, I mean, at a minimum,
00:04:12.580 then you're not charging enough for the product.
00:04:15.720 And to me, when we think about like price yielding curves
00:04:18.720 and how do we optimize kind of how we price the product,
00:04:22.440 20% pushback's a good feedback loop.
00:04:24.320 Again, this is early days before you have a lot of data
00:04:27.380 to really dive in and create the right packages
00:04:30.960 and target in or segment the right customers.
00:04:33.760 So you want to push for 20% pushback.
00:04:36.260 So step number four, which is a bonus,
00:04:38.600 is the 10-5-20 rule.
00:04:40.420 Think about it, put all three steps together.
00:04:42.500 10 times the value, 5% increases till 20% pushback.
00:04:47.500 If you're early days in your startup,
00:04:48.880 just think about that framework
00:04:50.140 when you're talking to your team
00:04:51.580 and just slowly execute the pricing strategy
00:04:54.440 because like I said, most of you guys
00:04:56.380 could benefit from an increase in price
00:04:58.020 that's gonna get you to profitability there faster
00:05:00.780 and is really gonna keep the team focus
00:05:04.260 on generating value for your customer.
00:05:06.800 So quick recap, one 10X value always,
00:05:11.240 two, increase by 5% increments,
00:05:14.340 and three, push until you get 20% of your customers
00:05:18.740 saying eh eh, not gonna buy.
00:05:21.280 As I mentioned in this video, I want to share an incredible
00:05:23.740 resource called the Rocket Demo Builder.
00:05:26.020 You can click the link below in the description to download that.
00:05:28.780 It will help you present and communicate your value to a
00:05:32.500 customer in a fraction of the time and get them to commit to
00:05:35.460 buying from you during that demo.
00:05:38.460 And if you like this video, be sure to click the like button.
00:05:41.460 Subscribe to my channel and if you know somebody who could
00:05:43.560 benefit, be sure to share it with them.
00:05:45.900 Thanks for watchin' and I'll see you next week.
00:05:51.280 that you mentioned to get in the bottom.
00:05:53.220 I did, right at the beginning.
00:05:54.160 You did?
00:05:54.540 I did, yeah.
00:05:54.940 Okay, cool.
00:05:55.880 Done.