It’s rare for SaaS startups, and even some mature software companies, to nail their product pricing strategy. When your pricing is right, customers negotiate less and deals close faster, margins improve because you discount less, and expansion is easier because you offer more reasonable upgrade options.
Much of my product management career over the past two decades has dealt directly or indirectly with product and price management and the buying and selling of goods and services in both B2B and B2C software companies. I’ve seen first hand how companies manage large catalogs of products with complex pricing structures that change rapidly in response to fluctuations to the economy or competition.
Since I joined Cacheflow in Spring ‘22, I was immediately struck by how cumbersome pricing was for many companies. I’ve spoken to over 50 prospects and customers over the last 4 months about how they manage pricing. Almost all of them struggle with it in ways that sellers of physical products do not.
The challenges I’ve heard fall roughly into three categories.
Testing different pricing strategies and models
Most early-stage SaaS companies offer different prices for the same product based on their customers’ ability to pay. Each quote is different and processed manually.
That approach is hard to scale. Quotes go out with old pricing or reps over-discount because there are few controls.
Reconciling customer payments with different customer pricing
When a company changes prices, their customers will have different contract and payment terms. The details are often hidden in a PDF order form sitting on a shared drive. This creates headaches for Rev Ops and Finance who can’t always answer the questions, “What did the customer order and for what price?”, “When should we bill them?”, and worst of all, “Did we remember to bill them?”
Changing an existing Sales stack to accommodate price model changes
Companies attempt to solve the first two challenges with heavyweight CPQ and ERP solutions which require big integration investments. But they often fail to consider the cost of future changes. The quoting, invoice and billing solutions are designed to work specifically for the SKUs and pricing that were around when these systems were configured and integrated.
One experienced RevOps leader I spoke to said they had to hire a full time PS lead from their CPQ vendor to make changes required to support a pricing and product change. Another described a catalog refresh that was estimated to take 6 months and 3 engineers working on configurations and integrations to their CRM, CPQ, ERP and payment processor.
The future of SaaS pricing
Winston Churchill said, “To improve is to change; to be perfect is to change often” and it’s good advice for the pricing of your SaaS products. Markets shift, and you need to adapt to the change to stay competitive. The systems you use will determine how easy and and how fast that change will be.
Here’s my advice for companies who want more nimble and scalable pricing capabilities:
Why I’m pumped about Cacheflow
One of the things that really makes me excited to be part of Cacheflow is our focus on ease-of-use/implementation, end-to-end platform thinking, and flexibility.
The product configuration, pricing and quoting just works. A customer can set up a product catalog in a fraction of the time of traditional CPQ solutions. The pricing supports multiple models, like one-time, recurring or usage-based as well as complex discounting scenarios. There are enough controls to avoid pricing and quoting mistakes, but not so much that it slows down the sale.
I haven’t yet to see a customer’s pricing structure that we can’t support. This means our customers can quickly define different models and experiment with different options for their customers or adapt to different market conditions. We have the same flexibility of manual quote building but we can track every step even if every customer has a different offering.
Because Cacheflow manages subscription billing, we automate the payments for every contract, even when they each have different pricing structures and models.
And as a SaaS startup we use our software on a daily basis. I can see first hand that it’s working and opportunities for improvements. It’s fun to drink your own champagne.