One of the biggest mistakes I see SaaS vendors make, aside from thinking the only way to make money with SaaS is through subscriptions, is that they tightly-couple the pricing strategy to the underlying revenue model. This is in part due to the fact that in legacy software the revenue model and pricing strategy are both arbitrary (though hopefully market-driven) and exist in the sales or accounting departments, not in the product itself. In SaaS, this is not the case.
The Seven Revenue Streams that make up the Revenue Model in SaaS must be built into the underlying application. Whether all seven will be leveraged at go-to-market, they must be considered early during the architecture phase. If this is not done, money will be left on the table and additional money will eventually be spent to re-architect the system to support these additional revenue streams.
Once the revenue stream metrics are defined within the application, then you can begin to apply your pricing strategy by bundling and packaging the underlying revenue streams and the associated metrics. It is critical to understand that Pricing Strategy is more closely tied to Marketing than anything else. A good pricing strategy is specific to a vertical/niche/target market, is a living organism that has different phases, from go-to-market through maturity, etc.
Pricing strategy is also part of your overall marketing plan and should consider long-term revenue goals. You don't want to cannibalize other, potentially more lucrative long-term revenue streams (read: Network Effect Data) or make them less valuable through missteps in your early pricing strategy.
The bottom line is, in SaaS, revenue model architecture must take place prior to developing a pricing strategy, because you can't apply pricing strategy without knowing what you are applying it to. Don't leave money on the table. If you have not identified all of the revenue streams available to you, how can you apply pricing?
Do you need help figuring out which of the Seven Revenue Streams your SaaS business can take advantage of or how to build support for them into your application? Do you need to apply a pricing strategy to those revenue streams and aren't sure how? Give us a call (972) 200-9317 or get started today!
Author: Lincoln Murphy (You should follow me on Twitter!)