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Two Web App Sales Funnel Questions You MUST Answer

Thu, 17 Feb 2011 00:37:51 -0600

SaaS vendors must manage marketing metrics, but before diving in too deep, these two questions must be answered.

What if I told you there are two questions that you probably don't immediately know the answer to but if you did would absolutely change your view of your self-service "sales funnel?" Would you want to know what those questions are?

What if I told you that answering these two simple questions could lead to massive improvements in sales and conversions? There is a good chance you'd want to know what those questions are, right?

And what if I told you that you probably *already* have the answers to these questions? Now you'd want want to find out what the questions are even more, huh?

Okay, okay... so the first question is "What is the ranking of your pricing page on your marketing site?"

Why is that such an important question to ask? How is it "critical?" Well, I've seen firsthand and heard anecdotally (I'd love to hear from you in the comments) - across different markets and app types - that the Pricing Page is often the #2 most visited page on the marketing site of SaaS & Web Apps.

That's right... after the main page of the marketing site, the Pricing Page is the #2 MOST VISITED page on a SaaS or Web App vendors web site!

And yet, the Pricing Page is often the MOST NEGLECTED page on a SaaS or Web App vendor's site. That doesn't add up, right?

In fact, take Duane Jackson, CEO of Kashflow who told me "after our home page, the pricing page is the second most visited page of the site" and this was a surprise to him. He hadn't thought about it until I told him to check it out.

I'm just not sure I can convince you that the Pricing Page is important - but maybe your customers can.

I want you to go figure out where your pricing page ranks on your marketing site so you can get a feel for how important YOUR CUSTOMERS think the pricing page is... after you've read this entire blog post, of course.

In fact, look at how many people go to the pricing page right after the first page and then look at how many convert to paying customers. Hmm... not as many as you'd like, right? Why is that...

Okay, the second question is "What percentage of visitors to your site enter for the first time through your Pricing Page?"

You have to be aware that some visitors - more and more each day - are bypassing traditional entrance points to marketing websites and are going straight to the Pricing Page of SaaS & Web App vendors. I'm not talking about those that enter through landing pages associated with campaigns, either.

I mean those that literally hit your Pricing Page first whether that is from reviews on other blogs, affiliates, coupon code sites, organic search results, or Google Sitelinks - the direct links to pages within your site that you don't control!

(Click for a larger version)

Of course, as you add more and more value messaging to your Pricing Page - a top recommendation to improve the conversion rate of your pricing page - the more your pricing page will become an entry point via organic search results. Which is a good thing, but...

This is why you must think of your Pricing Page as if it were a stand-alone LANDING PAGE. What happens when someone sees your pricing page without any other context?

Ask yourself this very candid question... Can people even tell what your company or product does by looking ONLY at your pricing page?

Yikes! What if that is how people enter your site?

Is your pricing page a good first impression? An actionable first impression? Your goal is to convert visitors to customers... period. Are you going to do that with your pricing page as it is today?

So, if you don't know what percentage of your first time visitors enter your marketing site through the Pricing Page, then you need to go find out as soon as you finish reading this entire post.

Overall what this bypassing of "traditional" entry points means is that your "sales funnel" - the Main Site to Product Page to Product Tour to Pricing Page to Sign-up to REVENUE funnel that you so carefully orchestrated - might NOT be the way your customers choose to move through the "funnel."

You must be aware of this - where do they enter from and if they don't bounce from the Pricing Page (leave the site without going anywhere else) where do they go? If you have a 100% conversion rate from those that land on your Pricing Page for the first time and also sign-up for a premium plan, than you don't have to listen to me. Everyone else... you probably should.

Even your customers are telling you that you should listen to me.

So, the two questions you absolutely MUST ask yourself now, and on an ongoing basis are:

- What is the ranking of your pricing page on your marketing site?

- What percentage of visitors to your site enter for the first time through your Pricing Page?

This isn't measuring metrics as much as understanding behaviors. I don't care if you get 7 or 7000 first-time visitors hitting your pricing page, what I care about is where they go from there. If they hit the main page first, where do they go from there?

If it is the Pricing Page that they hit second, why are you neglecting it? Why won't you put a concerted effort to make it as powerful a marketing page as possible? Why won't you turn your Pricing Page into a First Time Conversion Machine?

This all holds true 10-fold if the pricing page is the entry point for any statistically significant number of first-time visitors.

I can't force you to understand how much money it could be costing you as you continue to neglect the #2 MOST VISITED page on your site - the Pricing Page.

I can't force you to understand how some simple but powerful changes to your pricing page that you could implement TODAY with minimal effort or cost could boost conversions and help you make more money.

It is up to you to come to this conclusion.

Are you ready to admit that your Pricing Page is important and probably deserves some attention?

Once you decide it is time to take full advantage of your Pricing Page, I can help you. I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory Price of only $297.

Go get this amazing video series for only $297 right now. As soon as you get it, immediately watch the 35-minute Value Pricing Basics for SaaS & Web Apps video; it will truly change the way you look not only at pricing, but your entire marketing strategy, your customers, and your offering as a whole!

Now go make it happen!

- Lincoln

(@lincolnmurphy on Twitter)

SaaS Marketing: Remember, You always sell to humans

Thu, 17 Feb 2011 00:37:45 -0600

Not just for Web Apps, this is Marketing 101; people buy from you and they aren't buying features!

I got this email from the President of a SaaS company today:

"I purchased your videos on SasS Price Page and am listening to it with our staff and I wanted to know if there is a version of this that would apply to Business to Government companies like ours."

My answer to him - to which he replied "Thank you very much for the very fast turn around to my question. It's very good advice, thank you again!" - was:

"I don't have a version of the video series that is specific to B2G scenarios. However, the same rules apply when selling to the government as to commercial entities or even consumers; you are selling to human beings. The people in the government that make buying decisions have certain motivations for making those decisions. They need a problem solved, a way to take advantage of an opportunity, etc.

You need to position your offering in a way that makes them think of you at the right time and in the right way. You need to make sure that they see the value in what you are offering, that you clearly articulate your value proposition - the WIIFT or What's In It For Them - so they will choose you over the competing products.

For you, this might mean extending that value messaging far beyond the pricing page, perhaps to different channels like the Apps.gov GSA "cloud" software store. Don't just get your stuff listed there - though that is step 1 - use what you'll learn in those videos to help position your product in a value-based way no matter how /where your clients see it. Pricing Page, Apps.gov, brochures, trade shows, etc.

Keep WIIFT in mind and have a clear understanding not only of their willingness to pay based on their value perception but also of their ABILITY to pay and how they'll pay (i.e. only being able to order through Apps.gov and only paying through a PO/Invoicing system not credit cards) and you should do quite well.

Good luck!"

Whether you are selling to Commercial Businesses in a traditional B2B scenario, selling to non-profits, schools, universities, or even the US Federal government, the Pricing Page Success Formula can help you ensure your Value Proposition aligns with the Value Perception of the customer.

I've put together a 5 Hour video series - the Pricing Page Success Formula - to simplify the process of designing and understanding what a Pricing Page really is. I want to help you get the most out of your Pricing Page and grow your Recurring Revenue.

For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for an introductory price of ONLY $297.

Go get this amazing video series for only $297 right now. It is up to you to take your business to the next level... get the videos and let me help you.

Now go change the world and make some money in the process!

- Lincoln

(@lincolnmurphy on Twitter)

Web App Subscriptions: The Beauty of Recurring Revenue

Tue, 08 Feb 2011 00:20:46 -0600

For SaaS vendors, continuity income means you only make a sale once, and continue to get paid every month, quarter, or year; just keep the customer happy!

Why should you care about the Pricing Page for your SaaS or Web App? Simple... a well-designed Pricing Page WILL help you increase sales and therefore your recurring revenue.

To really understand how this can happen, we need to understand the difference between a one-time sale product and a recurring-revenue or subscription product.

Single Product Sales

If you charge $20 for your product and you sell 100 in January, you made $2000.

If you sell 100 in February you also made $2000, or $4,000 year-to-date.

if you sell 100 each month for the rest of the year by the end of December you will have made $24,000 for the year ($2000 per month x 12 months).

On January 1 of the second year, if you want revenue, you need to hustle again and find 100 new customers because you're starting from scratch, just like every other month before it!

That sounds like your hustle:revenue ratio is wrong. What if you have a subscrption product and charge $20/mo per customer?

Subscription Product Sales

If you could get 100 customers in January at $20/customer, that would be $2000/mo or a run-rate of $24,000/year. That means, you could stop right there and have the SAME revenue at the end of December that you would have achieved from ALL of the single product sales (at $20/each) over the course of the year, only you would have worked A LOT harder with the single product sales.

It was pretty easy to get 100 sales in January since you really understand your customers and the WIIFT (What's In It For Them?). You used that knowledge to create a marketing site and pricing page / sign-up process that conveys the appropriate marketing messages and you think you could easily add another 100 customers in February.

So you make that happen - adding 100 customers in February - and add ANOTHER $2000/mo giving you a $48,000/year run rate, or DOUBLE what you would have done with single product sales. Even if you had to hustle just as hard for each sale, you have now only put in 1/6 the effort and now have 200% of the annual revenue achieved with single product sales locked down. You can stop right there and make no more sales and be better off than if you had a one-off product to sell.

But you don't want to stop there, right? So you continue to improve your marketing site and your pricing page, a/b testing, talking to and learning from customers, understanding their value perception and continually working to align your value proposition with their perception, and you add 100 new customers in March. Now you have a run rate of $72,000/year.

If you continue with that same growth rate of 100 new customers each month, by December of your first year you will have 1,200 customers with a run rate of $288,000/year and ACTUAL year-to-date revenue of $156,000!

That means, if you make ZERO sales the second year (but work your ass off to keep customer service high and churn at bay) then you will have a guaranteed revenue of $288,000. Even with 10% annual churn (way too high if you ask me!) you'd still make $259,000 in your second year - all with ZERO new customer sales. But why stop, right? Keep growing!

Something to consider... if you were thinking about Freemium as an option, based on typical conversion rates of ~3%, keep this in mind. In this scenario, you would need to have 40,000 free users over the course of the year - about 3,300 NEW users per month - to get 1,200 people to become customers. Support costs would likely skyrocket, not to mention overall customer acquisition costs. It would seem to be EASIER to simply try to reach a even a couple thousand new prospects each month in an attempt to land 100 new clients than the many hundreds of thousands needed to get 40k new users.

It is possible to leverage Freemium in some cases, for sure, but you need to have a massive addressable market, a clearly defined plan and the ability (and money) to execute on it. Either way, it seems like Freemium would be the harder way to go in this example. If you work hard to not only make your marketing site great - but your pricing page, too - then you will increase sales which increases your recurring revenue; no need for the free option.

If you are exploring something at the scale of the scenario presented here - just a few hundred new clients per year - you could leverage Freemium as a way to get people to the site and use a well designed Pricing Page - in addition to an overall marketing site and strategy - to promote the premium version over the free version in an attempt to convert would-be free users to paying customers out of the gate. No matter what, your pricing page should maintain the marketing momentum you've built up on the rest of your marketing site and should quickly and efficiently encourage the customer to make a purchase.

Remember, the pricing page is not just a place to list prices and take orders - assuming just because they are on your pricing page that they'll buy could be a costly assumption - if you're already in the market that assumption should be trumped the the real world bounce or exit rate for your pricing page! Clearly, you aren't converting every visitor to that page which means they aren't yet ready to buy. Most of the time this is because you aren't marketing to them anymore once they're on the pricing page.

Pricing Pages are much more complex than most people think - but I've put together a 5 Hour video series - the Pricing Page Success Formula - to simplify the process of designing and understanding what a Pricing Page really is. I want to help you get the most out of your Pricing Page and grow your Recurring Revenue. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for an introductory price of ONLY $297.

Go get this amazing video series for only $297 right now. It is up to you to take your business to the next level... get the videos and let me help you.

Now go grow your Recurring Revenue and let's get you to your goals!

- Lincoln (@lincolnmurphy on Twitter)

SaaS and Web App Pricing: Value Pricing Basics

Mon, 07 Feb 2011 19:53:13 -0600

Pricing and packaging for SaaS businesses is 'hard' is something I hear a lot.

"One prominent feature of information goods is that they have large fixed costs of production, and small variable costs of reproduction. Cost-based pricing makes little sense in this context; value-based pricing is much more appropriate. Different consumers may have radically different values for a particular information good, so techniques for differential pricing become very important." Versioning Information Goods by Hal R. Varian, UC Berkeley, March 13, 1997 (Download the PDF here)

What Varian is talking about in that paragraph - the opening paragraph to his very popular paper - is Value Pricing, or pricing your product or service based on how much value it brings to the consumer not how much it costs to produce, serve, deliver, etc. But wait, isn't this missing something? For instance, aren't profit margins kind of important? Of course, but once you've covered your costs - fixed and incremental - everything above that is profit.

The key is that the amount of profit margin is directly proportional to the value perception of your market to your product or service. In other words, your profit margin is driven by all aspects of marketing (the Four P's of the Traditional Marketing Mix; Product, Place (Distribution), Promotion, and of course... Price.

Getting back to margins, f your costs are high (support, infrastructure, customer acquisition, etc.) your market doesn't care. There is a price range they will support based on the current value proposition - and their perceived value - and if you can't cover your costs within that price range, too bad. You either need to figure out a way to lower your costs, figure out a way to get them to pay more, or accept that the market opportunity you thought was there - and your ability to capitalize on it - isn't.

Of course, the best way to deal with this is to figure out a way to improve the value perception of the market! This is all found in the WIIFT - What's In It For Them?" - so that they will pay more for the product or service.

At the core, marketing - especially Pricing and Promotion - is an attempt to align the value-proposition of your SaaS or Web App with the needs and/or wants of the market. The real goal should be to increase the value perception of the product or service - that is to increase the value in which the consumer sees in your offering - a greater amount of WIIFT - "What's in it for them?"

What is key to understand is that price is where your value proposition and their value perception intersect. For SaaS & Web Apps this intersection often occurs on the Pricing Page of their marketing website.

Understanding what pricing really is - the intersection of value proposition and value perception - should immediately make you take a second look at your pricing page...

Are you continuing the value-based message of the rest of your marketing website? If not, you could be losing marketing momentum.
Do you assume the visitor to the pricing page is already a buyer? That could be a costly assumption.
Are you just displaying prices and / or a list of features? Don't confuse features with value!

There is a lot more to consider!

To help you out I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Good luck out there!

- Lincoln (@lincolnmurphy on Twitter)

Web App Value Pricing: The Commodity Metric Trap

Mon, 07 Feb 2011 19:26:24 -0600

SaaS vendors who know their customers know what they don't value and avoid building a pricing strategy around those elements.

I was talking with a client - an established SaaS company in the HR space - and they wanted to pass on the storage costs associated with the use of the system to their end-customer. I told them that their best bet was not to do that as it could put the focus of the customer on the wrong metric. Instead of continuing to ensure their value proposition was aligned with the value perception of the customer, this move would put the focus of the customer on a commodity metric with little real value.

Here's the deal... a quick search on Google shows you can buy a 500GB hard drive for $60, or about $0.12 per GB. Anyone can do that search and probably a lot of people have. Even more, they probably weren't happy when they did the search (few people buy a new hard drive because it is fun). Even if they haven't actively sought pricing on a new hard drive, they know that a GB is super cheap these days.

Yet when you sit down to develop your pricing strategy for your SaaS or web service, and the pricing page to go along with it, you need to figure out if really makes sense to charge your customers an extra $20/month - or $240/year for an extra GB of storage space; something both you and they know they can get for $0.12.

Wait! "That argument doesn't make sense" you say. "We add value on top of the storage;" you manage that data for them, you do backups and have a disaster recovery plan, your data center is SAS70 certified... STOP... it doesn't matter any more.

Whether you like it or not, your customer just did an apples to apples ROI comparison between two things that have absolutely nothing to do with each other; your complex web service and a commodity, desktop hard drive. And it is all your fault. So now, the customer either won't step-up to the next tier (holding back on usage or deleting objects) or they will because they have to but won't be happy about especially since they "know" the huge profit margin you're getting off of them. More importantly is that even though they moved up, they might be actively looking for a way out.

You see, knowing that you add value is not enough; you need to tell the customer about the value you add and sell them on it. Unless they are buying a storage system (S3, online backups, etc.), at best focusing on "storage" is simply not aligned with the customer. At worst, it takes their minds off of the true value you add and focuses it on some metric that they associate with a super-cheap commodity.

A great example of a company that did this well is Apple with the iPod. When they decided to sell an digital audio player to compete with MP3 players on the market, they chose to sell a device with 5GB of storage. But they didn't promote it that way. Instead, Apple knew that a storage metric - even in 2001 - did not have a lot of value with it. If anything, it didn't mean anything to the customer. So, Apple sold the 5GB iPod as a way to put "1,000 songs in your pocket." This means so much more to consumers and takes the focus off of the commodity metric and puts it where the value is derived.

So, how can you do that with your SaaS or Web App?

If you need help, I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. If you're having problems figuring out what pricing metrics to use - including storage - you should buy this video series, watch Value Pricing for SaaS & Web Apps (35 mins) followed immediately by Bundles, Versions, & Pricing Metrics (also 35 mins).

Go get this amazing video series for the Introductory Price of ONLY $297 right now. It is up to you to take your business to the next level... get the videos and let me help you.

Onward, upward and to the right!

- Lincoln (@lincolnmurphy on Twitter)

The Web App Pricing Page: A Marketing Momentum Killer

Mon, 07 Feb 2011 18:49:31 -0600

SaaS companies often spend time, money, and effort designing a great marketing site that builds up massive momentum, only to kill it all on the Pricing Page.

SaaS and Web App companies that use an automated sales process, where marketing and e-commerce are tied-in with automated provisioning of the application, live and die by their marketing websites. For these companies, the most important page on that marketing website is the Pricing {age. Really? Yes. Read on...

Unfortunately in startups we see at least 75% of all effort going into the application itself, with the remaining 25% going into everything else, including marketing. Since pricing is a function of marketing, that means for most early-stage startups, just a fraction of that 25% of effort is focused on this incredibly important factor in the success of a business.

Developing pricing is often overlooked or put off until later - which sometimes never comes, only to have someone eventually throw some numbers on a page and call it a day. This is a great way to fail, by the way; an over-engineered app that no one will (because they don't know about it) or can (because it is priced wrong) buy. Too many startups you'll never hear of end up this way.

From my experience, far too many SaaS & Web App companies do not have a real pricing strategy - that is, an actual strategy around their pricing decisions - and the window into that strategy, their pricing page, often makes this abundantly clear. Look at enough pricing pages for SaaS or Web Apps and you will notice a disturbing trend; seldom does a pricing page convey the same message as the overall marketing website. Seriously, go look... at yours.

In fact, it is almost as if most companies say "I've done such a great job building my marketing site that when someone clicks 'Plans and Pricing' that it is just a formality at that point." Clearly when you look at your analytics and see most people bounce or exit, it isn't a given that someone who hits your pricing page is ready to buy. The assumption that visitors to your pricing page are ready to buy and don't need to be marketed to just killed any momentum you built up!

One of the easiest fixes most SaaS or Web App vendors could make to their pricing page has nothing to do with the pricing itself, the display of the versions or pricing tiers in grid form, or even where the sign-up buttons are located. The very first thing to look at is their main Call to Action headline - the thing that says, "hey, you made it this far, let me remind you of why you're here so you'll hit the buy button"...

Understanding that the pricing page should maintain, or even better, build on the momentum generated by the rest of the marketing site, and that it is at the beginning of the buying / sign-up process (not the end of the "Sales Funnel"), why would a company let this opportunity slip through their fingers? The answer is simple - and tragic; it is because they don't view the pricing page for what it is: the most important page on their marketing website.

There are always naysayers, but what I've found is that those who argue against this fact are simply trying to justify their lack of attention to their pricing page or overall pricing strategy - but I invite you to try; the comments are open.

You can't assume that the purchasing decision is made and that all you have to do is present three pricing options and a buy button and you're good. Don't let your Pricing Page stop the momentum created by your marketing website. Understand the reason for the pricing page and how important it is to you as a SaaS or Web App company. Use the pricing page to remind the customer of what's in it for them should they decide to sign-up.

I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory Price of ONLY $297.

Go get this amazing video series for only $297 right now. It is up to you to take your business to the next level... get the videos and let me help you.

Good luck!

- Lincoln (@lincolnmurphy on Twitter)

SaaS Pricing: Will You Win the Race to the Bottom?

Fri, 04 Feb 2011 00:52:27 -0600

When Web Apps compete on price, is the winner the one with the cheapest product?

I was talking to the CEO of a SaaS company in the UK recently - I'll call him Eddie - who was convinced that he had a "me-too" product, that it was just a commodity, and that the only way to compete with other vendors was on price. But it was clear to me after learning about his product and talking with him that this is not the case.

Eddie's product provides a ton of value to the market, but he can't see it because he gets stuck on the technology they're delivering, what the competition is doing, etc. He has taken his eye off the one thing that matters - the customer.

And what really matters is what the customers do with his product and what the result of that is. If he can figure that out - the real value they receive by using his product - then he can get out from the "race to the bottom" he's in with his competitors. It won't be easy - it will take work - but it will really be worth it.

But Eddie's stuck. He's in his own head and he can't get out. I told him he needs to take a step back and re-evaluate why he started his business in the first place. Was it to have the cheapest product out there? Probably not. Right now, he's not a good candidate for my help because Value Pricing requires that you - at some level - believe there is value in your offering.

Are you like Eddie? Let me help you get un-stuck! To help you out I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Good luck out there!

- Lincoln (@lincolnmurphy on Twitter)

Web App Pricing: Mo' Money, Mo' Problems... Mo' Money?

Fri, 04 Feb 2011 00:22:19 -0600

SaaS companies should take advantage of the fact that Business people have more money than time.

Lately I've been doing a lot of thinking about the motivations behind our work - whether we're entrepreneurs, startup founders, programmers, designers, product managers, etc. Ultimately, there is a reason we work so hard and are so driven... what is it? Is it so we can make more money?

Well, we all know that money doesn't buy happiness - it buys freedom. It is with that freedom that you can choose to do things that make you happy, help you live the life you actually want to live rather than being forced into one you don't want by circumstances "beyond your control." "Look everybody it's Tony Robbins" you say; but its true.

Once we grow up we realize that 'stuff' isn't the most important thing in the world - that when pressed for why we're working so hard on our startups, or why we're killing it every day at work, it isn't to have a bigger TV, or a fancy sports car, boat or giant house. Rather, it is the experience that those things might allow us to have with family, friends, and our employees or co-workers. It is the people - and experiences with those people - that are the real reason we work so hard. Yeah, even the big TV...

But what is interesting is that as people start to get more money, they run into more and more problems. This applies to businesses as well. Maybe those are things to do with compliance, operational efficiency, etc. Maybe those problems are actually opportunities that they cannot take on right now but want to. While "more money" usually means an increase in revenue, it does not necessarily mean "more profit" - it often means more *complexity* which equates to more overhead, more employees, less efficiency, more headaches, more time away from family and ultimately less happiness. Sort of the opposite of all of our goals, right?

So when I'm helping SaaS & Web App companies - startups or established alike - with their pricing strategies I like to see if there is a way to scale pricing not with the size of their customer - revenue, employees, etc. - but with the complexity of the customers' organizations. For some Apps, this isn't going to work or matter - but in a lot of cases we can see a direct correlation between the types of customers and the complexity of those organizations as it relates to the problem being solved by the App and their willingness to pay.

In other words, as an organization grows its revenue, the side effect of that growth is that the complexity of the organization - human resources, operations, finance, everything else, grows too. This is a perfect example of "Mo Money, Mo Problems." As the subject of this email suggested, there's a second wave of "Mo Money" and it is for you if you can come in and eliminate or reduce those problems so they can enjoy that new money! So while having more revenue might seem like a blessing for your customers, if that all of the sudden means more work and more stress, that extra money might not seem worth it.

This is where you come in! Don't you think people would be willing to pay if you could help them reduce complexity? It seems logical that the more you can help them with the complexities of their business the more they would pay, right? This won't apply to every App or every situation, obviously, but if you haven't considered this idea, you should take a look at it. While small and medium sized businesses certainly feel this pain more than larger organizations simply because its new to them, every company goes through this. Remember that you are selling to human beings regardless of the size of the company you're selling to. What motivates them as people? Figure that out and your golden.

How does this play out in your SaaS business, though? Consider this when you are building your pricing strategy - or even if you already have it in place. If you offer all features to everyone and differentiate bundles or versions with a pricing metric like 'number of users' you *could* be missing an opportunity. For example, a very simple, but larger organization might subscribe at the 5-user level while a smaller, though more complex organization might subscribe at the 2-user level. And neither company is really willing to pay much since 'number of users' is really not where they find the most value.

On the flip side, if you considered scaling your pricing with the complexity of the organization, you would have sold the cheaper version with a few features and unlimited users to the company that previously paid for the 5-user level and sold the really expensive version with unlimited users to the company that is complex but not big who previously would have purchased at the 2-user level. Oh, and each company would pay MORE in this scenario because you priced based on perceived value of the feature bundles (not the features themselves, right?) and not some - apparently - low value metric like "number of users." Make sense?

So, when you start matching your pricing model to the needs of your customers - in this case scaling pricing tiers with the growing complexities of an organization - you are aligning with metrics that the companies and the decision makers inside the organizations will find the most value in. The higher the value perception, the higher the willingness to pay. They have Mo Money and Mo Problems... and now there's Mo Money for you since you helped them fix that by clearly understanding their value perception. And since you fixed this on your Pricing Page and streamlined your automated sales process, this additional money you now have was generated through no additional effort, stress, or time and takes you one step closer to your goals of freedom and a better life!

Let me help you get closer to your goals as a SaaS or Web App vendor. I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Good luck out there!

- Lincoln (@lincolnmurphy on Twitter)

Web App Marketing: Is Your Pricing Page in the Wrong Place?

Fri, 14 Jan 2011 02:51:49 -0600

For SaaS vendors with self-service sign-up, the pricing page is not at the end of the sales funnel... but the beginning.

You know that entrepreneur building a Web App who needs to get the pricing page right so they can CRUSH IT in a scalable way without having to work too hard and hustle for each sale? This person is motivated to make enough money to send their kid to college, pay off their debt, or quit their job and live the life they want. You know her, right?

What about that person working for a big SaaS company who's been tasked with "increasing customer acquisition?" We know that person can't hire an outside consultant on their own - and wouldn't want to - but they NEED to look like a rock star inside their company so they can move up, get a better salary, get more stock, and provide a better life for their family. We both know that guy, right?

Those are the people that I created this updated video series - the Pricing Page Success Formula™ - for.

This video series contains over 5 HOURS of amazing content, including:

- Value Pricing Basics for SaaS & Web Apps

- Pricing Page Fundamentals - What is a Pricing Page?

- Pricing Page Design Elements

- Market Segmentation

- Bundles, Versions, & Pricing Metrics

- Effective & Ethical Price Testing

Interestingly, for the Pricing Page Fundamentals video I had to define what a Pricing Page is. Here's the definition I came up with:

Pricing Page - The Visual Manifestation of the Transparent Pricing Strategy of a SaaS or Web App and is the first marketing page at the beginning of the self-service sales or sign-up process.

Boom! Nailed it. But, note in this definition that the pricing page is at the beginning of the self-service sales or sign-up process. The BEGINNING! Not the end of the "sales funnel" as most people think of it. That should give you something to ponder for a while! Think about your Pricing Page strategy and where you "placed" your pricing page.

Go get this amazing video series for the Introductory Price of ONLY $297 right now.

Thanks!

- Lincoln (@lincolnmurphy on Twitter)

SaaS Pricing Page Workshop: Complete Archive ONLY $50

Mon, 20 Dec 2010 22:01:35 -0600

Just released! The Pricing Page Success Formula video series - over 5 HOURS of amazing content on Value Pricing for SaaS & Web Apps, Pricing Page Design, Market Segmentation, and even Price Testing. This new video series AND Quick Start Guide is available at the Introductory Price of ONLY $250 (a $500 Value!) for a limited time. Be sure to get your copy today!

----------

I want you to have an amazing 2011. I want you and all other SaaS & Web App vendors to stop leaving money on the table and to have the most effective Pricing Pages possible. To make that happen, I'm opening up the archives and giving you access to the videos from the November 2010 SaaS Pricing Page Workshop and Q&A for a very low price. Oh, and I'll throw in the 150 slides from the December workshop, too!

If you are a SaaS or Web App company with OR planning to have a pricing page then this is for you. Regardless of the stage of your company - this isn't just for startups - whether you've been in the market for 10 years or are in beta getting ready to launch – even if you don't have a pricing page yet, this is for you.

You don't have to be in the process of developing or designing your pricing page, either - If you have a pricing page that is currently live and are not seeing the results you think you should, this is a MUST for you! Check out what one attendee said about the November workshop:

"You nailed it this time - it was really really good. I liked that you dissected 37signals' pricing page and shared your views on how asking users about 'how disappointed they would be if our serviced ceased to exist' would lead to trust & credibility issues." - Sameer Bhatia, CEO of ProProfs

WHAT? Only $250? So, what do you get for $50?

- The full 2-Hour Workshop video recorded Live in November 2010

- The complete 20 Minute Q&A video recorded separately that covers questions that came in during and after the live workshop

- The workshop-ready 150 Slide PDF of the presentation deck built for the December 2010 Pricing Page Workshop

Videos are both available as embedded, streaming Flash AND a cross-device MP4 to download

But you might need to be reminded of what you could learn with some real life examples. Check these out:

Pricing Page Review by Sixteen Ventures: Wistia

Pricing Page Review by Sixteen Ventures: Salesforce.com

Pricing Page Review by Sixteen Ventures: Mockingbird

Okay, that's great... but what specifically will you learn in the 2-hour Workshop video?

- Most vendors don't have a Pricing problem but have a MARKETING problem

- The SHOCKING revelation of what a Pricing Page REALLY is

- Where the pricing page ACTUALLY sits in the sales funnel

- Value Pricing and why cost- & usage-based pricing is KILLING your revenue

- Value Messaging & maintaining Marketing Momentum on your Pricing Page

- How to use Pricing Tiers / Bundles / Versioning & when to AVOID it entirely!

- Market Segmentation & the FALLACY of the one-size-fits-all pricing page

- The absolute REQUIRED Trust Factors for B2B success with SaaS

- The Use of Free Trials, Freemium or Both & why you're doing it WRONG

- What you can & should test on a Pricing Page and what you absolutely SHOULD NOT test

- And a lot more!

What could possibly be covered in the 20 Minute Q&A video then?

- When does it make sense to offer a non-subscription pricing option alongside a mostly SaaS site?

- Are there specific types of services or price points where it generally makes more sense to offer free trial w/o credit card vs. free trial w/credit card vs. freemium?

- How do we make our perception of value higher? (particularly when 'sort of' comparable services are being offered at substantially lower price points)

- Does the "pricing page" and "signup/payment" have to be separate pages?

- Would you recommend removing footers and navbar from pricing page? (ie. less distractions)

- I noticed you put some security seals (TrustE, Verisign) on a pricing page, not the payment page. Do you think these seals are always a good idea on the pricing page?

- I noticed that some sites place the most expensive plan on the left, and others place the cheapest plan on the left. What are some of the reasons why you might choose one option over the other?

So what is left to be included in the updated slide deck for the December workshop?

- The slide deck grew to 150 slides between November and December - many slides were re-designed, some have been replaced with better content, etc.

- You will see the revelation about "Sales Funnels" and why they are killing your business

- Because each workshop is unique, you will see reviews of different SaaS Pricing pages from November

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Technology Will Fail, but Service Must Never

Mon, 20 Dec 2010 21:57:28 -0600

As a Web App company, you are in a unique position to offer proactive support to your customers; anything less is unacceptable!

Alternate title: SaaS Vendors Should Learn What NOT To Do from Citrix

So, I'm not sure if you heard (you probably did if you follow me on Twitter!), but the SaaS Pricing Page workshop scheduled for earlier this month didn't happen due to technical difficulties. Some people have attempted to point out the irony of a "SaaS workshop" failing due to a problem with "the cloud." I don't think that is ironic - technology fails, though trying to keep that to a minimum is obviously the goal, ultimately it is how you handle that failure that matters. In this case the vendor - Citrix - failed, not SaaS, the cloud, etc.

The workshop played out like this. Twenty minutes past the scheduled start of the workshop, and after scrambling around, switching computers, moving from VOIP to the regular telephone, shutting down and restarting the webinar, etc. much to our collective frustration (the 30+ attendees and me), technical issues with the audio portion of Citrix' GoToWebinar service kept us from progressing. The really bad part was that it was not clear what the problem was while all of this was going on!

The webinar itself seemed to be up-and-running, but there was no sound - and no errors, feedback, or anything indicating something was not working (except the absence of sound). As far as anyone knew (myself included), it was operator error. Yep, to the attendees it just said I was muted. So why couldn't I just "unmute" myself, right?

Now, let me be clear, I take fully responsibility for this since it was my webinar and I had no backup plan. Well, I sent the slides in PDF form to the attendees ahead of time just in case we lost video - which has happened before - but didn't take into consideration the failure of audio. I will no longer have a single point of failure for webinars and workshops and I would recommend the same to you.

I guess it was a tiny bit of relief though that it turned out - thanks to an attendee for sending a link to the not-so-obviously-placed status page (what good is it if you can't get to it or don't know about it) a little later - that Citrix was having issues with their audio service at the time of the scheduled webinar. So, you know, its all good.. Wait, they were WHAT? OMG WTF?!?! Are you serious!?!?

So lets take a step back and analyze this situation with a clear head...

It would seem that Citrix knew the following:

1) I had a webinar scheduled for 3:00PM Eastern.

2) They sent an email reminding me that I had a webinar scheduled for 3:00PM Eastern

3) I had OPTED IN to using their integrated audio service for the webinar

4) They were having issues with their Audio Service before and during the scheduled webinar

So, knowing all of that and obviously having the capabilities to email me, why did they let me move forward with the webinar? What compelling reason is there for a user to be able - without warnings along the way - to continue to use a service when it is down? Why would the vendor not tell me? This is simply incompetence - not knowing their proper roll as a cloud vendor. Perhaps this is a legacy mentality shining through.

This is a perfect example of a company that is network-centric but has yet to embrace modern SaaS or cloud methods. Whatever it is, Citrix' competitors would be wise to understand that you are Software-as-a-Service providers, with an emphasis on SERVICE.

Let me lay it out as clear as possible: as a SERVICE provider, you owe it to your clients to be proactive in support - anything less is inexcusable and will hurt your business! In fact, I wrote a post back in 2009 about Netflix and their proactive customer service titled "SaaS Vendors Should Learn from Netflix". Its an oldy but a goody and is still - if not more - relevant today.

As a SaaS/Cloud company, you are in a unique position of having visibility into both system status and the user operations within your offering. While we can consider options for integrating status API calls into a native client like GoToWebinar uses, or loading UI frameworks from separate networks while pulling in status messages for web UIs, its simpler than that. Don't over think this. It doesn't have to be that complicated, and you can implement something like this RIGHT NOW.

Think about it... Citrix could have sent an email 15 minutes before the scheduled webinar saying "we see you have a webinar scheduled in 15 minutes but we wanted to let you know that as of right now, we're having problems; here are your options." Yes, one of those options might have been to cancel and reschedule, but that is proactive. That would have saved the attendees frustration and time, saved me embarrassment and revenue, and possibly saved Citrix at least one customer - maybe more. Remember, this was a workshop with many participants - a lot of folks saw Citrix' GoToWebinar fail miserably that day.

Needless to say, I immediately cancelled my account with Citrix and they were kind enough to give me a full refund. Sure, the $90 Citrix returned to me did little to cover the lost revenue (since I immediately offered refunds to the workshop attendees) or the potential damage to my reputation, but it gave even further proof of their reactionary, legacy customer "service" model.

Horror stories aside, because of the time of year it is impossible to reschedule the workshop, but I still want you to be able to prepare for a successful 2011. So I've put together an amazing package deal for you.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

How Much to Charge for Web App? Value Metrics Are Key

Tue, 07 Dec 2010 10:13:35 -0600

The Pricing Strategy for a SaaS product should be built around what the customer values, which means staying away from "commodity" metrics like storage in most cases.

I find most articles about "SaaS Pricing" to be less-than-helpful because they almost always fail to take into consideration the WIIFT of the customer - the What's In It For Them. Most articles usually talk about connecting pricing with the sales model rather than the value perception of the market - a potentially costly mistake. People who try to correlate specific price points to distribution methods / sales models with few or no other inputs are making a big mistake.

Price is always tied to the market's willingness to pay, at all levels, commodity or luxury. Nobody cares what sales model you need to support internally, nobody cares what your costs are, all they care about is what is in it for them. In case you haven't figure it out yet, this is what you should care about, too. For SaaS, Web Apps or other information services with mostly front-loaded manufacturing costs, price is tied more than anything to how you market and position your product/service, since that will dictate value perception and willingness to pay. This is in contrast to physical goods where supply and demand can affect the price or where manufacturing & distribution add significant cost to each order. I'm talking about SaaS here, not truck tires.

The key to pricing is simple: the better you understand your market the easier it will be to create an offering that they perceive to be high value, meaning more revenue and profit for you. But understanding your market is hard, it takes work, effort, some thought, etc. So you might as well just pull a number out of thin air (or somewhere else), multiply x 3 (as they say, its easier to lower, than raise prices), and hope for the best, right? You'll need a strong table to hold all that money you're leaving on it!

The fact is, the price, price points or price ranges for tiers / bundles is not often the issue when our clients come to us; well, not the first issue. For many, it is the pricing metrics that are used that is the real issue and once that problem is fixed, it usually renders the first problem irrelevant. Pricing metrics are those little things we base our prices on - and ultimately our entire business - all of us, even us consultant types.

The de facto standard pricing metric in SaaS is per user, per month. As the markets and vendors mature, this is changing and could be anything from packages shipped to number of transactions completed. These are the real keys to value pricing in SaaS and are not talked about as often; either because people don't really understand this aspect of pricing or because it is too difficult; maybe both.

Unfortunately we see and hear from companies all the time that have built systems or leveraged metering/billing systems that are tied specifically to per user, per month or other legacy metrics. In SaaS, pricing is marketing, but it is also tightly coupled to the underlying technology. You know that truck tire I mentioned earlier? You can change the price, the price metric, distribution for that truck tire - and legacy software - all day long and the tire (or software) stays the same. With SaaS, not so much. Be careful that you listen to people that don't just understand pricing, but the SaaS Business Architecture, too.

So, work with me here. If pricing is marketing, and pricing is where value perception (the market's idea of WIIFT) and value proposition (what you think the WIIFT is) intersect, then the pricing metric is what ties all of that together. If you were to boil down the value perception to one element, it would be the pricing metrics. And yet few ever speak of these outside of pointing out what the typical metrics are.

Why is this so important? This is really a very large topic, but the idea is simple; if you base your pricing on something people find no value in, your value proposition will not be aligned with their value perception. If people don't care about the number of users, for example, if you charge per-user you could run into the "shelfware perception." The idea behind shelfware comes from the old days when software came on a disk and in a box that you could actually put on your self. The saying comes from the fact that you bought too many copies of a piece of software and rather than using productively, it was "installed" on the shelf in the managers office.

So, if you have a situation where two users - Meg and Brian - are paying for the "lite" version (a bad name and a topic for another day) and want to add Glenn to the system, but to do so requires that they upgrade to the "pro" version which includes up to 10 users, they'll be paying for 7 users that they don't need - Shelfware 2.0? So, what's the problem? Don't we always want people at the low-end of the next tier up? Aren't they the most profitable customers? Yes, but we need them to want to be there.

The idea in B2B SaaS that seems to apply almost across the board (your mileage may vary so please do your homework), is that scaling pricing based on the complexity of the companies that are using your product/service is a good idea. This ensures that your price is tied to value perceived at every tier. Which is why I hate this quote by Paul Graham: "You've found market price when buyers complain but still pay." I don't care who said it, its wrong.

That quote simply flies in the face of "value pricing," customer-centricity, marketing, etc. and can hurt your Customer Lifetime Value (CLV). Complaining customers aren't happy and it is hard to upgrade, up-sell, or cross-sell unhappy customers. If they are not happy, as soon as they find a suitable substitute, they will leave. And in the meantime, they'll game the system, sharing users and logins, or they'll stop using the system as much.

It is true, you can't please everyone so some might complain about pricing, which is fine. At some level people will complain that they have to pay anything - this is especially true when you've been giving it away for free at first. You have to be able to figure out if the complaining is because of that, or if it is real push-back. The better you understand your market, the easier that distinction will be to make. The goal should be to get those who do pay to do so happily so that we can get more money from them over their lifetime as a customer. Ideally, you've done the work necessary to focus your offering to those that will perceive value removing complainers from the equation.

But there is another aspect of pricing metrics besides keeping Shelfware perceptions at bay; its about aligning with value perceptions to grow CLV. As I've said a number of times before, one of the problems with Freemium - for example - is that people promote the free version over the premium versions, ensuring that all customers will go through being a user first; which is why conversions are so low and time to profitable revenue so long. If they would promote the paid version from day one, give incentives to sign-up for the premium version, etc. they would get the money from their customers faster, meaning that an increased CLV. The same principal holds true in value pricing for SaaS vendors.

The SaaS Pricing Page is a perfect jumping off point for most discussions of pricing with SaaS vendors because it is generally where they start anyway. SaaS & Web App vendors who have opted for price transparency will quite often sit down to develop their pricing strategy by laying out a pricing page first. Who cares if this is the right way to do it, it is the way its done. So we use the pricing page as the visual manifestation of a SaaS vendor's pricing strategy and start from there. So when you lay out your pricing tiers or bundles, there is a good chance there will be three versions - small, medium, and large - and that it will be based on number of users. You need to ask yourself if that is the right metric.

Not only could "users" be a metric that has no value to the market, but by basing pricing on that metric, you've basically told your customers to start small, then move to medium, and then to large. Have you provided any incentive - other than number of users - for someone to start with the large bundle out of the gate? What if they only have 3 users (rather than the 25+ in the large bundle) but would find value in some of the features of that bundle? Do they even know they could find value in those features or were you too busy pushing the fact that they the large bundle has 25+ users and 10GB storage?

Look, your pricing today affects the overall CLV - don't worry about too high or too low - worry about aligning with value as the customer grows/changes. This is what I mean when I say once we figure out the right metrics, what you originally had price-wise is probably irrelevant. When we figure out the right way to charge based on value-oriented metrics, the price might go up significantly. Or it might not, but the migration to higher-priced tiers early on means a greater CLV, more profit, and a business that is worth more in acquisition or IPO. Yeah, IPO - this stuff doesn't just apply to startups and small Web App companies - this is a lesson for all SaaS companies of any size.

There's a lot more to this topic than I could cover here, but I hope it got you thinking.

Want more pricing goodness? I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Freemium Marketing: Salesforce.com sets Chatter Free as Yammer adds $25M

Wed, 01 Dec 2010 16:18:42 -0600

Freemium is not just for small startups, and small startups are choosing a different approach to Freemium.

This article originally went out to our mailing list members. Join today - for free - if you would like to receive the occasional and hopefully insightful observation from us!

I want to bring you up to speed on some interesting developments regarding Freemium in B2B SaaS. Salesforce.com said they are going to announce at their Dreamforce conference next week a free version of Chatter. If you aren't familiar, Chatter is a SaaS product for businesses small and large to use for internal communication - almost an internal Twitter.

Fast-forward to earlier this week when Yammer, the non-Classical Freemium startup who claims 80% penetration in Fortune 500 companies and ALSO a provider of a SaaS product for private Twitter-like communication within organizations - announced it landed another funding round. This latest round of $25 Million brings their total external investment to $40 Million.

It seems interesting that Yammer gets more funding and Salesforce spins out a free version of Chatter so close together. Here are links to a different accounts of the announcements.

So, why is this significant? Well, first of all, Salesforce.com is clearly not a "startup with nothing to lose," yet they are embracing Freemium (not Classical) as a marketing strategy to disrupt competitors. Whether the free version of Chatter is a swipe at Yammer is not clear. The only competitors Salesforce.com CEO Mark Benioff mentioned by name were Lotus and Microsoft SharePoint, though that in itself could be a swipe at Yammer. Salesforce.com could see Yammer as a threat or perhaps they just thought they'd let them spend their money on market validation - we might never know, but the timing is interesting.

Whatever the motivation, this move by Salesforce.com is intriguing. Aside from potentially crushing competitors like Yammer, a free version of Chatter provides a great foot in the door for Salesforce.com to ultimately monetize via their core products. If you haven't spotted it yet, Salesforce.com's free Chatter is the "alternative product strategy" for Freemium I talked about way back in "The Reality of Freemium in SaaS".

The key takeaway from this for those embracing Freemium as their go-to-market strategy is that Free or Freemium is not the sustainable competitive advantage you think it is. If you are thinking that those old, stodgy, Billion dollar public companies won't do Freemium because they're not cool, hip, agile like you.... SQUASH - they just did!

If you haven't already, please join our mailing list so you can download and read "Freemium isn't just for 'startups with nothing to lose'" - it is 5 pages in a PDF that could change your entire view on Freemium in B2B SaaS. If you already have it, go back and read it with the context of these two announcements

Yammer is very interesting as they leverage a different type of Freemium where the product itself doesn't change from a usability standpoint when moving from Free to Premium. Rather, Yammer monetizes control - a huge shift in the Freemium concept, by the way. The feature limitations are mostly on the back-end where the users are not affected. This means high-levels of front-end viral growth in user adoption are achievable, but back-end monetization (the actual Customer Acquisition) takes Yammer directly to enemy #1 of SaaS - the IT department. They have a tough row to hoe, for sure, but it is an interesting use of Freemium.

For the record, I like Yammer's use of Freemium in B2B SaaS - it is not "Classical Freemium" though and the extra $25 Million shows its not cheap, either. It would seem that is due to the sales model behind Yammer not being as efficient and scalable as the user acquisition model out front. I've heard anecdotally from some large companies that I work with who use Yammer internally that their sales team has had difficulties closing sales against SharePoint, even when they have 2000+ internal users on the platform. I suspect that Yammer will begin to refine their sales process to make it more efficient at scale, with the free version of Chatter providing even more incentive to get that process right. No matter what, it should be interesting to watch how this all plays out.

A word of caution if you are thinking that the Yammer model of Freemium is for you. It might be - monetizing control, security, data ownership, privacy, etc. are valid revenue models - but you should probably learn as much about Yammer as possible before you copy their use of Freemium. Of course, that is AFTER fully understanding your goals, market, etc., right? Especially for something like Yammer, you must clearly understand the sales process in use - it is a mix of something new and consumer-oriented like Freemium on the front end with traditional Enterprise sales on the back end.

I will cover the Yammer model in more detail in one of the next Freemium updates for the mailing list members where I talk about the 5 different Freemium types found in B2B SaaS. Understanding that there isn't just one type of Freemium, looking for the real motivation behind its use, & how to employ different Freemium strategies both short- & long-term are important.

If you need help with your pricing strategy or pricing page design, I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $250 (a $500 Value!).

Go get this amazing video series for only $250 right now. As soon as you get it, immediately watch the 35-minute Value Pricing Basics for SaaS & Web Apps video; it will truly change the way you look not only at pricing, but your entire marketing strategy, your customers, and your offering as a whole!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

What is our focus? B2C or B2B SaaS Pricing

Mon, 29 Nov 2010 23:37:40 -0600

I tend to post on our blog about topics that are top of mind or in the news; most often they are what I'm currently working on with clients. This often leads to a lack of "SaaS 101" information since I don't go back and re-post old stories.

Mostly, this blog represents the evolution of our expertise with SaaS & Web App marketing and Business Architecture. As we work with - and learn from - our 100s of clients all over the world, our company evolves its thinking, and that is reflected on this blog through my posts. This is also true with how I communicate to our mailing list members.

To me this just makes sense - the business of SaaS & Web Apps - Business Architecture, Revenue Modeling, Pricing, Freemium, Distribution, etc. - are all evolving (sometimes daily!) requiring us to evolve and this blog reflects that. My take is this - if you are a consultant to SaaS and Web App businesses (or any businesses probably) and are not constantly evolving, you are of no use! Evolve or die.

Sometimes, however, I am so taken aback by a question I get asked that it requires me to stop and take a look at how we're positioning Sixteen Ventures. Just when you think it all makes sense you get a question like the one below. The wild thing is that this is from a member of the mailing list where we send out a couple of messages per week - at least - and where serious assumptions about the make-up of the audience, our reach, mindshare, etc. are made. Those assumptions appear to be a bit off-base.

Anyway, check this out:

Thank you for continuing to keep me on your email list, despite my not having signed up yet for any of your sessions. I do expect to sign up with you in the near future, but I have one question I'm hoping you can answer for me first. My interest is in SaaS pricing for B2B. How much of what you do is pricing for B2C (as opposed to B2B)? Or do you find that lessons learned, what does (or does not) work, etc. - is mostly common across B2B and B2C?

Again, yikes... I thought Sixteen Ventures was pretty well established as a sell-side (meaning we work with the vendors) B2B SaaS consultancy. After my initial shock, I sent him an email back and thought you might benefit from this, too:

In my experience B2B and B2C pricing are very different animals. People do weird things on their own that they will not do in their business. While they will sit at their desk and play Farmville on Facebook while listening to music from Pandora, when the boss emails them to find a better XYZ business solution, they will start doing due diligence, looking at overall value, prices, ROI, SLAs, security, etc. So even though the social / game mechanics / Freemium stuff is huge in B2C, those same people that it works on for the latest social game craze still look at things differently in the B2B world. Even if those worlds collide on their work computer. (I think this is where the confusion happens)

That said, things are changing and many of the elements of B2C marketing (and remember, pricing is marketing) are starting to show up and be effective in B2B, but not across the board; at least not yet. It is this last point that seems to trip up even the savviest of B2B marketers. Just because some things like social proof, viral elements, etc. works to drive the astronomical growth of Box.net - a narrowband horizontal B2B app - does not mean it will work with your Medical Office Management or Employee Scheduling solution. Everything in B2B depends on the market (segment) and the vendors position within that market.

So to clarify, at Sixteen Ventures we work solely with B2B SaaS, Web App, and Mobile vendors. Our Pricing expertise is within Value Pricing (vs. cost-based, consumption/usage-based) around Recurring Revenue and App Store Distribution in the context of SaaS, Web & Mobile Apps. That is to say that if you sell truck tires, you probably wouldn't get Sixteen Ventures to help you, but if you have a B2B SaaS or Web App and need to figure out your pricing strategy, we're the ones to turn to.

I thought it was an interesting question and thought if by chance you were wondering about this, that you would benefit from this Q&A.

Need help with your pricing page or pricing strategy? To help you out I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $250 (a $500 Value!).

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Freemium in SaaS doesn't exist at scale

Mon, 29 Nov 2010 12:23:12 -0600

Classical Freemium – a free and a "premium" version of the same product – doesn't exist at scale in B2B SaaS and I'll show you why.

The latest update to the "The Reality of Freemium in SaaS" paper titled "'Classical Freemium' doesn't exist at scale" shipped to the Sixteen Ventures mailing list today. It is not too late to get it. Sign-up for our mailing list and we'll send you a link to download the PDF. And as a member of the best SaaS mailing list in the world, you'll be the FIRST to get your hands on these upcoming updates:

- Freemium is a Pervasive, Fully-Integrated Marketing Strategy

- The Five Freemium Models <-- yes, there are different types of Freemium

- The increasing use of both Free Trials & Freemium by the same companies

- Overview of Requirements for Success in B2B SaaS Freemium

"Classical Freemium" is the marketing strategy or tactic where a SaaS or Web App vendor offers a Free-in-Perpetuity version of a product or service, often feature- or usage-limited, as well as a version of the same product or service with less limitations to which the vendor will attempt to up-sell the user. This form of Freemium is actually on the decline as the primary go-to-market method for a number of valid reasons which are covered in "'Classic Freemium' doesn't exist at scale."

This update to the original Freemium paper explores how companies use Freemium to get a crtical mass of users and then monetize in ways other than upselling free users to the premium product. This is all about Revenue Modeling and embracing multiple revenue streams and often requires a lot of investment dollars to make work. But it is even more than that.

In this paper I talk about Helpstream - a failed SaaS Freemium business, Spiceworks, Hootsuite, Evernote, and Twitter and explore the real motivation behind the use of Freemium in many cases and how at scale the game changes considerably from user acquisition to revenue generation.

This update weighs in at just 7 pages and you can download the PDF when you join our mailing list.

If you like the paper, I'd love it if you shared that with your friends, colleagues, or even your followers on Twitter. Here's a pre-built tweet to help you do that. Just click here to update your status.

I also updated "Freemium isn't just for 'startups with nothing to lose'" to speak directly to how large, existing companies with existing product lines or those that might acquire smaller players might leverage Frreemium. It is a small, but powerful update to that paper. When you join the mailing list we'll send you a link to download that PDF, too.

If you are doing Freemium, you probably have a pricing page. Is your pricing page as good as it could be? To help you out I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $250 (a $500 Value!).

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

December SaaS Pricing Page Workshop - New Low Price

Mon, 22 Nov 2010 15:59:34 -0600

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Our next SaaS Pricing Page Design Workshop will take place December 15, 2010 from 3-5PM Eastern. Our last workshop was great and we hope to reach even more SaaS or Web App vendors this time.

The last workshop yielded the most questions we've received outside of the Q&A at the end of the workshop. Some of these questions are outside the scope of pricing page design and fall under pricing or marketing strategy in general:

When does it make sense to offer a non-subscription pricing option alongside a mostly SaaS site?
Are there specific types of services or price points where it generally makes more sense to offer free trial w/o credit card vs. free trial w/credit card vs. freemium?
How do we make our perception of value higher? (particularly when 'sort of' comparable services are being offered at substantially lower price points)
Does the "pricing page" and "signup/payment" have to be separate pages?
Would you recommend removing footers and navbar from pricing page? (ie. less distractions)
I noticed you put some security seals (TrustE, Verisign) on a pricing page, not the payment page. Do you think these seals are always a good idea on the pricing page?
I noticed that some sites place the most expensive plan on the left, and others place the cheapest plan on the left. What are some of the reasons why you might choose one option over the other?

I shot a ~20 minute video to answer those questions and sent it to the attendees. We'll be rolling the answers to these questions into the next workshop so if those are questions you've wanted answered too, you should join us for the next workshop on Wednesday December 15, 2010 from 3-5PM Eastern. Remember, the price is now $199.99!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

We're in Inc. Magazine: How to Make Freemium Work For You

Mon, 22 Nov 2010 12:47:55 -0600

I was pleased to be interviewed by Inc. Magazine a couple of months ago for an article titled "How to Make Freemium Work For You." That article was just published and I wanted to make sure you read it. It is a great overview of how to be successful - or fail - with Freemium.

In addition to Sixteen Ventures, the article includes an interview with Box.net co-founder Aaron Levie. It is definitely a good read so make sure you check it out.

Be sure to sign-up for our mailing list so you'll be the first to get the updates to the "The Reality of Freemium in SaaS" paper. A total of 6 independent updates will be sent to the mailing list and they are:

- Freemium is not just for Startups with Nothing to Lose (already released)

- Classical Freemium doesn't exist at scale

- Freemium is a Pervasive, Fully-Integrated Marketing Strategy

- The Five Freemium Models <-- yes, there are different types of Freemium

- The increasing use of both Free Trials & Freemium by the same companies

- Overview of Requirements for Success in B2B SaaS Freemium

If you're doing Freemium, you probably have a pricing page. Is it the best Pricing Page possible? To help you out I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $250 (a $500 Value!).

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Freemium is not just for Startups with Nothing to Lose

Wed, 17 Nov 2010 00:30:16 -0600

The mythology is that Freemium is just for small Web App startups... tell that to the Billion dollar players adopting this pricing model!

Finally... the first of many updates to the Reality of Freemium in SaaS paper was finished and sent out to the mailing list. I'll be sending out the updates over the next couple of weeks - probably reshaping them based on accumulated feedback. It is not too late to get this update, just sign-up for the mailing list and you'll get a link to download the 5-page PDF. Since you'll be on the list, you'll be sure to get the others in right when they are shipped.

At some point we'll put all of the updates together in a nicely edited PDF for distribution to the masses. That probably won't happen until December or January - which is why you need to be on the mailing list if you want timely access to this information.

The basis for this particular update is not just from reading industry news or seeing presentations. In 2010 Sixteen Ventures has been engaged - unfortunately under tight NDA - with several established SaaS and traditional software companies looking to use Freemium to enter new parts of their existing markets, to enter adjacent markets, or simply to disrupt their free competitors. First hand experience tells us that the number of existing companies leveraging Freemium will go up over the next few years and that startups who think "Free" is their sustainable competitive advantage might be in for a big surprise.

A quick refresher on what Freemium is, at least in B2B SaaS. Freemium is when a vendor offers both a Free-in-Perpetuity (Free-For-Life) version of the product, often feature- or usage-limited, where the user assumes they will use the product forever without being charged anything as well as some other Premium or for-fee product or service for which the free version is a lead-in. This definition is a bit wider than most and takes into account the many types of Freemium (there are 5 and will be covered in another article) and ways it is being leveraged in the market.

The notion of "Classical Freemium" where there is a feature- or usage-limited Free-in-Perpetuity version of a product or service and then a version of the same product or service with less limitations that the vendor will attempt to up-sell the user to is actually on the decline. Aside from the notion of the "Penny Gap" being a very real idea, it is more than that. The concept of "near zero" support costs have been found to be "near untrue," most find it difficult to justify and continue to support a 3-5% conversion rate, and most are realizing what Freemium really is - a marketing tactic and not a business model. Join the mailing list and get the "Freemium is not just for 'Startups with nothing to lose'" for free today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

First Update to Reality of Freemium in SaaS ready to go

Mon, 15 Nov 2010 20:36:41 -0600

Finally! We're going to start sending out updates to the "Reality of Freemium in SaaS" paper to our mailing list members this week. The first one will go out on Tuesday 11/16 at 4pm Eastern. If you aren't signed-up for the Sixteen Ventures mailing list, you have until 4pm Eastern to sign-up to ensure you get the first update - "Freemium isn't just for 'Startups with Nothing to Lose'".

Over the next couple of weeks we'll be sending out the following updates to the Paper exclusively to the mailing list:

- Classical Freemium doesn't exist at scale

- Freemium is a Pervasive, Fully-Integrated Marketing Strategy

- The Five Freemium Models <-- yes, there are different types of Freemium

- The increasing use of both Free Trials & Freemium by the same companies

- Overview of Requirements for Success in B2B SaaS Freemium

We'll put all of the updates together in a nicely edited PDF for distribution to the masses later - maybe December / January. If you want to benefit from this now, the mailing list is the answer. Sign-up before 4pm Eastern on Tuesday 11/16 and get exclusive access to "Freemium isn't just for 'Startups with Nothing to Lose'.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Marketing – Web App Pricing Page Review: Salesforce.com

Mon, 15 Nov 2010 16:44:20 -0600

A look at Salesforce.com's pricing page to see if the SaaS leader views it as a Marketing page.

I asked - both on Twitter and this blog - for people to send in what they thought were well-designed SaaS Pricing Pages. Someone that follows me on Twitter asked what I thought of Salesforce.com's Pricing Page. Well, why not? Let's check out the pricing page of the top pure-play SaaS company in the world!

This is an ~8 minute video where we'll see if Salesforce.com treats their pricing page as a marketing page, whether there is value messaging, a strong call to action, a good use of Free, trust factors, etc. This is just a tiny bit of what we'll cover in the SaaS Pricing Page workshop.

Consider the fact that this video is around eight minutes long and what is covered could change your business. What do you imagine we can accomplish in 5 hours?

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Web App Pricing Page Design: Well Designed Examples

Fri, 12 Nov 2010 02:47:05 -0600

Design matters for Pricing Pages... but not in the way you might think!

What SaaS or Web Apps do you think have really well-designed Pricing Pages? I'm looking for positive examples to include in our SaaS Pricing Page Workshops. These should be Pricing and Sign-Up pages that I can show the attendees of the workshop as examples of proper design.

I already have a list - some we've worked with and some we haven't - but I want to see what other people think are well-designed Pricing Pages and hopefully get turned onto some I haven't seen before. Go ahead and let me know in the comments and if you think you have a great pricing page, feel free to toot your own horn here.

Here's the wrinkle though... remember that "well-designed" is relative. Relative to only one thing; REVENUE! Without transparency into revenue generated by the version of the pricing page you see right now - understanding that you might see only one version of an in-progress test - the notion of "well designed" has a lot less meaning. Think about that...

Want to see what we think are well - and poorly - designed pricing pages? I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Cloud Companies: Your Revenue Crutch is Killing Your Business

Fri, 12 Nov 2010 02:04:55 -0600

Web Apps and Software-as-a-Service that comes from consulting companies or other service businesses can be lucrative but can be held back by non-scalable revenue streams.

Do you have a less-scalable revenue stream that you rely on even though it is holding your business back? We’ll call this a Revenue Crutch. It is something you keep turning to because it is "easier money" even though it is negatively affecting the growth of your business. While I thought I coined the term "revenue crutch," Google says otherwise. So, I will be the one to popularize it!

What if you drew a line in the sand today and said “no more revenue from that crutch revenue stream!” what would your primary revenue stream be instead?

For SaaS and Web App companies, quite often we see “crutch revenue” as Professional Services, On-boarding, Consulting, Custom Programming, Installation, etc. These are things that are often human-powered; that is, they don’t scale efficiently since humans don’t scale well. If you need to do more of any of these services, you have to add humans and therefore significant cost. It makes it difficult to reach those "economies of scale" that makes true SaaS so attractive as a Business Architecture. For SaaS companies, these “revenue crutches” might not kill your business, but they could keep the business from growing.

“But wait, aren’t these under the 'Services' category of the 7 SaaS Revenue Streams?” you might ask if you have read the revenue modeling report. Yes, by the way, they are. And there are ways to leverage each of those services listed above in more scalable ways - mostly by moving as much of the “repeatable” processes into the app. But for SaaS companies, those should likely not be the primary revenue streams. For many early-stage - especially bootstrapped - startups, the crutch revenue is often the primary revenue stream!

Rather than focusing on more scalable revenue streams - even if recurring revenue from subscriptions is what they want to be the primary revenue stream - they often go back to their comfort zone. This often comes from many founders having regular jobs or being consultants before they founded their new company. They aren't used to generating revenue in ways that don't include trading hours for dollars and have a hard time separating themselves from the service they are building.

Think of Crutch Revenue as "easier money" - sometimes it is actually full-on “easy money” - but it holds back your overall growth as a company. Instead of “crutch” maybe it could be considered “comfort zone revenue” - that is, you always go back to what you know, what is comfortable, etc. For many businesses these crutch or comfort zone revenue streams are really the "go to" revenue streams - or legacy revenue streams - that keep us from moving forward.

You know how comfort food - at least in the United States - is full of sugar, cholesterol, fat and other things that are terrible for us but we still gravitate to that when we get down and need a food hug? Think of comfort-zone revenue in the same way... every once in a while its okay, but if you eat it all the time you’ll probably feel really bad until you finally die an early death. Get it?

Consider also that for many entrepreneurs, their day job is their crutch - or comfort zone - revenue... easy money, but it could be holding them back in life. When I said that on Twitter, I received a comment that said “or how to pay the bills while creating next new thing” - but that, to me, is the wrong attitude. I tweeted back to him that the ideas around the Lean Startup movement can really help here - especially in boostrapped startups.

Here's the plan: Build a Minimum Viable Product (MVP) that meets a real business need, sell it - for money - to the customers who have already told you they’d pay for it, get to profitable revenue quickly then quit your day job! Staying in your comfort zone while you “build the next big thing” is a recipe for a lot of wasted time “moonlighting” as a “startup guy” rather than building a business.

So, regardless of your stage, funding, etc. what if you took a chance & pulled the plug on that crutch revenue stream - you know the one I’m talking about - and put your effort elsewhere; what would happen? How would your business change? Would it be good or bad? What if your primary revenue stream is your crutch revenue stream? What will you do?

So, are you ready to say “screw it” and rip out your reliance on "crutch revenue" to grow your business? Call it a pivot, a shift, whatever... are you ready to take your business to the next level or are you going to stay in your comfort zone?

We can help you scale your subscription recurring revenue by improving your Value Pricing and your Pricing Page. To help you out I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Marketing: Web App Pricing Page Review: Mockingbird

Tue, 09 Nov 2010 16:33:10 -0600

A look at Mockingbird's pricing page to see if the SaaS vendor views it as a Marketing page.

I was asked what I thought of Mockingbird's new Pricing Page via twitter and rather than just replying with a tweet, I thought I would take a stab at a screencast to give my initial impressions. This is a ~4 minute look at their pricing page to see whether Mockingbird is treating their pricing page as a marketing page, whether there is value messaging, a strong call to action, a good use of Free, trust factors, etc. This is just a tiny bit of what we cover in the SaaS Pricing Page Workshop.

I was very happy with the positive feedback on Twitter when I shared the raw video, including from the co-founders of Mockingbird.

Pricing Page Review by Sixteen Ventures: Mockingbird from Sixteen Ventures on Vimeo.

Now, this video is around four minutes and could change your business. What do you imagine we can accomplish in 2 hours? Ready to find out? I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Web App Pricing Pages: The DANGERS of One-Size-Fits-All

Fri, 05 Nov 2010 14:06:34 -0500

Pricing Strategy pop-quiz: What do a two-person consultancy and a department in a Fortune 500 company have in common? Right... so why are you marketing to them the same way?

In my last post where I talked about the things you'll learn from the SaaS Pricing Page Design Workshop, one of the items on the list was:

"Market Segmentation & the FALLACY of the one-size-fits-all pricing page"

I chose the word fallacy deliberately because there seems to be a notion that as a SaaS or Web App vendor we need to have a single "Plans & Pricing" or "Editions & Pricing" page. On that page we need to have a comparison grid that shows the prices and features for anyone that might use our product - from independent consultants to Fortune 100 Enterprises.

I hope seeing it written out like that calls attention to the absurdity therein. Really? The lone consultant at his home office and the manager of a division within a European business unit of a multi-national corporation will both find the same value in your service? That is the assumption you're making by marketing to both types of customer at the same time. You realize that, right?

Whether you know it or not, you are also saying, "yeah, those people care about the same things, find the same value in the product and need to see how their price compares to all of the other types of customers, too." Really? Think about that for a minute. Again... you aren't leaving money on the table here. You are actively flushing it down the toilet.

So, after meeting with a new client yesterday I saw this first hand and it was bad. Really bad. They had a clean, designed pricing page and seemed to understand their target market pretty well. But as we were digging into the pricing strategy they already had in place, I saw something that made me want to change the FALLACY blurb to:

"Market Segmentation & the DANGERS of the one-size-fits-all pricing page"

No more FALLACY... having a one-size-fits-all pricing page can be downright DANGEROUS. Simply put, my client had designed a pricing page for all customer types. But the customers were very different, not only in their value perception of the service, but in their willingness to pay for the service based on that value perception. There was a segment of their target market that was very willing to pay much more for the service because of the incredible value proposition of my client's service. But, since my client adhered to the popular "best practices" for pricing pages - not the real ones that actually work - my client had come up with three versions or bundles of features and applied prices to those versions.

Unfortunately, my client thought that the step-up in price from the middle tier to the higher tier was too big. Let me be very clear here - the higher tier was the one that would appeal to a different segment of the market than the other tiers. And this segment has a willingness to pay a higher price because they have a different value perception of the service. Here's the terrible part... they lowered the price on the large bundle to make the step-up "look better" in an effort to make the overall pricing page look better! I'm not sure what happened at that point, but I think I might have blacked out.

Luckily, when I regained consciousness, we caught this and figured out some great market segmentation techniques - within their already well-defined target market. We also worked to align their value proposition and the value perception of the different segments and come up with pricing that actually fits the different segments within their defined market.

You need to know that more often than most people realize, overall SaaS pricing decisions are made based literally on the layout of the pricing page. There is a pretty good chance that you - yes you, the one reading this - have done something like this when designing your pricing strategy or pricing page.

What this should mean to you is that understanding what a Pricing Page really is, how to effectively leverage it, when to use bundles/tiers/versions and when not to, etc. is much more important than you probably first thought! I cannot stress enough the importance of the Pricing Page to SaaS and Web App companies!

Market Segmentation is just one of the things we covered in our SaaS Pricing Page Workshop. I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Pricing Page Workshop - What will YOU learn?

Tue, 02 Nov 2010 22:45:17 -0500

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The last SaaS Pricing Page workshop we hosted was absolutely amazing! We had attendees from SaaS and Web App startups, later-stage SaaS companies, and some Venture Capitalists firms participating. They joined us from all over the United States, Canada, United Kingdom, Netherlands, Spain, and Australia.

Sameer Bhatia, CEO of ProProfs sent me an email after our last SaaS Pricing Page Design & Optimization workshop that said:

"You nailed it this time - it was really really good. I liked that you dissected 37signals' pricing page and shared your views on how asking users about 'how disappointed they would be if our serviced ceased to exist' would lead to trust & credibility issues. "

I'd like to get Sameer to do a case study with us but he is traveling right now building his empire. Working with him and seeing the amazing - potentially life changing - results achieved from pricing and pricing page changes has been really inspiring. Yeah, your pricing page really is *that* important!

Here is a list of some of the things you'll learn:

Most vendors don't have a Pricing problem but have a MARKETING problem
The SHOCKING revelation of what a Pricing Page REALLY is
Where the pricing page ACTUALLY sits in the sales funnel
Value Pricing and why cost- & usage-based pricing is KILLING your revenue
Value Messaging & maintaining Marketing Momentum on your Pricing Page
How to use Pricing Tiers / Bundles / Versioning & when to AVOID it entirely!
Market Segmentation & the FALLACY of the one-size-fits-all pricing page
The absolute REQUIRED Trust Factors for B2B success with SaaS
The Use of Free Trials, Freemium or Both & why you're doing it WRONG
What you can & should test on a Pricing Page and what you absolutely SHOULD NOT test

Combine all of that (plus more) with case studies of Rypple, Kashflow, Pusher App & Panda Video - as well as the fact that we'll review your pricing page during the workshop if you want us to - and that should give you some idea of just how valuable this workshop really is. It is a jam-packed 2 hours, to be sure. I've said it before, but I really think you should purchase the archive of the SaaS Pricing Page Workshop for only $50!

Interestingly, just a couple of hours before our last workshop when we had only one opening left, I received an email from a potential attendee who said the following:

"I am interested in joining in on this session. However, I just need to be convinced that there is real value for the money. I have attended two other sessions from other companies and did not get any value from them."

Yikes! The fact is, we currently work with a number of clients that have attended workshops from "the other guys" so this was not a surprise, though it still caught me off guard. It is disappointing to know that there are some people out there not adding much value but taking people's money anyway. It is pretty clear that those other guys use their workshops only as a pre-qualified lead generation method for their more expensive services. Because of that they don't want to tell you too much, right?

Our philosophy is - and always has been - that we actually want to help people. If you never engage with us outside of the workshop - if the workshop gives you enough to go out on your own and make it happen - then we did our job! Well, apparently I said the right things because she ended up attending the workshop and sent the following from her mobile device after I asked what she thought:

"The session definitely provided perspective. Now I have a clear view. Look forward to reading your updated Freemium whitepaper and attending further webinars. Enjoy the rest of your weekend."

Awesome! By the way, she's the one who sent in the question asking about Scalable vs. Non-Scalalble Revenue Streams in SaaS, too. Doesn't sound like someone who got burned again, does it?

Also, from one of the companies that wanted their pricing page reviewed live during the workshop, I was sent this EPIC confession, which I'll keep anonymous to protect the guilty:

"Now looking back at our history, I think we spent too little time on our pricing page (as you can tell) and our pricing structure (we copied our competitors)."

WOW! The first step to recovery is admitting you have a problem. Hopefully this makes things a bit clearer; when I tell people not to copy other companies' pricing pages it is not something I'm making up just to get attention... people actually copy the pricing and pricing pages of other companies!

Andy Wright, founder of Conductr.us out of UK, didn't attend the workshop live but instead accessed the archive. Before he even finished he sent me this email:

"It's absolutely gripping stuff! I haven't got to the end yet but I can already see several places where the site could be improved. I think we are falling short in communicating the value of our product, I'm going to have to have a think about this and get that pricing page up to scratch."

And finally, when I shut the last workshop down and went over to check my email, I already had a message from Iago Sandez, Direccion Estrategica of Ofipro Soluciones in Spain. Iago sent a very enthusiastic email written in English, which is not his first language, and the sentiment was certainly not lost in translation:

"Very interesting speech. You got to keep me 'eyes wide open' until the end despite here in Spain is currently 4:30 AM. SaaS in the Spanish market is still taking off for many sectors so it will be very exciting to live all this revolution."

How awesome is that? There are very few things I'll stay up until 4:30AM for, so I definitely felt great seeing that email. Now you can watch on-demand!

You can purchase the 2 hour video of the November SaaS Pricing Page workshop - PLUS the 20 minute Q&A video I shot afterward - AND I'll throw in the huge 150 slide PDF of the presentation that was updated for the December workshop - for ONLY $50. Yes, ONLY $50? This should be a no-brainer, right? Go get it right now!

Learn more about what all is included here.

The only caveat to take advantage of this offer is that you have to be able to read PDFs and watch mp4 videos on whatever device you intend to consume this content. If you meet that criteria, then this is for you. ONLY $50 and you get nearly 2.5 hours of SaaS Pricing Page Workshop goodness. What are you waiting for, go buy it now.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

37Signals Caught Treating SaaS Pricing Page like a Marketing Page

Mon, 01 Nov 2010 12:11:08 -0500

The popular Web App company actively tests their pricing page layout.

I was asked over the weekend if I saw the noise about 37Signals raising their prices. I had not so it was very nice to hear from colleagues looking for my opinion on the matter. So, here's my opinion on the 37Signals price-raising uber-scandal; there's nothing to see here, move along.

WAIT! Don't move along yet... there actually is something to see here, and its pretty cool. But it isn't a trainwreck or fiasco... its a lesson in marketing.

So, last week 37Signals was caught experimenting with their pricing page layout for Basecamp. Apparently some people wanted to make a big deal out of this, with some folks even going as far as saying "37Signals doubled their Price without any warning!" - but they didn't. You see, apparently 37Signals considers their pricing page a marketing page and we could all learn a lesson from them. Just a lesson - don't copy them!

It appears that 37Signals - as any good SaaS or Web App company should be doing - is experimenting with different layouts, messaging, etc. on their pricing page in an effort to drive up sales. Oh, right, that last part of course is the sticking point for many - how dare they attempt to make more money? But, in the real world, this is what we actually want to do. So it is great to see 37Signals - who many look up to - being caught treating their pricing page as a marketing page!

According to comments made by 37Signals' Jason Fried, they've learned that "too many plans confuses people, and suggestion is powerful." Indeed, these are key points. In fact, we covered those as well as what you should and shouldn't test on your pricing pages in the Pricing Page Success Formula video series.

Fried went on to say "We’re experimenting with different combinations and words and layouts to see what we can learn. It’s basic business stuff." <== HA! Basic business stuff, to be sure... kind of a reminder to the author of the post he was commenting on. Well played, sir.

The biggest issue people had (if they really had one) was that in one experiment the entry-level (low-end) pricing tier was removed from the pricing page. This made the entry-level tier now TWICE as much as the entry-level tier before. But as Mr. Fried retorts "If we removed the Max plan, would people be saying we dropped our prices 50%? That would be equally silly." Nice.

So what is the lesson here? Simple... the Pricing Page is a MARKETING page - I think one of the most important marketing pages on your website. When you live or die by online sales of your service - automated, self-service, etc. - then your Pricing Page is the MOST important marketing page on your site. If you are not always testing, tweaking, optimizing, and refining your Pricing Page then you are leaving money on the table.

Frankly, most companies don't realize that the Pricing Page is a marketing page and instead treat it as a one-time price list or feature comparison grid. The CEO of one of the companies that wanted their pricing page reviewed live during our last SaaS Pricing Page Design workshop sent me this amazing confession, which I'll keep anonymous to protect the guilty:

"Now looking back at our history, I think we spent too little time on our pricing page (as you can tell) and our pricing structure (we copied our competitors)."

WOW! The first step to recovery is admitting you have a problem. Hopefully this makes things a bit clearer; when I tell people not to copy other companies' pricing pages it is not something I'm making up just to get attention... people actually copy the pricing and pricing pages of other companies!

As an industry, rather than trying to find fiascos, train wrecks and controversy every time (there are plenty of examples of real ones and we should call them out on it) we should celebrate companies like 37Signals - who get it - and encourage them and others to do what has to be done to increase sales and generate profit.

For once, I'd say maybe you should copy 37Signals. Just copy the way they think, not their actual pricing page or pricing, okay?

Are you ready to treat your Pricing Page like the Marketing page it really is? I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Pricing: Scalable Revenue Models

Thu, 28 Oct 2010 00:41:39 -0500

Web Apps have scalability built-in at the business model level and at the technology level; but beware the revenue streams that aren't scalable.

When you sign-up for one of our workshops, you are given links to download PDFs of both "The Reality of Freemium in SaaS" and "The 7 SaaS Revenue Streams" - both of which are game-changing works I created for Sixteen Ventures, with the latter really setting the foundation for what we talk about in the SaaS Pricing Page Design & Optimization Workshop.

The mantra of Sixteen Ventures is that Pricing is Marketing, and it is, but for companies leveraging the SaaS Business Architecture, it goes deeper than that. SaaS and Web App companies have to deal with pricing differently than companies who leverage revenue models that are disconnected from their product. I like to use the example of a tractor tire... you can change the revenue model and pricing strategy for a tractor tire all day long and the tractor tire remains exactly the same.

This is not so with SaaS, Web Apps, many iPhone and other Mobile Apps, etc. These all leverage a business architecture that tightly-couples marketing to revenue model to technology and a change to one - whether it is a positive move or fixing a mistake - can require significant changes to the underlying product. Sometimes it can expose significant weaknesses and holes in frameworks, billing systems, etc. that the vendor chose to build on or around without fully vetting their pricing strategy or revenue model.

This is what makes SaaS and Web Apps so unique and why our expertise in SaaS makes our expertise in Value Pricing and Marketing so powerful. I don't think I would be much help in pricing a tractor tire, but I can help SaaS vendors all day long (and I do!).

I encourage everyone who buys the archive video of the SaaS Pricing Page Workshop for ONLY $50 to also check out the "7 SaaS Revenue Streams" PDF prior to the workshop. You can also get it by signing up for our mailing list.

An attendee of our last SaaS Pricing Page Design & Optimization Workshop sent in this question after reading the "7 SaaS Revenue Streams" PDF:

Lincoln, I did have a question about the seven streams of revenue. What is the definition of “products” and “services”. You use examples of Hardware, Devices, Appliances for “Product” and Content Creation, Training, Installation for “Services” What are the examples for a service-based industry/company. I just want to make sure I understand this less-scalable revenue stream concept fully.

Here is my answer and I thought you would benefit from seeing it:

Products are one-off sales that might also have a production/distribution cost associated with them. That could be an iPhone App that is a one-time (non-recurring) sale of $0.99 or it could be a piece of hardware that has to be built in China with material sourced from Indonesia and then shipped to the US for distribution in retail stores.

Obviously the iPhone app is an information product and is "more scalable" because the production cost is up front, but it is "less scalable" because it is a one-time sale. This is in contrast to the subscription / recurring revenue stream where one sale is really a revenue multiplier, resulting in a much larger Customer Lifetime Value (CLV).

Services are those things that have a human element to it and therefore the only way to add more revenue from that service is to add more humans. Humans don't scale very well, so this means that it will be harder to achieve any level of "economy of scale" with human-centric services.

We recommend looking at the repeatable processes performed by your service professionals and moving those into the app. It could be that 80% of the things that your service pros do could be repetitive for every client; so push as much as possible of that into the app for either self-service by the customer or for streamlined performance by the service professional.

Now, you have the 20% that is unique to each customer being performed by - hopefully - less people (or the same amount of people as you grow) AND that 20% is unique to each client and therefore higher value so you can charge MORE for the professional services.

Use leverage wherever possible to achieve greater levels of scalability, look to reduce wasted effort and find ways to make the services *more valuable* so you can charge more. Its still not as scalable a revenue stream in the way that recurring revenue for the app is, but you can make it better.

Learn the secrets of how to build a powerful Pricing Page! I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Freemium comes to the Cloud with Amazon Web Services

Fri, 22 Oct 2010 17:16:08 -0500

The Cloud Giant changed its pricing strategy, using Free to create more lock-in.

When Amazon Web Services announced this week that they were "going Freemium" I started immediately receiving emails and tweets from people around the world asking what my take on it was. My initial reaction was that this certainly takes the wind out of arguments that only startups with nothing to lose do Freemium. This is a perfect example of a company that is very successful - not a startup - deciding to use "Free" to disrupt their competition and gain ~~even more~~ new market share.

After reading over their site - which is not incredibly user friendly and certainly not treated as a marketing site - I've come to the following conclusions about Amazon Web Services' (AWS) "Freemium" move. I think that this move by AWS is two-fold; disruption and lock-in. If you look at the use of free for the core services offered by AWS - EC2, S3, EBS, ELB - it is really just a super long Free Trial (1 year!) of a relatively limited amount of compute power/storage/bandwidth. And AWS has been able to parlay this announcement into a massive amount of publicity, which of course goes back to our mantra of Pricing is Marketing.

Now of course, there is another side to this, but certainly not anywhere near what we've seen before. Some people have become upset that the free tier of the core services are only available to new customers, but when you look at it like the free trial that it is, it makes sense; free trials are generally for new customers, right? Perhaps they should not have referred to this part of the offering as the "Free Tier" and rather what it really is - a free trial for new customers to kick the tires and see if they like AWS better than other cloud or traditional shared hosts.

But it is a Free Trial and we need to all understand the distinction between a Free Trial and a "Free Tier" or Freemium, where there is a free-in-perpetuity - meaning there is no time limit on use - offering. A Free Trial has defined characteristics and expectations - by both the vendor and the customer. It is meant to try before you you buy, kick the tires, etc. and the expectation is at the end that you will either pay or stop using the service. Some companies are combining an actual Free-forever offering with a traditional free trial so that if the customer opts not to buy at the end of the trial they are downgraded to the often quite feature or usage-limited free version.

This is a growing trend and certainly a topic for its own post later on. But, the expectations and psychology around a free-forever version of a product are much different. There aren't really any expectations from either side that the user will buy, it is very difficult to ask someone to pay for something they've been using for free so the value proposition of the premium version must be quite compelling to overcome that penny gap, etc.

What is more interesting to me about the AWS "Free Tier" announcement is that their non-core services like SQS,SNS,SDB - are actually Freemium and not just free trials, meaning that they have a free tier of usage that is free in perpetuity for anyone starting November 1, 2010 - not just new customers - and you are only charged if you exceed that free tier. The use of Freemium for their ancillary services means potentially greater adoption of those services.

But the big question is why does that matter if they are doing Freemium for only these "ancillary" services? My take is that those services are unique to Amazon and once you are using them - which requires deep integration into your application - you are effectively locked-into AWS at some level. You can always move your app from EC2 to your own data center, you can move your objects from S3 to another file host, but the *services* that AWS provides like Queueing, Notifications, Non-Relational Datastore, etc. you cannot (easily) move.

The point here is that these are true services offered by AWS - proprietary and closed even if behind an "open" API - and are not just technologies. Freemium success requires that your customers become invested in your service to a point where they at some point will need / want to pay, but there is no requirement that what they pay for - how you monetize - simply be a "premium" version of the free product within which they've become invested. So in this case, it would appear that it is much cheaper bandwidth-wise to leverage those ancillary AWS services from a server within AWS than it is to use a server outside of AWS making the decision about whether to leverage AWS core services perhaps easier - perhaps a no-brainer.

By allowing a relatively high amount of usage before requiring payment for the services covered by this Freemium strategy ensures that the AWS customers will become invested at a level they might not have if they were required to pay for even simple use cases. It would be interesting to know how this affects adoption of these ancillary services - I suspect it will rise substantially.

Overall, this seems to be a brilliant use of Free, even if not 100% true Freemium - by an already very successful company, no less.

But that is my take... what's yours? I'd love to hear from you; the comments are open!

If you're doing Freemium you probably have a pricing page - make sure it is the best pricing page possible! I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

The Freemium Hype Machine - Full Steam Ahead!

Sat, 16 Oct 2010 18:21:40 -0500

It looks like someone put some gas in the Freemium hype machine again! I suspect Freemium is going to be a major theme among SaaS and Web App startups in 2011. As you know, Chargify had a major pricing fiasco on their hands recently as they moved from 100% free to a Freemium offering. Some of their missteps - ironically? - were because they didn't really understand how their customers were leveraging Freemium themselves. Hootsuite had their own issue a few weeks before Chargify.

For Sixteen Ventures, 2010 has been the year of Freemium, starting when we published "The Reality of Freemium in SaaS" paper in January. Since that paper was published, it has been downloaded or viewed at least 20k times - that we know of - and keep in mind it is a ~25 page PDF - not exactly viral fodder. But, that paper really turned Sixteen Ventures from the SaaS Revenue Modeling & Business Architecture company we were since our inception in 2008, to *THE* company to turn to for Freemium & Pricing for SaaS, Web & Mobile App companies. Yes, even though we could have been perceived as "anti-Freemium" for the most part we were not - most people recognized that we are only anti-hype!

Aside from the paper getting our firm - and me - a great deal of publicity on Read Write Web, ZDNet, Sandhill.com as well as mainstream print magazines like Fast Company and Inc. Magazine, it even got me a spot at the first Freemium Summit in San Francisco back in March. Ironically, this was a conference that I initially made fun of on Twitter. Even so, I was invited and I presented "Freemium in the Enterprise: Proceed with Caution." I was the only "contrarian" (realist!) to speak at the summit and I thought the presentation went well. The slides from the presentation have been viewed ~3500 times on Slideshare. On October 25, 2010 the second Freemium Summit will take place in New York City. I honestly wish Charles and his crew the best of luck, but I'm not exactly excited about the lineup this time around.

I really thought my presentation at the event went great - for Sixteen Ventures it was great as we got some new clients directly from that presentation - but I suspect my "negativity" toward the subject of the conference was not ideal. Besides that, it was also counter to the forward-looking ideas that many influencers had and again, my stance was not ideal. For the NYC Freemium Summit, I contacted the organizers to see if I could present again and share what I have discovered since March, to no avail.

The reason they gave was that this time around they wanted different speakers, different experiences, etc. I can totally dig that - even though they brought some folks back from the first one, like YouSendIt. But I told them that I always try to give a different presentation whenever I present (anyone who has seen me present at more than one event knows this) but in this case I have a substantial amount of new material to present. In 2010 Sixteen Ventures has worked with some very large companies - like one company with >$1B in revenue - on their Freemium strategies, some very small and early-stage companies, some folks that got funding because we told them not to do Freemium, and many companies outside of North America. But this was not enough for them.

So I wrote Charles the following via email back in August - "Games, B2C, and even narrow-band, horizontal/utilitarian SaaS plays like box.net, Yammer (I have some really interesting info on their 'land and expand' strategy from the field!), etc. are great to hear from, but I bring a unique perspective that I think your audience needs to hear. Again, if it isn't me, it should be someone."

I am so concerned by the popularity of Freemium among startups and want the Reality of Freemium message to be out there so much that I told Charles even if it wasn't me or Sixteen Ventures, to please have someone that will speak to the potential downside and huge risks of Freemium. Just look at the speakers - where's the contrarian? Where is the company speaking about the risks of putting all your company's (or often personal) eggs in the hype that is the Freemium basket? Who is the person that won't pull punches and will tell it like it is? The speaker that will tell you that pure-play Freemium does not exist at scale?

Maybe that role will belong to Ning - they are speaking at the event after all. Of course they got a PR/Communications person to speak for a company that had >$100M to work with to learn their lessons - I just hope the context is right because that *could* be a killer presentation given the fact that they dropped Freemium earlier this year. Hootsuite - mentioned earlier - has also had some issues and will be speaking. Hoping for some very transparent lessons learned... fingers crossed, but not holding my breath.

And then there is Sean Ellis - a Silicon Valley marketing guy who worked at or with a number of horizontal SaaS & B2C web companies - all with tremendous amounts of funding and huge addressable markets - that leveraged the Freemium model. His advice is fantastic and you should fervently consume his writings, watch him present, and otherwise listen to him - with the caveat that he generally speaks about what he knows - well-funded companies with giant addressable markets. He announced recently that he has started his own web company.

Sean's startup - which received funding from some high-powered VCs in the Valley - will somehow (its still in stealth don'tcha know) enable startups to leverage Freemium to make more money. This is absolutely fantastic! I hope he pulls it off and I wish him nothing but the best of luck and Godspeed. The fact that Sean received investment from multiple sources indicates that the "Freemium" market is considered to be very large.

Let me be clear here - his market seems to be companies leveraging Freemium for their startups. That is the market - much like the market for Sixteen Ventures are SaaS vendors & Web App companies. Freemium itself is not a market, though - just like SaaS is not. The only folks those are "markets" for are those with products / services targeting companies leveraging Freemium or the SaaS Business Architecture.

Now, what exactly Sean and his crew will be doing, I'm not sure. I have heard rumblings and rumors of, and even pitches from, companies trying to help Freemium SaaS & Web App companies by aggregating all of the free users of different SaaS & Web Apps in an effort to reach critical mass quickly so they can monetize in various ways. Perhaps that monetization is via advertising, perhaps it is a revenue share from cross-sales, etc.

Sean and his team could be doing something less innocuous than user aggregation, perhaps building out "a Freemium Platform that product companies can use as a SaaS service" to "setup, test, measure and optimize a Freemium strategy." That was taken from a Quora question linked from a new Twitter account setup very recently and promoted by many of the Valley/SF heavyweights which has the blanket statement "Freemium is the Future - Are You Ready?" in the bio. Who knows, but no matter what they do I'm sure they'll get traction since they *own* the web startup "airwaves" - at least around Silicon Valley & San Francisco. We'll have to wait to see what pans out...

But, here's the reality of the situation. A tool to measure and optimize a Freemium strategy or a tool to aggregate and monetize free users, or both, is not a way to make Freemium work for you if it is the wrong strategy to begin with! If you have a product or service that has a total addressable market that is small, Freemium is likely not for you regardless of how you might be able to monetize the free users, since there aren't enough to go around to begin with. It is probably better to focus on building a product people need and will pay for and to make your money off of your customers and not worry about free users. Remember, Freemium is a marketing strategy and just like Russian Roulette, Freemium is a numbers game! The main beneficiaries of the speculative potential scenarios I described above would be the company doing the aggregating or the one offering the management/optimization services!

In the aggregating scenario, the aggregation company really only needs a few free users from lots of startups because then *they* reach critical mass. But for either scenario, the part that I feel could be potentially harmful is that there is no reason to warn small, niche startups (or even wide-band horizontal) companies of the danger of Freemium when the company offering the service will only benefit from it. I also presume the initial "investment" to connect to this aggregation framework will be nominal making small startups feel like "why not?" - its easy and free/cheap. This isn't saying anything about the fact that the aggregator would own the "user" too... But its all speculation...

The fact that there is so much noise starting to happen again around Freemium just means that we'll have to ramp our efforts to bring some level of reality to the mix. It is very much an uphill battle - we're flanked from above and surrounded - but we're always up for a fight, and in this case, it is also the right thing to do!

If you're doing Freemium, you probably have a pricing page. Make sure it is the most effective pricing page possible! I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Marketing: A Pricing Fiasco That Could Have Been Avoided

Wed, 13 Oct 2010 17:20:44 -0500

How Web Apps raise prices says a lot about their relationship with their customers and market

Well, it has happened yet again. The latest SaaS pricing fiasco belongs to Chargify, a startup recurring billing and subscription management company that announced their pricing this week. It played out for them just like with Hootsuite a few weeks ago, GitHub and KISSMetrics before them, and who can forget Zendesk, the one we wrote about back in May. Unfortunately these pricing fiascos are not new; but the backlash from Chargify's pricing announcement has been particularly vitriolic - on both sides.

I spoke to David Hauser, Founder of Chargify, while he was writing his lessons learned post-mortem on the pricing fiasco. I told him straight-up that forced transparency - or faux transparency - is ugly and I think he needs to be quite candid about what happened. His post went up this morning, judge for yourself, but keep his words in mind as you read it: this never should have happened in the first place.

The gist of what he told me on the phone - and what comes out in his post - was that the whole backlash came down to one issue - communication. In most cases, when someone comes to Sixteen Ventures with a "pricing" problem, it is almost always a "marketing" problem, not the numbers in the price itself. And communication is absolutely a part of marketing.

David admitted that while they talked to some of their users when developing the new pricing strategy - the segment of the user population that they wanted to be customers - they ultimately did not seek input from or communicate their plans to - including properly managing their expectations - the rest of their free users. This means, when those users - part of a voluntarily captive audience, by the way - heard about the new pricing, it was when it was announced publicly.

So, the biggest amount of pushback was generated not by the new "prices" but simply because this group of people that thought they were part of some "inner circle" of beta testers or valued users turned out not to be. This was like a slap in the face and they revolted.

As part of their response - planned or not - Chargify has been pretty open about the fact that they basically "fired" the users of the system that were a drain - the freeloaders. Let me be clear - this is absolutely a valid strategy in what we refer to as Intentional Alienation. However, their tactical execution of the strategy was not well thought-out - if at all - and poorly executed. Quite simply, there are ways to accomplish that without coming across publicly as insensitive or harsh or worse. This is probably the biggest failing of Chargify's response to this fiasco thus far - one that they openly admit to.

But then Chargify - after the backlash started - ended up doing the same thing as every other company in this position does - they publicly backtracked on the pricing. In this case, Chargify offered a lower-end price via a bundle that was apparently created to be used for behind-the-scenes grandfathering. This is still an open issue with them, but they did offer it publicly, even though as I write this it is not yet a part of their official pricing page. All of this had the unintended consequence of further indicating that they really did not understand their market as much as they said they did when they created their new pricing.

If the research really was there - not just digging through data but talking to customers, figuring out where value perception and value proposition intersect, etc., something they admit they did not do for the majority of their user base - then they would have stood fast in their stance. But they didn't. And most don't. In addition to hurting their authority as a trusted resource that understands their clients, they also insulted many of their users directly in the process. And the vast majority - if not all of this - could have been avoided with proper communication early and often.

The weird part of this is as marketers, executives, or founders in and around SaaS and Web Apps, we start to wonder what is going on. Are these pricing fiascos orchestrated and manufactured to get publicity? I mean, Chargify - who previously had not been featured on Techcrunch or in Inc. magazine - found themselves getting a great deal of press. And, on Techcrunch, their major misstep and the backlash was accompanied by a demo of their product! Mixed messages anyone? Not really if you consider Techcrunch to be the TMZ of the Web 2.0 world and that any bump from them doesn't really translate to real world success.

But, it sparked this conversation between a former client and me via email:

Joe - "Lincoln, so bummed here... we went out of our way to grandfather in existing customers when we changed our pricing plans. We got exactly zero complaints, but also zero PR. All these other services jack the prices for their current users and then get all this press. Did we mess up by not screwing over our existing customer base when we changed our prices?"

Me - "Not all publicity is good publicity. These things don't go away as quickly as you think. I've been there to help companies clean up from these fiascos and believe me, it doesn't go away just because it drops from the Techcrunch homepage. One company, for instance, was out fundraising a few months later and this issue came up time and again. It was hard to get over. It really hurts. But, they proved that they could overcome that and they got funding.

The fact that you raised prices and didn't hear a peep is indicative of your dedication to your customers, customer service, and ultimately marketing. Assuming you've had growth beyond your grandfathered base, you did the right thing. No, bad publicity is bad publicity. And when you are a core piece of someone's early-stage business (consider who Chargify is directed at) it goes beyond that... 'bait and switch' it isn't - legally - but it really leaves a very bad taste. Congratulations on the fact that you raised prices with ZERO negative impact."

Joe - "I know, I know. It's just annoying to see other companies do stupid things and then get a lot of press. The amount of time + effort I put into the pricing plan/communicating the change (actually, the effort of the entire exec team here) was so big, and to have no one really 'notice' is a little sad. On the other hand, in 6 weeks over 15% of our user base was on the new plans - which are higher margin and higher ARPU, I might add - so that part feels pretty good. And conversion has stayed the same, so that also feels good. I guess I'll take that!"

Me - "Absolutely. All of the fiascos and you did it right. And you are building a REAL business in the process. Not a startup. Not an 'app' - but a company. Ultimately, that is a commentary on the nature of 'news' today anyway, right? What leads? The little boy helping the old lady across the street? Nope... other stuff. But it is the stuff we don't hear about on the news that keeps the fabric of society together."

So, in Chargify's world, the backlash was not so much about the price itself. In fact, almost across the board, the majority of the response has little to do with the price, it was in the communication of the changes and managing expectations.

I wrote a post back in May when Zendesk went through their big pricing change. I could replace Zendesk with Chargify, GitHub, Hootsuite, etc. in that article and it would be an almost perfect fit. I don't want what happened to Chargify or Zendesk to happen to you. It doesn't have to happen to you. It shouldn't happen to you. So read our post and don't make the same mistake these companies have. The damage is real and it doesn't go away over night.

If you are thinking about raising prices or are in the early stages of developing your pricing strategy, perhaps are in beta or have a completely free product and are working to monetize and develop pricing, please read this post and then purchase the 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Can't Take The Heat? Learn to Cook at the SaaS Pricing Page Design Workshop

Mon, 11 Oct 2010 15:50:14 -0500

So, here's an interesting question some savvy followers of Sixteen Ventures might ask: How can you have a SaaS Pricing Page Design Workshop when every company, in every market, is different?

Well played, sir. Well played. This is a valid question because, honestly, how often do we say SaaS is not a market, SaaS is not a pricing model, there aren't such things as "best practices" for SaaS, you shouldn't copy the pricing pages of other companies, etc.? I'd say we probably utter some form of one of those at least hourly. So how can we in good conscience sell you the archive video of a workshop for only $50 that basically covers those topics? It is simple... we teach you to cook, we don't give you recipes. Allow me to explain.

In the workshop I will (over) use the analogy that what we're teaching you is how to cook, not just giving you recipes. We'll teach you the techniques you need to fix a meal for a carnivore or a vegan and make it equally delicious. I mean, how can we give you recipes when we don't know who you're cooking for and that whoever they are, their tastes change constantly? You can see how that analogy might get taken too far, so I'll stop now.

But the idea is that there are key elements of a pricing page that are timeless - actual designs are not. Tastes, layouts, visual elements change - they come into style and they sometimes quickly go out of style. What we are going to show you is NOT whether you should use a rounded corner or a drop shadow, but the key elements that are always needed. The Trust Factors, the Use of Free, etc.

The key here is that we do all of this in the context of the Software-as-a-Service (SaaS) Business Architecture, ensuring that everyone attending understands that while Pricing is Marketing - in SaaS, pricing is tightly-coupled to the underlying revenue model and therefore directly tied to the software itself. This is a critical element that rarely exists in pricing outside of SaaS. It is one of the reasons Sixteen Ventures has such a unique approach to pricing!

That said, it should be fairly obvious that at Sixteen Ventures, we aren't designers - we just know what needs to go into a design based on our knowledge of Value Pricing within the context of SaaS, Web and Mobile Apps. When it comes time to execute, we work with our clients and their designers (or ours) to craft a pricing page that conforms to all of the timeless rules. This is then critical to understand - this workshop is far more than just the visual "design" of the pricing page. It is a detailed look at what must go into the development of the pricing page as the most important marketing page for your SaaS company, and ultimately what must go into your pricing and marketing overall.

We focus on the pricing page because for SaaS and Web App vendors this is the visual manifestation of pricing - the place where value perception and value proposition come together. Interestingly, since Pricing is Marketing, everything that goes into developing your pricing page - at least enough stuff to fill a 2 hour workshop - is just a part of what must go into your overall pricing strategy! How much time did you spend on your pricing strategy?

In addition to the context that we'll impart, a huge benefit of this workshop will be the Case Studies by four SaaS vendors that we've worked with - Rypple, PusherApp, and Kashflow. They will tell you how they took this newfound knowledge about what needs to go into a SaaS pricing page - focusing on Value Pricing - and how looking at the pricing page differently has completely changed their entire business! I am so excited for you to hear from these companies!

While this workshop is not a "here's the latest designs that are working in SaaS" - because we know that metric DOES NOT EXIST - we'll teach you how to cook and roll with the punches as the tastes of your market and audience changes. I know, I mixed analogies there. This, by the way, is why we at Sixteen Ventures are so negative about articles, blog posts, or sites that attempt to distill pricing pages from "SaaS" companies down to certain elements. It would be great if they talked about the items that really matter - the items included in this workshop - but they usually don't, instead focusing on the latest visual elements or "how many 'bundles' does their pricing grid have" or nonsense like that.

Even worse are the articles that show - using the Internet Wayback Machine - how pricing pages evolved over time as if to say "at this stage, 37Signals was doing this, so you should, too." These are not harmless and often do a severe disservice to the startups and early-stage SaaS, Web or Mobile App companies that desperately need real, actionable information.

If you want real, actionable information to help you design, and redesign, and continue to evolve and redesign your pricing page I've put together a 5 Hour video series - the Pricing Page Success Formula - to help you get the most out of your Pricing Page.

For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

2 HUGE Updates to SaaS Pricing Page Design Workshop

Sat, 09 Oct 2010 14:04:49 -0500

We had THREE SaaS companies participating in this workshop as Case Studies to talk about the processes that they've gone through to improve their Pricing Pages! This was the most requested "feature" missing from the last workshop and we did what we do at Sixteen Ventures - we delivered on what people want! But we didn't just get one Case Study. No, we got THREE of them for you... Kashflow (Accounting) and Pusher (realtime client push - infrastructure) from UK, Rypple (HR / Employee Feedback) out of Canada.

What is so great is that these four companies represent very different geographic regions, different markets, different company stages, etc. This should make very clear that there is not a single "SaaS Market" to glean information from.

However, In my estimation, the most important thing these companies will bring as far as their Case Studies is not just what we found, or what they changed and the results, but to tell you what they have planned, how they took what we told them and applied it to their roadmap. Let me be clear, neither this workshop itself nor these case studies are about selling Sixteen Ventures - it is about how these companies look at their pricing page differently now, how they now look at value messaging, use of free, etc. in a different light than in the past. How they look at their overall marketing differently. Yes, i guess at some level it is a testimonial about Sixteen Ventures, but I want it to be more about the transformation - at whatever level - they made after working with us or since then, regarding marketing, pricing, or their pricing page.

The main message of the workshop is "What's In It For Them?" and it is all about the context of Value Pricing and how its applied to the pricing page. This workshop is far more than just the "design" of the pricing page - but a detailed look at what must go into the development of the pricing page as the most important marketing page for your SaaS company. Because we ended up having so many awesome companies step-up to help you on your journey to an improved Pricing Page, we decided to push the workshop out a week to give us time to collaborate and pull this together nicely... for YOU!

For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SasS Pricing: Percentage of Customers Willing to Pre-Pay?

Thu, 07 Oct 2010 14:16:55 -0500

How many web app customers will pay up front, and is this a good thing for the SaaS vendor?

From time to time - about every day this week - I get an email that I think more than just the person that asked it would benefit by reading the answer. This one I thought wasn't just an answer you'd like to read, but perhaps you could share your experiences in the comments section and help him out a bit. My friend in the "SaaS business" sent me the following:

Lincoln, quick question....do you happen to know % of companies willing to pre-pay (one year upfront for example). At the subscription metering and billing company I used to work for, it was about 15-20%...just curious how that compares to SaaS in general.

Here is my response, but feel free to leave yours in the comments...

For clarification, did you say 15 - 20% of your former company's customers were willing to pay up front or 15-20% of the customers of your customers in aggregate were willing to pre-pay. The latter would be the more interesting of the two and possibly more indicative of a "market" trend. Unfortunately I suspect it was the former.

Most of my answers to blanket questions like this involve or center around "it depends." The problem is there is not a "SaaS Market" where the rules apply across the board for all vendors. Your company was a part of the "infrastructure" of a SaaS business and so it might have made sense to pay up front for that - especially if a company just got some funding. I assume there were discounts for pre-pay as well, right?

What we've seen is if companies offer a compelling up-front discount the willingness to pay for some term beyond a month goes up. But we're talking significant discounts up front to make that happen - especially for a year or more in advance. I've yet to see any real value-added reasons for pre-payment of the full price that work. It would be nice. There is an entirely different discussion here about why the same company that would pay up front for legacy software is unwilling to for SaaS - could be a value perception issue by the customer.

From the vendor side, there are some problems with large up-front payments. First, you can negatively affect your reference price and market position by offering huge discounts. Second, and often this is the bigger issue, is that of negatively impacting Customer Lifetime Value (CLV). When you take 12 months up front, its harder to continue to push upgrades, up-sells, cross-sells, etc. The benefit of recurring revenue is not just that you get to amortize a payment over 36 months (at zero/negative interest re: time-value of money - great!) - its that you get 36+ revenue touch points with the client to grow CLV!

For the bootstrapped startups and early-stage companies relying on organic growth that we work with, we will often provide guidance for them to run "specials" - often behind the scenes to a voluntarily captive audience - to give limited-time incentives for pre-payment. This can put some cash in the bank but is limited in scope so as 1) to keep from negatively impacting reference price and 2) not to affect the CLV across the board. Some folks we've worked with wanted to get away from monthly payments due to dunning issues, but those are even *more* likely on annual renewal and by leveraging modern subscription management / recurring billing systems like Recurly, this becomes a non-issue.

I'll post this on the 16v blog and see if we can get some feedback on this from the vendors themselves.

Ever consider pre-payments for your SaaS business? Are pre-payments a pricing or a marketing issue? Having a better understanding of Value Pricing and Revenue Modeling can help you, and you can get that by purchasing the 5 Hour video series - the Pricing Page Success Formula - I've put together to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Web App Pricing: Your Price Is Fine; Your Marketing Is Horrible

Wed, 06 Oct 2010 16:53:04 -0500

Yes, Pricing is a function of Marketing, but when the rest of your marketing, promotion, or even your SaaS product sucks, who cares about your price!

From time to time (a lot more recently it seems) I get an email that I think more than just the person that asked it would benefit by reading the answer. A client with a SaaS shopping cart solution that we did some high-level strategy work with earlier this year, including tiered pricing, just wrote me about their current situation. They sent in the following:

Lincoln - We're convinced that $19 is the worst price point ever! $19 is being interpreted as $20 by our market and even our partners are listing it as $19.99 when it is really only $19. It gets worse, here's an excerpt from one of our partner sites:

"Once we’ve updated your products... we're ready to open the store to the public! The monthly fee to keep the store live is just $19.99. If you’re already deciding that you don’t want to pay a monthly fee, maybe you only have a few items, then you should go for our Paypal solution for smaller stores. Take the exact same model you see above and subtract $19.99 per month and the cool pop-up-cart option."

That means we're basically losing 5% of out potential revenue for no reason whatsoever.

Here is my response, and I think you will find some value in it, too...

Unfortunately, it means a lot more than just 5% left on the table. You guys don't have a price problem - you have a serious marketing problem!

But let's address the $19 price point first. So, you say its $19, but even your partners interpret it as $19.99 or basically $20. To your point, that is 5% left on the table. So raise your price - keep your current customers at $19 (or don't - but give them fair warning!) and bump it up. Don't test it - don't mess around with it, just raise it. Deal with tiers and bundles later. If $19 is $20, maybe $21 is $20, too... or $22. You have some very real intelligence built up over the last couple of years - and your gut - telling you that is the right move, so make it happen.

Interestingly, this is the opposite of most "charm pricing" we see, where $19(.99) is generally thought of as in the tens and $20 is in the twenties and there is a big gap there. This is tried, true, and the way its been for... centuries? Of course, we know charm pricing is generally used in low-end or discounted scenarios, to make people think they are getting a great deal. But, we've seen this odd evolution on the web with down-market products / services where charm pricing has the opposite effect. People see $19(.99) as in the twenties or that you're trying to pull something. You've just realized it - and having a partner or someone that should know better fall into that trap too, well, I think it speaks for itself.

But like I said, its more than just a price issue - its a marketing problem; a perception problem. When one of your partners says its basically just an Ajax widget and tells his market that if they want to save $20/mo, they can go without that little feature. That little feature, by the way, IS your business. This isn't just slightly concerning, this is frightening... or at least it should be. My advice to you is to raise that value perception quick or you're going to get stuck in commodity world... a world where $20 might be the top of the price range.

Overall, you guys are in a very weird spot. What you have right now is a commodity with very poor value perception by the market. Your value proposition is actually quite compelling, but your messaging and ability to raise the value perception of the market is the real challenge. You have two choices... raise the value perception of the market or drop your value proposition down to match the perception of the market - that is, stop offering so much and give them what they want - a commodity. I'd go with the former, if I were you.

How do you do that? Value messaging - and that might include a new brand and market segmentation - that speaks to What's In It For Them?... what do they get? They being your customers, or your customers customers. Somehow that message isn't getting across... even for the people making a lot of money using your system. Start researching and brainstorming on the value they derive from your service - not the benefits; those are close-ended. Focus on the Value they will derive from the benefits of your service. Much of this, by the way, will not be found in those extensive datasets of yours.

In the past you've even had some agencies tell you that $20 is basically the most they'll pay per client and that if you were to raise the price significantly they'd find a different solution. Yet they're making what - hundreds or thousands per month from their clients by leveraging your product? What's in it for them? Obviously revenue - how can you make it easier or faster for them to generate more revenue, from more clients? How can you better align with them on allowing them to do more of their core business?

This is the stuff we talked about guys, its all about your value proposition intersecting with the value perception of the market. Right now, they are completely misaligned and it is up to you to align them... the only real option for you is to work to raise the value perception and that is all about What's In It For Them - WIIFT! Focus on that metric and let me know how it goes...

These are the types of questions we cover with our clients, but also in the 5 Hour video series - the Pricing Page Success Formula - where we help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Free Trial: Feature or Time-Limited?

Tue, 05 Oct 2010 10:58:01 -0500

Freemium is free-forever, Free Trials have time limits and the psychology of the two COULDN'T BE MORE DIFFERENT!

During the last SaaS Pricing Page Design Workshop (as it is called now) we had some questions come up that we did not have time to address. I took time after the event to ensure all questions were answered and sent to all attendees in a timely fashion.

Here is a question that came in and I thought you might be interested in in my response. Feel free to comment if you have similar experiences and would like to weigh in.

Q. What are the pros and cons of offering a trial version that is time limited vs. feature limited?

A. It depends on your overall goals as a company. It really is that big of a decision. Once you have a strategic direction in place for the company, it should be clear what you'll be doing with your "Use of Free." There is a HUGE difference between "free trial" and "free in perpetuity" - the latter being "Freemium." We're seeing a lot of companies lately offering both a free trial and a free-in-perpetuity version. Essentially, they'll offer a free trial of any of the tiers or bundles - which is GREAT! - and at the end of that trial, you can pay, close your account, or downgrade to the free. This is not new, obviously, but it is a trend we're seeing. How it is playing out is debatable, though, and it is because people don't clearly understand what they've gotten themselves into.

Many people don't realize that by offering a feature-limited version of their service that doesn't expire they are now in the Freemium game and that the dynamics and mechanics (and psychology) of Freemium now apply. That is a subject all its own but just be aware that if you have a free trial that has no time-limit, but has limitations on features, usage, etc. that you fall into the Freemium trap and if you don't know what your doing, you could have major conversion issues. Even Freemium companies that "know what they're doing" get ~3% conversions.

Also consider the fact that the people you have placed in the "free" version have already tried and decided NOT TO BUY your premium product. You need to be very clear as to why you still want them around. Unless you are you going to monetize them in other ways, how do you intended to generate revenue from them? And if you don't - why do you want them around? What is the quid pro quo for their free use of your product? If you don't know what it is, or don't fully understand how you'll get them to some day be interested in moving to the premium product, perhaps a free-in-perpetuity offering is not for you.

On the flip side, a time-limited trial - with or without feature limitations - is a different animal completely. The expectations by the customer are different, your expectations as a vendor are different, its easier to plan a sales cycle around a time-limited trial, etc.

Free, time-limited trails are meant to allow a user to kick the tires before they sign-up and become a customer. And by the way, this is absolutely expected in B2B SaaS. But, the time limit should be as short as possible - just enough time to let them find value in the service. Just like everything else - there is no standard time limit - do what works for your service in your market. The trial could be 14 days or it could be 60 days.

You want to keep it as short as possible because you want to get to profitable revenue quickly. Support during the free trial is part of your customer acquisition costs (human technical support, infrastructure support, sales, etc.)

So, pros vs. cons... that isn't the right way to look at it. Its all about your overall strategy and aligning with the market...

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Value Perception Issue: Customers Cancel Quickly

Mon, 04 Oct 2010 17:52:32 -0500

If your Web App is getting a lot of "test sales" you almost certainly have a value perception issue.

Here is a question that came in and I thought you might be interested in in my response. Feel free to comment if you have similar experiences and would like to weigh in.

Q. We are having "test sales" - they only stay one month and then cancel. Is it a perception problem? Does the customer not "get" what the system is for? They sign-up for the free trial, convert for 1 month, and then cancel.

A. At some level it is a perception issue - the goal is to figure out what that is and fix it. It is likely you are attracting the wrong crowd. Perhaps you're limiting features in the trial that they think they need, they sign-up and find out the features either aren't what they need or they don't work. As much as it is painful to hear, maybe your product doesn't do what you say - or think - it does. And never under estimate the power of a bad product - or poor user experience - to keep people from using it!

It could be that you collect their credit card information up front and auto-bill them at the end of the trial. When that happens they cancel the subscription but don't ask for a refund and don't do a charge back. They just leave. Watch out - this could become a problem at scale. Too many charge-backs and you're merchant account will be cancelled.

My suggestion is for you is to be proactive during the trial. Ensure that the customer who signed up is actively using the product. I would suggest a combination of actually talking to them and monitoring their progress within the system. A phone call after they sign-up for the trial to make sure they have everything the need, an email pointing them to How-To videos, customer support forums, etc. And then actions base don their behavior from there on out. You don't want this:

1. They signed-up

2. They gave their credit card

3. They verified their email

4. They logged-in once

5. They never came back

6. Their credit card was billed for 1 month

7. They cancelled

8. They disappeared

Each one of those list items contains at least one touch point for you and you should be leveraging those opportunities to connect with your customers - even if it is less "scalable" right now - meaning more human interaction - so you can figure out why they're churning out and of course, to prevent it.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Web Apps use Customer Support to Increase Revenue

Mon, 04 Oct 2010 16:53:23 -0500

SaaS vendors know getting the sale is only half the battle; keeping the customer means keeping them happy and that a happy customer will also upgrade over time

From time to time I get an email that I think more than just the person that asked it would benefit by reading the answer. An early stage startup client that we are working with on their Pricing Strategy just sent me the following question:

Lincoln - This isn't a pricing question, however I think you may have some relevant experience in your agile mind on this one. How many people would it take to support each 1000 users of our SaaS business solution? As you can imagine the numbers will no doubt provide some economies of scale as we move through 100, 1000, 10,000 to 100,000 users - but it will not be an unsupported environment like a social site or free consumer offer. The users will be entering their own key business data... as well as dealing with glitches and submitting suggestions, etc. So the question is, do you have any knowledge of SaaS industry averages in customer support staff? - or have you direct experience on how to make a good estimate?

Here is my answer to him - I thought you might benefit from it, too...

This is a great question and I think you hit on a key point - you will have economies of scale to lower the cost over time. However, since there really is not a "SaaS Market" if you look at averages - and I'm sure someone has this data - it is likely a meaningless or highly misleading statistic. Why? Because support costs are 100% tied to your company and your market. Interestingly, you say this is a non-pricing issue - but after reading this you might think differently.

First, what does "support' mean? For planning purposes you need to be very clear as to the level of support given, to whom, when, how frequently, and why they would need it, etc. You need to clearly break down all of that for each support area:

(Pre-)Sales Support - You'll want to automate as much as possible to reach those economies of scale, but what is included pre-sales. Will you differentiate the level of pre-sales support for different market segments? Will some be able to move through the sales funnel on their own in an automated fashion, to a Pricing Page, then into the app, while others will require more hands-on support? Who are those that fit into each of those categories?

On-Boarding Support - Once they are sold, what will you need to do for them or help them with? Will they need to seed the system with existing, legacy data? Will you need to help them customize the user experience, integrate with existing systems, etc.? Will some need this while others won't? Is there a correlation to the types of users that can use the self-service sales process vs. those that need human interaction? How much of this could be revenue generating professional services? What is *expected* to be included with the fee and what is expected to be extra - by the different customer segments?

Initial Customer Support - Once they are on-board, what level of support will be required to get them going? For the automated/self-service folks, will a series of videos/screencasts be sufficient? Will you need a more guided, hand-held process for the other folks? What does that look like? Will there be an on-site consultation / training? Will you do this or will you build an ecosystem of trainers / consultants to handle this? What will those relationships look like?

(Ongoing) Technical Support - What does this mean? First level phone support, use of GetSatisfaction for community support, roadmap ideas, etc. Will you need different support levels for different customer types? Will a certain level be included but a higher level of support be extra? What is the expectation in the market? You can dictate much of this - its all about ensuring you align your value proposition with their value perception.

(Ongoing) Customer Support / Success - Training, Communications, Proactive Sales Support / Anti-Churn Activities, etc. What does this look like? Are there different customer segments that will have more needs in this area? Can you bundle any of this together for larger clients to 1) offset your costs and 2) add revenue (and hopefully profit) directly? What should be included in the base level to keep churn at bay? How can you leverage this to grow Monthly Recurring Revenue (MRR) and therefore Customer Lifetime Value (CLV)? For the purposes of planning, it might make sense to do so, but to be really successful and because we understand that the SaaS Business Architecture is a tightly-coupled machine - no silos here - Tech & Customer support should not be treated as separate!

Okay, so I'm not sure if I answered your question directly, but I hopefully got you thinking about this in the right way... yes, economies of scale do exist and over time you will be able to take advantage of those. Even in areas where its very high-touch, you'll see that probably 80% of what you do is the same for each customer. Strive to automate that 80% - build it into the app, even if it is your "support" staff that is doing the work. That way, the 20% that is unique to the customer is of higher value and you can charge more for it.

Want to know more about how something like support can affect your overall pricing strategy, revenue modeling, market segmentation, self-service sales and provisioning, and more? A great place to start is with to buy the 5 Hour video series - the Pricing Page Success Formula - I put together to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Pricing Page Tune-Up Workshop was Awesome!

Mon, 04 Oct 2010 14:07:56 -0500

Last week was a whirlwind for me. I was in Alaska the week prior to the Pricing Page Tune-Up Workshop on 9/29 - my grandma passed away - so the trip was unexpected. These things rarely happen at convenient times, and this trip would put me back in Dallas the day of the Pricing Page Tune-Up Workshop! But, family first, so I did what I had to do.

I spent evenings at the Barnes & Noble cafe in Anchorage working with my producer & team back in Dallas, tweaking and perfecting the workshop presentation, while helping my family during the day. Tuesday evening 9/28 / Wednesday morning 9/29 I flew overnight from Anchorage to DFW and made my way to the studio outside of Deep Ellum for the Pricing Page Tune-Up Workshop. And if I do say so myself... what an amazing event!

I knew going into it that we had a full house registered - including some big name SaaS companies - but even some of the attendees who said they would not be there were able to attend. The questions that came in during and after the event were incredibly thoughtful. Along with the slides and video of the workshop, I've already sent the answers to those questions that weren't answered during the workshop to the attendees. I'll be posting the questions and answers in the coming days because they were very good... but I wanted the attendees to have the answers first. Just a little added benefit of joining the workshop live!

The Pricing Page "Tune-Up" Workshop was better than I could have imagined - but one of many things we learned is that the name was too limiting. Some people have told us that they didn't sign-up to attend specifically because they thought it was only for those that had a pricing page already who just needed tweaking or tuning-up; that perhaps they were too early for this. Unfortunately, that completely makes sense since this workshop was originally a riff off the service we used to offer. Our marketing message was obviously off because this workshop is for *anyone* that has - or will have - a pricing page for their SaaS or Web App.

The part that we got a lot of great feedback on was the first part of the workshop where we focused on Value Pricing as a whole. This is an area where most people we run into - clients or otherwise - simply don't understand. Because of that, we spend a lot of time on the context of Value Pricing - which is the foundation for the pricing strategy and pricing page of any SaaS or Web App! It is only with that context that the rest of the SaaS Pricing Page Design & Optimization can take place.

So let me be very clear... If you are an early-stage startup without a marketing website or pricing page, you should attend. If you've been in the market for a while and need help with your pricing page - you should attend. If you consider your company to be "SaaS" and have price transparency - you should attend. If you don't relate to SaaS but consider your company a Web App, you should attend. Get it?

For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Only 2 Days Until Pricing Page Tune-Up Workshop

Wed, 22 Sep 2010 13:25:32 -0500

I've been busy getting ready for this workshop, and part of this preparation has been to publish articles every few days that focus on a specific element of the pricing page. Since the last email I sent we've published another three articles that I think you will find a lot of value in. Please check them out and if you felt like they were valuable, please tell a friend or colleague about them!

These articles talk about the importance of the Pricing Page in the context of various well-known aspects of SaaS - from metrics like CAC, CLV, and MRR (all defined in the articles), to product roadmap and features. These should be very eye-opening articles - in many cases shedding light on items you may not have known or thought about before, and in other cases simply showing you a little bit more about what is included in the workshop... hopefully whetting your appetite a bit. Enjoy (and tell others, too!):

I would love it if you would join us for this workshop, but I know not everyone will be able to, doesn't see a need yet, etc. But, I know everyone could help us spread the word about this workshop! The main reason to ensure we have a lot of participants is simple - the more participants we can get the better the Q&A will be and the more varied the pricing pages will be for us to review during the workshop. We already have a wide-variety of participants - including some big name SaaS companies - but there are still a few spots to fill. I would love to see a "full house."

For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Marketing: Pricing Decisions and Product Roadmap

Tue, 21 Sep 2010 18:51:40 -0500

For your Web App, do you roll in that new feature for free or charge for it?

During a call with a client yesterday the topic of aligning the product development roadmap with pricing came up. It was interesting because this was an early stage company and we don't usually get to this point at their stage. But it was a great conversation and I wanted to share what we talked about - and get your input on how you have or will handle this. Comments are open!

The basic idea is this. You go to market with an offering that includes A, B, & C features - perhaps your Minimum Viable Product (MVP). Based on what you pulled out of the product to create your MVP, you have some features that you know your customers will likely need or really want later on. Your product development roadmap now includes features D, E, & F.

The question was simple: when they are ready, do you add features D, E, and/or F to the existing offering that includes A, B, & C that your customers are already paying for or do you start a new offering or pricing bundle / tier that includes A, B, & C as well as one or all of D, E, & F. The answer, as you can imagine, is "it depends."

At Sixteen Ventures, when we work with SaaS & Web App clients, we are always looking for new ways to make money - after all, we're the ones that originally defined the 7 SaaS Revenue Streams - you know, the ones you see in business plans all over the place now. Therefore, you could conclude that we might say, when you release feature "E" you will want to wrap that into a new bundle since we know there is a lot of perceived value in that feature. You would be wrong though, and here's why:

Don't sacrifice overall Customer Lifetime Value (CLV) for a quick bump in Monthly Recurring Revenue (MRR)!

So this is the old "its cheaper to keep a client than to get a new one" argument - just SaaS-ified. The main thing to remember is that SaaS is all about the service. Lets assume that the lifetime of a customer will be 3 years. But for smaller, niche SaaS vendors (i.e. those working without a ~~net~~ contract) they cannot guarantee it, so they have to work hard to ensure those customers stick around for the full three years. At the very least, they need to ensure they stick around long-enough to pay for acquiring them in the first place! So, with SaaS, the idea is that you - as the customer - offload infrastructure, updates, etc. to the vendor. You just login and do your work. It should be constantly updated, secure, etc.

But what about new features? Is there an expectation that when a new widget, report, etc. is released that the customer will get it? Will the customer upgrade momentarily to get access to the new feature only to downgrade later (best case - in this context) or go somewhere else (worst case) because you clearly don't understand where their value perception is and you just irritated them. Don't underestimate spite as a driver of business decisions!

It is up to the SaaS vendor to manage expectations and be very clear - up front - about what is included in the subscription level or pricing tier the customer has selected. In some cases, new features are expected to be added as part of the subscription, and sometimes not. As long as its clear to the end-customer, there shouldn't be a problem. But from the vendor standpoint, how do you draw the line between adding a feature to an existing subscription level because it makes sense and will keep the customer happy versus using that feature as a carrot to get them to move to a more expensive pricing tier or bundle?

The bottom line is, you need to make sure - at some level - that you continuously improve the product enough to ensure the client happily stays with you. You have to take into consideration what the expectations are of your customers and what the overall value perception of the SaaS product or Web App is at the various pricing tiers and within each individually targeted market segment. Because it is cheaper and easier to keep a customer than get a new one, unless there is a significant increase in the value perception by the client with the addition of a feature, it is likely a good idea to simply include it as part of the ongoing service you provide.

That said, there are techniques you can use to test the value perception of features you're on the fence about - features that could drive additional revenue and CLV. The goal is certainly to grow C/MRR over time by adding new customers, but to also add to it - and the associated CLV of those customers - by providing upsell, upgrade, or cross-sell opportunities. Some features will clearly have a perceived value large enough that the expectations would be a new pricing tier or bundle in order to get access to it. Others are not as clear and it is up to you to figure out where to draw the line. But remember, that might not be a solid line you draw one time. Each market segment could perceive the value of the feature differently.

So, the main lesson is... don't sacrifice CLV for a quick bump in C/MRR - the old "its cheaper to keep a customer vs. get a new one" argument is a legitimate one - and recognize all of this in the context of aligning everything with the value perception of the target market segment.

Now, would you like to know more about the techniques I mentioned above purchase the 5 Hour video series - the Pricing Page Success Formula - I put together to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

SaaS Pricing Page Optimization: Lower Customer Acquisition Costs

Tue, 21 Sep 2010 12:15:38 -0500

Customer Acquisition Cost (CAC) is a key SaaS Marketing metric, and Pricing Page optimized for conversions can help keep it low.

If you have built a real business - or are looking to - around a SaaS or Web App that you know people will subscribe to, then you should take care to track certain metrics. Tracking these metrics will be like keeping a finger on the pulse of your company at a business level. Bessemer Venture Partners published - and continues to refine - their list of the key metrics they want to see tracked by their current - and perspective - portfolio companies. One of the key metrics to understand is Customer Acquisition Cost (CAC) - or the cost to attract and convert a customer.

BVP has taken that key metric and created the CAC Ratio - a formula that indicates whether the return on your CAC is too slow - meaning your marketing is ineffective, sales cycles are too long, there are too many barriers, etc. Read more about the formula on the BVP site, but the gist is this; if you have a CAC Ratio of .33 for example, it means it takes 3 years to make enough money from your customer - via your Recurring Revenue stream - to pay for what it cost to acquire them. Yikes!

On the other hand, if you can get payback in less than a year, resulting in a CAC Ratio of >1.0, this indicates, according to Bessemer, that marketing spend is working well and that you should ramp up your efforts and start acquiring more customers. By the way, if you have a CAC Ratio of >1.0, BVP would like to speak with you - they have some of your money in their pocket!

All of that makes sense, if you think about it. If you can completely pay for the CAC in the first year of service with a client, and we assume a 3 year customer lifetime - meaning the average customer sticks around for three years - then from month 13 to month 36, aside from fixed operating costs, that client is all profitable revenue - especially when coupled with techniques to increase Customer Lifetime Value (CLV). This has always been the goal Sixteen Ventures has instilled in its clients -> get to profitable revenue as quickly as possible. CAC Ratio is a great measurement tool, indeed.

But what if your CAC Ratio is low? What could you do to improve it? While there are a number of things you could do - make ad spend more efficient by ensuring ads targeting the right audience, create affiliate programs, leverage third-party distribution - there are some immediate fixes you could make that could result in lower CAC, due in part to a more streamlined customer acquisition process. And yes - this is directly related to your Pricing Page design. Aside from things such as reducing barriers to entry for new customers, testing shorter free trial periods (remember, support costs pre-revenue are essentially marketing spend and should figure into CAC - ask your accountant though), etc., one amazingly effective way of reducing CAC is through market segmentation.

In the context of SaaS and Web Apps, market segmentation is where you drive the customer to a specific area of your marketing website - and eventually to a pricing page - with more targeted messaging, pricing metrics, tiers, etc. There are many ways to do this, from simple nudges on the main website, to landing pages, micro-sites, or even multiple brands of a product more aligned with the target audience. No matter what, the idea is that different audiences will find different value in your product - even if those audiences are just different sized companies in the same vertical - and to reach them most effectively, you need to speak their language and understand their value perception.

Market segmentation can be used in a completely automated, self-service sales process, or can be used to effectively and efficiently send some clients through the automated process while funneling others to lead capture forms for an inside sales team. Understanding how to leverage market segmentation to deliver the right message and the right value-based pricing metrics to your target audience is a fantastic way to reduce sales cycles and improve CAC Ratios.

This is a topic is covered at length in the 5 Hour video series - the Pricing Page Success Formula - I put together to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Marketing: Pricing Page Must Align Price with Value

Mon, 20 Sep 2010 03:50:23 -0500

It isn't about your Web App, it is about your Customer and what they think they'll get from your product.

What Varian is talking about in that paragraph is value-based pricing - pricing your product or service based on how much value it brings to the consumer - not how much it costs to produce, serve, deliver, etc. But wait, isn't this missing something? For instance, aren't profit margins kind of important? Of course, but once you've covered your costs - fixed & incremental - everything above that is profit. The key is that the amount of profit margin is directly proportional to the value perception of your market to your product or service. In other words, your profit margin is driven by marketing., and don't forget - Pricing is Marketing.

On the flip side, if your costs are high (support, infrastructure, customer acquisition, etc.) your market doesn't care. There is a price range they will support based on the current value proposition - and its perceived value - and if you can't cover your costs within that price range, too bad. You either need to figure out a way to lower your costs, figure out a way to get them to pay more, or accept that the market opportunity you thought was there, and your ability to capitalize on it, isn't. Of course, the best way to deal with this is to figure out a way to improve the value perception of the market ("What's In It For Them?") so that they will pay more for the product or service.

So at its core, marketing is an attempt to align the value-proposition of your SaaS or Web App with the needs and/or wants of the market. The real goal should be to increase the value perception of the product or service - that is to increase the value in which the consumer sees in your offering - a greater amount of "What's in it for them?" What is key to understand is that price is where your value proposition and their value perception intersect. For SaaS & Web Apps this intersection often occurs on the Pricing Page of their marketing website.

Understanding what pricing really is - the intersection of value proposition and value perception - should immediately make you take a second look at your pricing page...

Are you continuing the value-based message of the rest of your marketing website? If not, you could be losing marketing momentum.
Do you assume the visitor to the pricing page is already a buyer? That could be a costly assumption.
Are you just displaying prices and / or a list of features? Don't confuse features with value!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Recurring Revenue Booster: Pricing Page Optimization

Fri, 17 Sep 2010 02:17:56 -0500

Continuity Income requires an Optimized Pricing Page; especially for SaaS companies with self-service sales models.

Ask most SaaS or Web App companies what the goal of their Pricing Page is and most of them will say "make sales." While that is just one of a few Pricing Page goals, it is certainly the most popular and arguably the most important. But what does "make sales" really mean? Specifically, what does it mean in the context of a SaaS, Web App, or other Recurring Revenue business, as opposed to a one-off traditional software product or standard e-commerce business?

Simply put, SaaS or Web Apps that have a subscription model - that is, some type of ongoing or recurring billing model - as their primary revenue stream - should be focused on growing their Monthly Recurring Revenue (MRR). This metric, part of Bessemer Venture Partners' 6C's of Cloud Finance, is actually encompassed by another metric - Committed Monthly Recurring Revenue (CMRR) - a formula that takes into consideration MRR on two levels - that which is in production and that which is "committed" via contract or some other method - as well as churn.

CMRR is a far more complete picture of a Recurring Revenue company's business, but either way - MRR or CMRR - the goal is to grow it.... hockey stick style. Up and to the right! For SaaS and Web App companies that have an automated sales process, the pricing page will be a key factor in growing revenue.

So what are some things you might do if C/MRR is flat and not growing? You could reduce barriers to entry for new customers, try different (shorter) free trial periods, increase incentives to convert from free trial to paid product, improve differentiators between Free and Premium products, ensure higher-priced tiers are aligned with the actual usage and value perception of the customer, and a lot more. All of these items will rely on the Pricing Page - along with supporting marketing and sign-up pages - to work toward the goal of C/MRR growth.

If C/MRR is flat or going down (though if churn is high, there are likely other factors at play beyond the scope of the Pricing Page - we can help with that, too), it could be attributed to a poorly designed pricing page and overall customer acquisition process. It is fairly simple - a pricing page that allows you to align your value proposition and the value perception of the audience will lead to more customers which will lead to growth in C/MRR. In a Freemium scenario, a well-designed pricing page could not only result in more sign-ups, but could cause customers to bypass the Free version altogether, efficiently moving them to Premium editions. No one said just because you have a free version that everyone *must* start there, right?

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Does Goldilocks Pricing Work for Web Apps?

Wed, 15 Sep 2010 19:59:40 -0500

A Pricing Strategy for SaaS built for the sole purpose of nudging customers away from a decoy price to the middle version can work.

I was asked for my thoughts on this question someone posted on Quora: "Based on your real-world experiences, does Hal Varian's 'Goldilocks pricing' result in most buyers choosing the middle option?" Essentially, this is the notion of having a low, medium, and high price to - theoretically - force people to the medium pricing tier / bundle. I decided to explore this from a value-based pricing perspective. Following is my response...

This is a great question / topic. I'm not sure anyone has data to support or dispute this at scale. Anecdotal and first hand experiences, though certainly not in aggregate, will be the best you can expect most likely and I will do my part to spread the word to get some of that input. My experience is also only in Software-as-a-Service (SaaS) and Web / Cloud Apps. While most of what I deal with could be extrapolated to include other industries, markets, etc. I just wanted to put that out there. If you're selling brake pads, what I have to say might not work.

That all said I wanted to weigh in here with some guidance around "Goldilocks" pricing. My interpretation of Varian’s paper is that the differences between pricing tiers should be value-based, not just tiered without giving thought to the value perception at each level. This is certainly how we recommend our clients create their pricing strategy - if they go with tiers. "If" is key to that last statement.

The fact is most new SaaS and Web App companies assume they must have tiered pricing. For the most part this is due to following companies that are already in the market. They will assume since ABC SaaS app has 5 pricing levels that they should, too. What they fail to consider is that ABC has been in the market for 7 years and has the intelligence - market, behavioral, etc. - to be able to identify the proper value differentiators for each tier. Or maybe they don't and even 7 years on they are still guessing. That is the problem with looking at other's pricing pages - especially those not in direct competition with you - there is a serious lack of context!

So the key is that you should not do tiered pricing or bundles for the sake of having a "pricing grid" on your pricing page. For early-stage SaaS or web app companies it adds complexity, even if you leverage a light-weight subscription management solution like Recurly or Chargify. The reality is there is extra management overhead, expense, etc. and if you are brand new, right out of the gate you might not have the intel to know how to segment based on value yet. You could even turn away prospects or upset clients by using the wrong value differentiators in your pricing "bundles."

We recommend that SaaS and Web App vendors work through a process to figure out what the value-based differentiators should be for their bundles. We put them through a value perception matrix to ensure their value proposition intercepts appropriately with what they know the market will want, but no matter how you do it, it should be done. This means, if you are considering "differentiating" bundles based on storage, for example, do your best to ensure that "storage" is a metric that is valuable enough to your customers that they want to move up to - or start out with - the next tier up. Otherwise you could cause them to feel like they are paying for something they aren't using or alter behavior to keep from upgrading - while looking for an alternative product or service that understands them.

The other thing is, even with tiered pricing, regardless of whether you do the "Goldilocks" thing or simply have multiple tiers, it is generally unwise to attempt to have pricing that is all things to everybody if you cover a wide range of target markets or segments. Instead, you'll need to employ market segmentation and then leverage tiered pricing within each segment. This is why you will see some SaaS apps with 7 or 9 pricing levels... everyone from tiny 1-person companies to Fortune 100 companies are represented on that one page. This is not advised.

This should make sense - what is valuable to one market segment will not be (or will not be the same as) for another and will require messaging around the pricing to convey the value to the segment. Healthcare users of your horizontal solution will speak a different language than Aerospace, just as small businesses will consume your messaging differently than Fortune 100 companies. The product might be the same (the great thing about SaaS and web apps), but how you convey the message - including pricing - is key.

But the point of "extremeness aversion" put forth by Varian is something legitimate to consider. But I would again look to that strategy in a value-oriented way. Why create a pricing tier that is your "hail mary" price (as I've seen some write about a high-priced version you "hope" someone chooses) if there is no real value? Do you create a high reference price so the "recommended" one looks like a bargain? Yes, but if the "high price" is not accompanied by some perception of value and appears to simply be a high price, it could throw off the entire value perception of your offering.

That is the danger of just pulling prices out of thin air (or somewhere else) and failing to work through a proper strategy. So yes, "Goldilocks" can and does work, but only when in the confines of true value-based pricing. Varian often refers to the "premium" product (tier) - premium doesn't just mean more expensive, but more valuable. How it works, how often customers are "nudged" the middle tier, is hard to say in any conclusive way. In fact, you'll note that most SaaS or Web Apps that have a "recommended" tier offer no reason for that, and it is quite often in the middle of 4 or more tiers, completely throwing off the "Goldilocks" nature of the experiment.

While the goal is always to get pricing as right as possible out of the gate, early stage companies are at a disadvantage due to lack of time in market. Understanding the true nature of value-based pricing, and that pricing IS marketing, can greatly improve the results of any pricing strategy. So, is "Goldilocks" a good base for your pricing strategy? It can be, but there is a lot more to it. I recommend going back to Varian’s paper (download the PDF here) and reading with with a focus on"value-based" pricing. Where he says "quality" substitute "value" and "What's in it for them?"

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Web App Pricing Page: Why You Should Care

Mon, 13 Sep 2010 23:41:52 -0500

SaaS companies without sales people rely 100% on their Pricing Page to convert buyers... that's why you should care.

If you think a pricing page is just to display your prices for a buyer that is already sold, think again! A great pricing page is the last part of the sales process – often referred to as a funnel – but by no means are the visitors to the pricing page already buyers. Assuming the visitor will buy when they get to your pricing page could be a very costly assumption!

The Pricing Page for a SaaS or Web App company that uses an automated sales process, where marketing and e-commcerce are tied with automated provisioning of the application, live and die by their marketing websites. For these companies, the most important page on that marketing website is the pricing page.

For any SaaS, Web App, or Cloud company with - or planning to have - a pricing page - most likely with different pricing tiers, bundles, etc. - you need to consider all aspects of the pricing page, not just the price itself. Especially not just the feature list. As we see over and over, most companies have a marketing problem, not a pricing problem.

Regardless of your company's stage - this isn't just for just startups - whether you've been in the market for 10 years or are in beta getting ready to launch – even if you don't have a pricing page yet - you need to think strategically about your Pricing Page - and tactically about how to execute on that strategy. Whatever you do, don't just copy the pricing page of another company; that could be a very costly mistake.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Pivot! Introducing the Pricing Page Tune-Up Workshop

Sat, 11 Sep 2010 17:09:31 -0500

The Pricing Page Tune-Up service was an interesting experiment for us at Sixteen Ventures. We've been transparent about its progress and the ultimate shutdown of it. Like any good startup, we took what we knew to be true – that SaaS & Web App vendors, especially small or early-stage ones, need help with their pricing pages – and tried to figure out a way to build a scalable and sustainable offering around that.

The most logical idea seemed to be to offer a stand-alone service around the process of tuning-up Pricing Pages – something we had been doing for a long time for retained or project-based clients. This is the idea of productizing expertise – something that SaaS (or the web in general) allows subject matter experts, consultants, etc. to do in ways packaged software never would have. We still believe in this and will continue to advise non-software, service-oriented companies to look to SaaS as a way to productize their expertise. We now have even more "what not to do" ideas to go with that recommendation.

Some of the issues we ran into with the Pricing Page Tune-Up revolved around scalability. Initially we made some assumptions that most of the processes could be automated - data collection, page scoring, etc. Early customers can see where that was heading based on the format of their reports. Well, we found out as early as our beta testing phase that automating the process would require a lot more work than we expected. But we were on track to announce this service and figured it was something we'd tackle later.

Now, if you read our statement we published when we shut down the Pricing Page Tune-Up service you'll note it was really the lack of a market for the service that kept us from diving in deeper for a more automatable solution. But the distinction needs to be made - there is a lack of a market for the service, not the process of Pricing Page Tune-Up. Now things started to get interesting...

Let me backtrack for second. You need to know this part... In order to land a one-time $99 or $297 Tune-Up (these took more time to accomplish than I want to admit!) we spent a lot of time convincing people that they should use the service. We ended up giving away highly strategic advice just to land a $99 service deal. So much so that I would think after a "sales" conversation for the service "I literally just gave that guy $10,000 worth of advice and he might sign-up for a Tune-Up." Much of this pre-sales consulting was to build trust in a service that the customer would have no visibility into. Even though they "trusted" us already – having consumed our whitepapers, presentations, etc. - when it came time to plunk down some cash, that trust wasn't there. Here is yet another lesson, my friends.

We quickly found while both marketing (mostly to our captive audience of followers, subscribers, etc.) and performing the Pricing Page Tune-Up service for our clients that there is very deep interest in the process behind the service. For a "black box" service like this where you have an input (the pricing page) and an output (the report) this was often a point of contention. What happened in that box was our secret sauce and people wanted to have access to the recipe! Hello! There's the opportunity, right?

Obviously the big disconnect that ultimately lead to the shuttering of the Pricing Page Tune-Up service was this - we know how startup founders and entrepreneurs think. We know entrepreneurs, startup founders, and even corporate clients "in this economy" want to know how to accomplish things way more than just the result or the outcome. So ultimately we created a service that went against that very clear and deep understanding that we already had internally, but chose to ignore!

We also know that the cost of training (in its various forms) is more palatable since it can be leveraged over and over, shared internally, etc. This is true for companies of all sizes. I can't tell you how many times a big company will reach out to Sixteen Ventures looking to bring us in for retained or project-based consulting after they have already brought in (read: paid a lot of money to) the well known SaaS analysts.

Of course, most of those guys just regurgitate canned research, only providing a 50,000 foot overview. When the company realizes it still needs help executing they call us... but then we have to negotiate and make the hard sell pitch because they already dropped a ton of their budget on "analysis" and "research." So, yeah, there is a big market for analysis, content, training, etc. And we fundamentally know that.

The story about "analysts" not withstanding, the willingness to consume training is really in-line with our own philosophy – that of learning to do rather than having it done for you. That means, even from our point of view, having a "black box" service like this doesn't make sense. I mean, how can we say that the Pricing Page is the most important page on your marketing site and then not tell you how to continually ensure your pricing page is optimized?

So we took a step back and realized we already had the right "product," we were just packaging, marketing, and selling it the wrong way. So we pivoted...

In an effort to leverage our experience and provide it in a way that is scalable for us and accessible for even the smallest companies - a key initial element in the creation of the Pricing Page Tune-Up service - we're going to start doing workshops. Our first one is called SaaS Pricing Page Design & Optimization. It is basically us spilling our guts on the processes behind the Pricing Page Tune-Up service.

That's right, we will now present what goes into tuning-up and optimizing your Pricing Page - in its Entirely Transparent Awesomeness - as an interactive online workshop on Wednesday 10/20/2010 from 8:00PM - 10:00PM Eastern. This is a live, one-to-many workshop. Its not one-on-one and it is not recorded. There will be a live Q&A and the first 5 participants that volunteer will have their Pricing Page used during the workshop.

Following the event, participants will be able to join our new community to interact with others, talk about their pricing pages, and share results/progress. We're also working to have some discounts on some great products (A/B testing, value framework, etc.) to announce very soon.

The bottom line is, we think teaching companies to do this on their own – and knowing that they will use the process many times over - is much more valuable than having us do it for them one time.

Be sure to sign-up for our mailing list so you'll be the first to know when our next workshop is and to be the first to get the next version of our "The Reality of Freemium in SaaS" paper, updated for 2011. We'll be releasing it in November.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Pricing: Don't Confuse Features with Value

Fri, 03 Sep 2010 17:34:18 -0500

The key to any value pricing strategy is to focus on the customer and what they get out of it.

"I can't believe they do that in a spreadsheet! There has to be a better way."

And with that you set out to build a better way for "them." You create the best product you can with all of the great features you just know they need - and they don't buy.

What's wrong? Your solution is clearly better. First of all, it's ~~on the web~~ in the cloud so it is obviously better. Second, it has more features - really cool ones - that totally blow that spreadsheet away. Wait? They use a paper notebook, a clipboard, or something else? "Oh yeah... our app blows that away for sure!"

Have you ever found yourself having that conversation with your co-founder, team, spouse, or yourself? Without getting into the fact that you should have been talking to the customer first, overall, you're missing the big picture.

This "low tech" antiquated way your market currently does business is just that - the way they currently do business. No matter how horrible it seems from your point of view as a technology-forward startup founder, the reality is that they've done more business in that tattered notebook than your entire company. How do you overcome that objection? More features? I don't think so.

Don't confuse "low tech" with "low value" - you'll have to do better than just replacing or automating those processes you intend to disrupt. Remember, status quo is often your biggest competitor and status quo is very powerful. So how does that change your go-to-market plan? Focusing on technology or software probably isn't the answer. Here's a hint - Network Effects are hard to come by in a paper notebook...

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

So What do You Get with a Pricing Page Tune-Up™?

Wed, 04 Aug 2010 19:02:09 -0500

We get the question a lot and, while It might be a too little, too late since the Pricing Page Tune-Up™ service is ending on Friday, maybe this will help. We still need to get a couple more folks to sign-up so we can hit our goal of doing 50 of these, and perhaps by answering some FAQs and being a bit more clear about what, exactly, the process is and what you'll get out of the service will help.

The following is from a PDF that we send clients after they sign-up and most of it was going to appear on the new marketing site for the service. If we ever bring this service back, much of the new marketing site will be familiar to you after reading this. If you want a Pricing Page Tune-Up, you need to sign-up by Friday 8/6... its only $99!

The Deliverable - What you actually get

You will receive a 15 - 20 page PDF report via email that details the results from the Pricing Page Tune-Up™ service.

The Process - How we come up with the Deliverable

The Pricing Page Tune-Up™ is unique to each client. A Sixteen Ventures consultant will perform the following for each client:

Capture images of the following pages
1. Your main marketing page
2. Your pricing page
3. Your competitors pricing pages
Review pricing page goals and context answers provided by client during sign-up
1. Increase Sales - For many SaaS & Web App companies, a zero-touch, fully automated sales and provisioning process is the goal. Knowing this is the goal will help us determine if there are barriers, including funneling leads to a nonexistent sales team, that could hinder the achievement of this goal.
2. User Growth / Traction - This should only be associated with Free or Freemium services, but is often mistakenly attached to companies with Free Trials. If a company will charge customers but use a Free Trial to allow customers to “kick the tires”, all efforts should be put to Increasing Sales with Free Trials a step to making a sale - not as a stand alone effort.
3. Lead Generation - SaaS & Web Apps do not have to use a zero-touch, fully automated sales and provisioning process. There are always going to be situations where SaaS sales requires human intervention. Whether that is pre-sales engineering, on-boarding support, or custom quotes, there are going to be times where getting contact information and context to forward to a sales person is the only way to go. Many companies have both of these scenarios and by attempting to fully engage with all customer types from a single pricing page the message could be lost causing potential sales to be lost.
4. Market Position - Are you the low price leader? The high end niche player? Pricing has a lot to do with this. But if you have a high price and low-end messaging around that price, your market position can be hurt. Market position as defined by Sixteen Ventures is your position in the mind of your market against your competitors' value proposition.
5. Other (added by client) - Did we miss a goal? Let us know if you expected something else from your pricing page. Quite often, the only options checked are More Sales and Lead Generation. It is not clear to many companies that their pricing page can perform so many duties at one time.
Review and markup the main marketing page
1. Could include other pages if main page is not clear
2. Looking for Key Marketing Elements (KME)
On the Pricing Page the consultant will review these five elements in context of stated goals and provide visual as well as written feedback on these elements:
1. Overall Page Design - How much of the key information required to make a buying decision is above / below the fold, is it clean or cluttered, is it a “presumed sale” page or an effective marketing vehicle, etc.?
2. Call to Action - Is the main headline compelling, is the call to action tied to the marketing message of the main website, are the sign-up buttons prominent and do they have a strong call to action, etc.
3. Use of Free - Is there a free trial or a Freemium offering, is it clear what the customer gets, is the free trial length clearly defined, is the upgrade path from free to premium clear, is the free trial tied to specific price tiers, etc.
4. Value Messaging - Is this a marketing page or an information page, is the marketing messaging from the rest of the site carried over to the pricing page, does the pricing page maintain momentum from the rest of the site, etc.
5. Trust Factors - Are there customer logos present on the pricing page, is there contact information prominently displayed, are there security / anti-hacker badges present, etc.
The consultant will move through the buying or sign-up process if not clear (if possible)
Generate a priority list for each of the six areas showing what needs to be worked on immediately
Gather examples from the pricing pages of other companies to compliment our recommendations
If you listed competitors...
1. We will do the same for their Pricing Page - though with less detail while still hitting on all the same points
2. We will often explore competitor sites beyond the furnished link to bring better context to the competitor review
3. This shows you what they do right and what they do wrong - so you know where you stand and so you won't copy them!
We will generate a PDF and email the report to you on the day we told you it would arrive - though it might be delivered after regular business hours in your time zone.
Once you have a chance to review the report, if you have questions / comments and would like to setup a time to go over your results, just call (972) 200-9317 or email pricing@sixteenventures.com

Frequently Asked Questions

Is the Pricing itself reviewed?

There is a very good chance we will not provide feedback on your actual pricing! This is often counter to expectations but the reality is, you can have the best price in the world but if your pricing page does a poor job of enticing the customer make a purchase, the actual price doesn't matter. We will note when the price seems out of line with your product’s value proposition or, if we are looking at direct competitors, if your price seems inconsistent with your position against those competitors' value propositions. However, we find that most of the time companies do not have a pricing problem, they have a marketing problem!

I got my report, so what do I fix first?

While we include a Priority Guide for each of the 6 elements we examine on your pricing page, there is still that notion of where to begin overall. First, we need to be clear about something. Every suggestion we have for you is not a suggestion to rip everything out and start from scratch. The Tune-Up report should be used as a guide to develop your strategy for moving forward. To that point, there should be some low hanging fruit that can be fixed immediately. These are most often Value Messaging and Trust Factors. These elements can also most easily be tested, however you want to do that (A/B, multivariate, etc.). It is not often that simple ideas or the low hanging fruit can generate the type of results these can! As you move into harder-to-implement changes, maybe around the reworking of your sign-up or on-boarding process, you can use the Pricing Page Tune-Up™ report as a guide to developing that strategy.

This service is now gone - but learn the secrets behind it in our workshops! Be sure to sign-up for our mailing list so you'll be the first to know when our next workshop is and to be the first to get the next version of our "The Reality of Freemium in SaaS" paper, updated for 2011. We'll be releasing it in November.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Markets vs. Opportunities: The Pricing Page Tune-Up Service is Ending

Mon, 02 Aug 2010 14:10:42 -0500

As you know, we recently ended the SaaS Quick Start program - and now we're shutting down the Pricing Page Tune-Up™ service, too! Why would we do such a thing? The quick answer is that as the best SaaS consulting firm in the world (if I do say so myself) our retained client work does not give us the time necessary to dedicate to the marketing of - and market creation necessary for - the Pricing Page Tune-Up™ service. The longer answer, which is below, is where I will explain in detail the reasons for shutting down the Pricing Page Tune-Up service and attempt to teach you a lesson about the difference between a market and opportunities. Oh, and there is a great offer for one last Pricing Page Tune-Up at the end of this post.

The Pricing Page Tune-Up service is awesome and the 35 companies we've done Tune-Ups for, including those that have come back for a second one, absolutely love it. We consider it time well-spent when we perform a Tune-Up and the results reported by our clients have been amazing. But just like we tell our clients - your software/technology/methodology/special sauce is not what matters. The best product or service in the world means nothing if no one will buy it. While marketing is huge - having a market for your product in the first place is even huger. (Is that a word?)

So, the conclusion we've come to is that there is no market for the Pricing Page Tune-Up service. To make this service successful and to scale it into something worthwhile first requires the development of a market to consume the service. Something we tell our clients - but have never published - is that our definition of a market is a group of people ready, willing, and able to buy your product or service today. In fact, if they don't buy from you they will buy from someone else. Based on this definition, there is no market for the Pricing Page Tune-Up at this time - no group of people ready, willing, and able to buy the product en masse. I like to think the Tune-Up service could be lucrative in the long run, but when you are first to "market" you are tasked with the creation of that market.

This is the fallacy of "first mover advantage" - most of the time "fast second" is the better place to be. Innovation within the context of an existing market is different, and less costly, than innovation that includes market making. In fact, I originally sent this to our mailing list (they get all the juicy stuff first - you should signup) and one of our mailing list members replied to me with this quote: "The price of being first to market is the cost of creating that market; the price of entering an existing market is competition." Well put.... thanks Peter!

Given the nature of our business, I am often asked by ISVs or SaaS vendors how big the "SaaS market" is, to which I quickly reply "there is no such thing as a SaaS market, except for consultants like me that sell to SaaS companies." Yes, it is generally not helpful but helps illustrate the point that you aren't selling "SaaS" but are selling a solution to a problem - SaaS is just the Business Architecture. But I digress.

Understanding what a real market (defined above) is, I'm inclined to say that even for SaaS consulting services a true market does not exist. Instead of a market, there are just opportunities; a market being those ready, willing, and able vs. the right-place, right-time nature of opportunities. Unlike the Pricing Page Tune-Up service, or any low-price product or service, in an opportunity-based business, if the price is high-enough, a substantial business can be built off of opportunities. This is what we experience in our consulting practice.

However, if the price point is quite low - as with the Pricing Page Tune-Up - an opportunity-based model is simply not sustainable or, obviously, scalable. Low priced services need to be market-driven to ensure survivability. Put another way, high-touch sales (or market making) required to convert opportunities to deals exponentially increases the customer acquisition costs (CAC) for the service. If the revenue generated from that customer does not exceed the CAC, then it is a money loser. Unless you have substantial funding to overcome the CAC deficit you will ultimately fail in attempting to push a low-priced product or service where a market does not yet exist. If you have a runway long-enough to get you past the market building phase and into a true market, then this is a valid strategy. Just be careful and know what you can realistically achieve with available resources.

For Sixteen Ventures and our Pricing Page Tune-Up service, the creation of that market starts with educating SaaS & Web App vendors that pricing itself is important, that they need to have a real pricing strategy, and that pricing is not something that should be an afterthought. This education is far from complete - ask any Pricing "expert" out there - especially for early-stage startups. They just don't get it yet. Now take a subset of pricing specific to SaaS & Web Apps - the pricing page - and you have a significant uphill battle just to get people to realize that it is a subject they should pay attention to, never mind that they should pay you money to help them. Are you in a position to first educate (read: change behavior), and then convince people that your product is the right choice? Is there a group that is ready, willing, and able to buy your product today? If not, what are your options? Do you have the resources to create a new market or can you shift your focus to an existing market, at least while you continue to build the other market?

So we know the Pricing Page Tune-Up service is fantastic, and that it is very important for SaaS & Web App companies, startups or not. I can point you to 35 companies that would agree. Surely 35 companies shows that there is a group that finds value in this service, right? Yes, but those 35 companies were more opportunity-based than market-based. Most of the 35 came from within our sphere of influence, a group of people that have come to trust Sixteen Ventures over the years through the consumption of our articles, emails, presentations, tweets, etc. These folks have come to realize the importance of pricing in SaaS and every once in a while we hit some of them at the right time with offers for a Tune-Up. When it comes time for you to move beyond your "sphere of influence" - especially if you are a consultant attempting to "productize" or "servitize" your offerings - and start trying to land cold customers, are you sure there is a market? How will you determine this before jumping in? Do you know how you are positioned outside of your current captive audience?

Frankly, the lack of reach beyond our "sphere" is fine - only 2 of the 35 were "cold" clients - because we never did any marketing outside of that group. Unfortunately anyone can go to our Pricing landing page, and many do - and then exit - since the marketing site for the service is terrible. We just haven't spent the time or the resources (energy, money, etc.) to fully develop the marketing site for the Pricing Page Tune-Up service - the main reason being the lack of a market to build the site for. Based on some feedback we've had from those who abandoned the sign-up process recently, and the high percentage of exits overall, it is clear that the marketing site (or lack thereof) is affecting sign-ups and even worse, could be having a negative effect on the overall perception of Sixteen Ventures to those coming in cold. Whether it hurts our company isn't clear, but a bad marketing site certainly and obviously undermines the value-prop of the Tune-Up service!

So, without a market nor the time/resources/inclination to develop one, and without a fantastic marketing website that at least doesn't damage our reputation, it is time to shut down the service - or at least put it on hiatus for a while. But, like everything we do at Sixteen Ventures, it won't go away without a fight. We have done Pricing Page Tune-Ups for 35 companies - I want to say we've done Tune-Ups for 50 before we shut this thing down. Only 15 more to go. I know there are some people that have not taken advantage of the Pricing Page Tune-Up service yet, who *know* it is very important, and are just waiting for the right time. Well, times up.

I hope you take some of the lessons in here very seriously and look at your business to figure out if you are being too innovative for the amount of money in the bank. Heavily funded companies can afford to make markets - can you?

Of course, I'm also very interested in your thoughts on the lessons in this post, if you've experienced this, if you think we pulled the plug on the service too soon (I have a lot of thoughts on that, too), etc. Your feedback is encouraged.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Analysis: Reaction to Mimecast's Cloud Barometer Survey

Thu, 22 Jul 2010 11:25:40 -0500

Justin Pirie - Director of Communities and Content at Mimecast and one of the best SaaS minds in the world - sent me the results of some research they published today. The report is titled "2010 Mimecast Cloud Barometer Survey" and the research was conducted by Loudhouse Research. You can grab a copy of the PDF here - its behind a lead capture form but it is definitely worth giving up your precious contact information for.

Loudhouse surveyed 500 IT decision-makers to see how corporations view their data, how they manage the email systems that transmit information, & where cloud solutions fit into the landscape of corporate data management. For SaaS vendors, like Mimecast, this can really help you shape your messaging and understand how your customers are thinking. If your marketing, pricing, distribution methods, etc. are not aligned with the customers' expectations and requirements, no matter how good your product is, you will likely fall short of your sales goals.

Some interesting points I took from the report and my comments...

Cloud usage is up - 51% of respondents say they use cloud compared to 36% in October last year. I think this is significant since those surveyed were IT staff and they typically under report the cloud usage compared to the "business side" - purchasing, accounting, departments, etc.
In terms of usage- our survey found Email (62%), security (52%) and/or storage (50%). CRM used to be the gateway drug for "the cloud" - but now they say its email, security, or storage. Obviously this is skewed a little bit because it was the the IT side of the business that was surveyed. On the "business side" - whatever that is - there are probably new gateways drugs beyond CRM - probably utility or narrow-band horizontals like Yammer or YouSendIt. Email, storage, etc. are the low-hanging fruit of the IT department that could be moved to "the cloud" much easier than core business applications, especially proprietary or highly modified versions of commercial apps. Of course, this result is great for Mimecast which sells an service that enhances Microsoft Exchange.
In terms of planned usage - 66% of respondents said they were considering starting to use or increasing use of "the cloud". What was interesting though is that 29% of people who aren’t using cloud today are planning to in the next year. I think that number will grow, and could change substantially in the next couple of months as 2011 corporate budgets are reconfigured. For IT shops looking to begin migrating some of their infrastructure to "the cloud" I think they are going to be looking heavily at their existing infrastructure investments to see if there are ways to leverage "cloud-like" technologies to extend the life of that equipment. Without starting a debate about whether or not private clouds exist or if "hybrid" is a word that should be used in the context of "cloud," the reality is that a vendor that recognizes this reality and can help the IT group deal with it - perhaps using virtualization to slice up and extend the life of on-prem hardware while offloading the low-hanging fruit mentioned above like storage, email, etc. they'll be more effective than coming in and saying "move everything to to cloud now!"
Finally, the cost argument is back... 73% think their IT infrastructure costs are lower with cloud. Well, if you have a premium service or high-overhead and can't compete on price against some of the more commoditized services like Amazon Web Services, how do you compete? How do you differentiate your offering in a way that takes the focus off of the cost and puts it on the benefits? If you really understand your customers needs and wants, and understand their value perception of your product, you can price in line with that value perception. And don't think that "cheap" or "commodity" services like AWS don't have value-based pricing. Of course they do - their value is in being cheap (per unit). Is that the value your product or service brings? You need to be aware of this when developing your pricing.

Great research and thanks to Mimecast for publishing it and thanks to Justin Pirie for giving me a sneak peak. Oh, and if you are a "cloud" vendor and need help with your pricing or marketing strategy, contact us to get started today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Freemium expert Lincoln Murphy in Fast Company

Wed, 21 Jul 2010 13:30:00 -0500

Fast Company did a story about Freemium and Web Apps and interviewed me for some perspective. The context of the interview was the potential downside of Freemium - which I'm somewhat known for - and in particular how it relates to Freemium poster-child Evernote.

You can read the "Remember the Money: Evernote CEO Phil Libin's 3 Steps to 'Freemium' Success" article on the Fast Company site or you can find it on page 42 of the tree-killer version.

Thanks to Fast Company for the opportunity to help ensure the "other side" of Freemium in SaaS - the cautionary side - is presented in mainstream articles.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Why the SaaS Quick Start Program Will End on Sunday

Sat, 17 Jul 2010 00:08:50 -0500

The Quick Start program for SaaS & Web Startups is ending Sunday 7/18/2010. Are you sure you don't want us to help you with the Pricing, Revenue Modeling, Marketing or Business Strategy for your SaaS or Web App? The program is going away after Sunday and at least for a while, if you want to work with us, it will be on a project or retainer basis! Remember, you just have to sign-up for a Quick Start session by Sunday - we will work with you on your schedule, at your pace.

So why are we getting rid of the Quick Start program if we love early-stage startups so much? The idea for the Quick Start program came about after having to turn away so many startups due to cost issues. We wanted to develop a way to work with SaaS & Web App founders who are smart, capable, and willing to work hard, but might lack some direction or need some guidance. For technical founders, for instance, Revenue Modeling & Pricing are two areas where they often lack experience.

So we figured out a way to work with startups, in a way that they could afford, didn't take too much time, and could send them on their way to bigger and better things. They would get one two-hour meeting with one of our consultants for only $500.

This worked well at first, but then we started making changes based on:

Client feedback
Observations of how our clients really want to work
The realities of what can be accomplished in such a short amount of time
The need to let ideas develop between meetings
The need for additional research between meetings
Our desire to provide as much value as possible

Since the introduction of the Quick Start program in March, we have:

Split the single meeting into 2 1-hour sessions
Then we added email communication / homework between meetings
Then we added a third hour as a marketing gimmick after the Zendesk pricing debacle
Then we spread the meetings over a few weeks to work at the client's pace

All of this has resulted in a much different service than the Quick Start program was originally designed to be - it has evolved to what it is today - which is what you will get if you sign-up on or before Sunday - and we've learned a lot from that process. It is a wonderful service that has proved valuable for many companies, including:

MODx
New Bamboo (Pusher & Panda)
Loop11
Metaconomy
ProProfs
Conductrus
Threadbox
And many others - hopefully you too!

But we need to take a step back and look at the program in the context of Sixteen Ventures' goals and direction, and even more important, address the fact that the one-size-fits-all nature of the program isn't the most efficient way to work, especially spread out over weeks or months. Different companies, at different stages have different needs.

So, the great news is that the Quick Start program will be replaced by multiple offerings more aligned with the way our startup clients want to work, the expected outcomes, and in a way more aligned with how we work, too. I am VERY excited about these changes even though exactly what the new offerings will look like - and when they will launch - has yet to be determined.

In an effort to make sure we help as many people as possible we didn't just want to end the program without at least letting everyone get in before its too late. So, if you like working with Sixteen Ventures in bite-sized pieces, think you would (and believe me - you would), or know of someone that would, sign-up for the Quick Start program on or before Sunday 7/18/2010 - we just don't know when the other offerings will become available and you don't want to miss out!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Quick Start Program Ends Sunday

Thu, 15 Jul 2010 16:22:29 -0500

Just a reminder that we won't accept new sign-ups for our SaaS Quick Start program after Sunday 7/18/2010. If you want to take advantage of our Quick Start program to help develop the Pricing, Revenue Modeling, Marketing or Business Strategy for your SaaS or Web App, you must sign-up before Sunday. You just have to sign-up before then - we will work with you on your schedule, at your pace.

At Sixteen Ventures we work with about 80% early-stage startups and 20% established companies - in terms of client volume. It is offerings like the Quick Start program and Pricing Page Tune-Up™ services that lead to the disproportionate numbers of small startups vs. large clients. We push those programs so heavily because they give us an opportunity to help very early-stage companies that would otherwise not be able to afford guidance from a consulting company so deeply entrenched in the SaaS industry. And we're building our future "big company" clients from the ground up.

The great news is that the Quick Start program will be replaced by multiple offerings more aligned with the way our startup clients want to work and the expected outcomes. I am VERY excited about these changes even though exactly what the new offerings will look like - and when they will launch - has yet to be determined.

If you like working with Sixteen Ventures in bite-sized pieces, think you would (and believe me - you would), or know of someone that would, sign-up for the Quick Start program before Sunday 7/18/2010 - we just don't know when the other offerings will become available and you don't want to miss out!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Web Apps use In-App Purchases to Increase Customer Lifetime Value (CLV)

Tue, 13 Jul 2010 15:21:30 -0500

For SaaS vendors, the initial sale is super important; don't forget about up and cross selling to your captive audience inside the app!

One of the great things about SaaS & Web Apps is the fact that your customers and users are a captive audience. One of the major mistakes many SaaS & Web App companies do is forget that! Too many vendors put all of their time, effort, money, resources, etc. into getting people to their site and converting visitors to customers or registered users - and then they stop.

For those that are successful at getting the visitor to sign-up, they often stop most marketing activities right there. There are many reasons why a vendor might do this, but it usually comes down to these: 1) simply not thinking it is necessary to continue to market (vs. communicate) to the user / customer once they are "in" the system or 2) they think the App is so great it will sell itself - or the "premium features" will cause customers to trip over themselves to upgrade. The latter is one of the primary reasons Freemium fails.

Whether you are attempting to convert free users to customers, or up-sell existing customers, it is critical that you remember this: the same rules apply for in-app pricing pages as for public-facing pages. The ability to perform in-app up-sells to your active customer base is key to growing Customer Lifetime Value (CLV) - a key metric for measuring the success of a SaaS company. Of course, there are other factors that come into play. You have to have a great product that works, your customer service has to be great, streamline workflows, etc.

To be clear, you do not have to have a full "pricing page" in-app, but the same principles that apply to public pricing pages apply to in-app pricing screens/pages/etc. This is especially true when you force all customers to go through a "Free Trial" sign-up before they can give you their money (a topic for another day). If the internal pricing page, requires ~6 steps to get to, including a trip to the email inbox, before the customer has an opportunity to give you their money, it better convey a significant amount of value around that pricing. Why some app vendors put up barriers to taking money from customers still eludes.

The internal or in-app pricing page should be as much about marketing as the public-facing pricing page. But for many SaaS & Web App vendors there does not seem to be a marketing effort around in-app pricing, often there is just an option to upgrade that brings up an order or sign-up form. The message around it is usually "Get premium features..." which is not compelling, especially when you are not really sure what you currently have - another problem with many vendors' use of "Free."

The only difference between public pricing pages and in-app pricing pages is that your users or customers have already taken a step to move into the application and have now clicked Upgrade. This means that they are ready to be reminded of why they should pay you or upgrade - but it does not mean they are ready to buy. Assuming that clicking on "upgrade now" is a guaranteed sale can be a costly assumption and can kill CLV growth. The in-app pricing page should be as much about marketing as elements external to the application. While the workflow may be a bit different, the ideas are the same.

How is your pricing page working out for you - public or in-app? Want help with your Pricing Page and Pricing Strategy? This is a topic is covered at length in the 5 Hour video series - the Pricing Page Success Formula - I put together to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Your Web App Pricing Page Goals Should Be Clear

Mon, 12 Jul 2010 11:57:42 -0500

SaaS Pricing Pages aren't always used just to make sales; know what action you want the visitor to take and build around that.

What is the Goal for your SaaS or Web App Pricing Page? If you said "show the price" you are missing the big picture! Even if you just said "make sales" you could be missing something.

When you sign-up for a Pricing Page Tune-Up™ we ask you to tell us your goals for your Pricing Page. This is quite often the first time our clients have been asked this question - or have even thought about their Pricing Page as anything more than a price list with some fancy rounded corners and a sign-up button.

Here are the five Pricing Page Goals we present at sign-up. Whether or not you sign-up for a Pricing Page Tune-Up™ - and you really should - look at your pricing page and ask yourself what your goals are:

Increase Sales - For many SaaS & Web App companies, a zero-touch, fully automated sales and provisioning process is the goal. Knowing this is the goal will help us determine if there are barriers, including funneling leads to a nonexistent sales team, that could hinder the achievement of this goal. What barriers to sales have you constructed?

User Growth / Traction - This should only be associated with Free or Freemium services, but is often mistakenly attached to companies with Free Trials. If a company will charge customers but use a Free Trial to allow customers to “kick the tires,” all efforts should be put to Increasing Sales with Free Trials a step to making a sale - not as a stand alone effort. Do you have a clear strategy around your use of "Free?"

Lead Generation - SaaS & Web Apps are not required to use a zero-touch, fully automated sales and provisioning process. There are always going to be situations where SaaS sales requires human intervention especially as SaaS evolves to include more large-scale, complex business systems. Whether that human touch is pre-sales consulting, on-boarding support, or custom quotes, there are going to be times where getting contact information and context to forward to a sales person is the only way to go. Many companies have both high and low-touch scenarios and by attempting to fully engage with all customer types from a single pricing page the message could be lost causing potential sales to be lost. Is your Pricing Page trying to be all things to everybody?

Market Position - Are you the low price leader? The high end niche player? Pricing has a lot to do with this. But if you have a high price and low-end messaging around that price, your market position can be hurt. Market position as defined by Sixteen Ventures is your position in the mind of your market against your competitors' value proposition. Is your Pricing Page accurately representing your place in your target market's mind?

Other (added by client) - Did we miss a goal? Let us know if you expected something else from your pricing page in the comments. Quite often, the only options checked are More Sales and Lead Generation. It is not clear to many companies that their pricing page performs so many duties at one time.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Quick Start Program is Going Away - Get in Before it is Too Late!

Fri, 09 Jul 2010 17:41:34 -0500

The Quick Start Program - introduced earlier this year - has been a HUGE SUCCESS for our clients. One of our clients told us they grew their recurring revenue by $5000 after just one Quick Start session with us - literally just a couple of hours - and a week to implement the changes. That isn't just a 10x return since it is recurring revenue! In fact, check out this tweet from one of our Quick Start clients:

Sad to see it go. 1000% worth it: Quick Start Program is Going Away - Get in Before it is Too Late! http://j.mp/akAYLM /via @lincolnmurphyless than a minute ago via Twitterrificrthrash
rthrash

Other success stories include clients who we helped obtain Angel and VC funding, make strategic hires, engage with channel partners, develop Pricing plans, and streamline their overall business model. About half of our Quick Start clients considered themselves SaaS and the others were Web Apps.

Clients from California to Boston, and Australia to Denmark have leveraged the Quick Start program to kick start their SaaS & Web App startups. So many great things to report, but we need to shut it down. This was never intended to be a permanent offering from Sixteen Ventures, and the timing dictates that we stop offering Quick Start sessions.

So, if you ever wanted to get a Quick Start Session, or if you are a former Quick Starter and want another series of sessions, sign-up today. Starting July 18, 2010, we will no longer accept sign-ups for new Quick Start sessions. We will of course work with our current clients at their pace to finish out their Quick Start programs.

But starting 7/18/2010 you will not be able to get 3 hours of one-to-one time plus homework in between meetings for only $499.99! But for now, you still can.

For a limited time, for only $499.99 you can leverage Sixteen Ventures' SaaS & Web App experience and deep industry knowledge that is second to none to help you with your:

Business Strategy (Revenue Growth, Positioning for Funding)
Revenue Modeling (Recurring Revenue, Secondary Revenue Streams, etc.)
Distribution (App Stores, Trusted Advisors, etc.)
Pricing Strategy (Pricing, Pricing Page Design, Value Messaging)

But after 7/18/2010, you will not have this opportunity. Don't let it pass you by! Quick Start sessions have already worked for Threadbox, Metaconomy, ManagerLabs, govAscend, ProProfs & others... schedule yours today before its too late. Don't miss out!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Pricing Failure: The Shelfware Perception

Wed, 23 Jun 2010 00:12:47 -0500

When your pricing strategy is based on stuff people don't value, they're paying for stuff they don't want, and that's probably not good.

Back in March, SaaS CRM vendor Rightnow announced a new pricing strategy that centered around the notion of eliminating "Shelfware-as-a-Service." This was a great reminder that "Pricing is Marketing" - and that marketing worked! Rightnow put the idea out that there that customers are paying for "seats" or "users" on SaaS products that they aren't using and made the industry take notice. Brilliant strategy and it absolutely got the industry talking. For some reason, that "chatter" picked up in recently with analysts and pundits bringing this up outside of the discussion of Rightnow and in the greater context of SaaS as a whole.

Shelfware comes from the way that people bought packaged, on-premise software and didn't use it - it literally sat on the shelf and was never opened. Shelfware in SaaS comes from the idea that companies are paying for "users" or "seats" that they don't need and are now realizing that. The problem doesn't seem to be only with the notion of paying for something you don't use but seems to be with the apparent conflict with the original "promise" of SaaS as "pay as you go" software. It seems that Rightnow was smart in their anti-Shelfware campaign as they saw an opportunity and ran with it. But for SaaS vendors in general, this is not something to be taken lightly especially as FUD against SaaS, including the "Shelfware Perception," continues to propagate.

The fact is, since SaaS is so unique, it is surprising that "shelfware" would even exist in this world. It is potentially excusable in legacy software where the vendor makes the sale and the customer gets a CD or DVD with the application and is left on their own to actually install and use the product. Unless they pay for on-boarding and setup, the vendor has no idea if they will actually use it. And even then, unless they have some type of ongoing maintenance plan, the vendor will have no idea if the customer is using the product.

Even with a maintenance plan, the vendor won't have constant knowledge as to the the usage patterns of the product by the customer. In SaaS, this excuse goes away. If you are a SaaS or Web App vendor, you must monitor your customers' usage patterns and be proactive with the information gleaned from that process. Just as you nurture leads or sign-ups to convert them to customers, you need to nurture your customers to ensure they are actively using and growing with the system.

But I need to give a couple of reminders. First, remember that a great deal of the value derived from SaaS happens outside of direct use of the product. Think of the continuous improvement to the software itself, constant vigilance by the vendor to ensure business rules are up to date (tax laws, industry requirements, etc.), infrastructure upgrades, support systems, backups, etc. These are elements that the end-customer would have had to support in the past so it is clear that even if they aren't using all of the "users" they are paying for, they are clearly getting a tremendous value simply by being your customer.

Second, SaaS is not a Pricing Model! To be very clear, SaaS does not mean "per user, per month" billing. You have to understand that. SaaS is an overall business architecture and your pricing must reflect the relationship between you and your target market and the value they feel they will derive, and how they will derive that value, from your product. All external factors, including what other SaaS vendors are doing, is irrelevant. This means that you must ensure customer-facing pricing is aligned with value perception by those customers. "What's in it for them?" is the mantra that should resonate in your head all the time.

If you understand all that, it should be clear that it might not always make sense to include users, seats, etc. as a key metric in your pricing if that is not an actionable and valuable metric to the customer. The IT groups might think in terms of "users" but in other areas of the business perhaps there are better things to focus on. Transactions, value-adding features (keeping in mind how those features help the end-customer, of course), connections to other vendors, etc. You should seek to base your pricing on something that your customers will find continued value in - continued being the key word. That continuation of value perception needs to consider the notion of a growth in usage complexity, an increase in requirements, etc.

Where many vendors get into trouble is in versioning. Many SaaS vendors do "bundling" where they create different bundles or tiers based on some metrics - features, users, storage, etc. - and charge a different price for each. This is what you see on almost every SaaS company pricing page that offers price transparency. Where the SaaS vendors run into the "Shelfware Perception" issue with versioning is often in the selection of the bundle differentatiors. Far too often the bundle differentiators are not value-added, but are instead commodity or low-value items - at least in the minds of the customer (which is all that matters at this point). Is a user - the key idea in this post - a low-value metric? It can be and it is up to the vendor to understand if that is the case.

Consider this situation... What if you make your customer choose a more expensive bundle with 100 users, when all they have are 10 users, just so they can get "Feature X?" They will curse you every time you bill them and possibly start looking for an alternative solution with the correct value proposition since they are paying for users they don't use. In their minds they are paying for users they don't need even though they are clearly benefiting from, and would pay the same amount for - maybe more - Feature X. It is all about value perception from the customer standpoint and if you took the time to clearly understand user behavior and market dynamics, you would not have the "Shelfware Perception" problem in the first place.

But you thought SaaS = Per User, Per Month pricing - that clearly isn't the case. So what do you do? You can start with my 5 Hour video series - the Pricing Page Success Formula - to help you understand Value Pricing and how you can avoid the Shelfware perception by selecting Value Metrics to base your pricing on.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Pricing Evolves as Web Apps Mature

Mon, 21 Jun 2010 12:12:35 -0500

The common SaaS per-user, per-month subscription revenue model is rapidly evolving.

From time to time I feel I must remind everyone - buyers, sellers, pundits, commentators, & analysts - that SaaS is not a pricing model or pricing strategy. From the vendor side, Software-as-a-Service (SaaS) is a unique Software Business Architecture where service is the focus over the technology. From the consumer side, SaaS is on-demand functionality that solves business problems, putting the focus more on the "service" aspect than the "software" SaaS might displace.

So, the notion that if you have a web-based, multi-tenant software product you must adhere to the same pricing tactics employed by every other vendor has come and gone. Just as SaaS vendors have created some amazingly sophisticated products that are a far cry from the simple web-based CRUD apps put out five years ago - not just because the technology has improved but the expectations of the market have matured and evolved as well - the pricing strategies employed by the vendors have evolved as well. And this is a great thing!

The impetus of this post came from an article on ZDNet by Larry Dignan the other day titled "SaaS pricing evolves: Should we be worried?" In that article Dignan discusses changes in SaaS pricing, especially around the "open secret" that some companies are signing multi-year contracts with SaaS vendors which prompts him to ask the question "Is this really SaaS pricing as initially conceived?"

As should be very obvious, SaaS itself has matured since the term was coined back in 2004 and now represents every functional area legacy software did. SaaS has moved beyond the small vertical, niche or departmental apps or less "mission critical" horizontal products - Salesforce.com, YouSendIt, Yammer for example. In 2010 you can run your entire business in the cloud with real SaaS products including wide-band horizontal products that a few years ago pundits questioned whether they were a fit for pure-play, multi-tenant SaaS.

These include such "not fit for SaaS" products as: Human Capital Management (HCM) from Workday and Enterprise Resource Planning (ERP) from Plex to Material Requirements Planning (MRP) from Rootstock or Supply Chain Management (SCM) from SPS Commerce. So as the complexity of what is available as SaaS and the requirements around the solutions (customization, on-boarding, training, etc.) evolve, it only makes sense that the pricing must evolve, too.

But it isn't just the increased complexity of the products that has caused an evolution in SaaS pricing. SaaS vendors now realize that they are bringing value to a market specific to their product, and the problems it solves, and they need to be aligned with the customers in that market. This means they should not worry about what Salesforce.com is doing if they aren't a CRM product and aren't competing with SFDC. Not all understand this yet - we work with clients to change their thinking on this every day - but savvy SaaS vendors are realizing that they are still competing with legacy software vendors, they might compete with other SaaS vendors, and even more important - they compete with the status quo - whatever that might be; an Excel spreadsheet, a clip board, or a home-grown software solution.

I think the crux of Dignan's question is that the evolution of SaaS pricing has steered further and further away from "utility" pricing or this idea of only paying for what you use in the truest sense (paying in arrears, being billed by small usage metrics, etc.). The reality is that "utility pricing" has only seemingly come to fruition at the Infrastructure-as-a-Service (IaaS) portion of "cloud computing." Amazon's EC2 product in their Web Services line is a perfect analogy for utility-style computing.

With EC2, you spin up a compute instance (virtual machine), it does some work, and when it is done it spins down - like a toaster where the power company only charges you for the kWh used while making breakfast. Except that even Amazon has long-running charges for storing your VM image on S3, persisting data between sessions, etc. But you still only pay for what you use. Predictable recurring revenue that grows over time (increases CLV) is still the goal, even for "utility computing" companies like Amazon.

But sorry, SaaS is not utility computing - though because it is not a pricing strategy itself if that is aligned with your market, you could certainly price that way. It is critical to understand why SaaS is not a "utility." This list is not complete, but just remember that a great deal of the value derived from SaaS happens outside of direct use of the product. Whether that is continuous improvement to the software itself, constant vigilance by the vendor to ensure business rules are up to date (tax laws, industry requirements, etc.), infrastructure upgrades, support systems, backups, etc.

These are elements that you as an end-customer would have had to support in the past. But now, you do not. Even more important are the Network Effects - the fact that a system becomes more valuable to everyone as more users join. From improving the user experience, to populating the system with actionable information not available to users of legacy software, SaaS is different and that is relevant to everyone, from the vendor to the end-customer.

So yes, SaaS Pricing has evolved - and will continue to evolve - and this is a great thing. It means SaaS is entering new markets with new value propositions and also indicates an increasing level of maturity among the vendors. For those who were only interested in SaaS because of the promise of "utility computing," sorry to disappoint. But for those who understand the incredible value that SaaS can bring to the end-customer, the notion of better alignment in pricing to those customers means a greater adoption rate for SaaS and less barriers to acceptance by the customers.

Do you need help ensuring that your SaaS Pricing is properly aligned with your target market and value proposition? This is a topic is covered at length in the 5 Hour video series - the Pricing Page Success Formula - I put together to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

5 Web App Pricing Mistakes to Avoid

Fri, 11 Jun 2010 16:20:35 -0500

For SaaS Companies, Subscription Revenue is a no-brainer, but doing it right is not.

There are many pitfalls Web App & SaaS companies need to look out for when it comes to pricing. If you keep the "Pricing is Marketing" mantra running through your head and "What's In It For Them?" (them being your customers) as the framework for that marketing, you will avoid many of these mistakes:

Under Value Your Offering
Focus on Margins
Just Guess
Copy Others
Avoid Pricing Altogether

This isn't a "Top 5" list, these aren't in any particular order and the list is certainly not complete - 5 seems like a nice odd-number - but these are five things that SaaS & Web App companies (startups or not) should look out for and try to avoid. What are others? Have you done any of these and had a good or bad experience? Please share your experience in the comments.

Under Value Your Offering

An issue we see very often is that SaaS & Web App companies completely undervalue their offering. This is not limited to startups, and certainly not limited to SaaS or Web Apps. But with a web app and the pedigree of being a "cheap" alternative to traditional or legacy software, this is pervasive. This boggles the mind since the vendor takes on all the infrastructure burden for the clients, updates the software daily in many cases, reacts quickly to market changes, customer requests, etc. And yet, SaaS vendors in many cases put a low price on their offering. Why?

The reasons are many and varied but from what we see is a twofold problem. First, many SaaS and Web App companies are started by technologists. These technologists often feel "burnt" by legacy software and want to invoke change and completely undercut the "competition" - not understanding that they actually solve the problem better or more efficiently and could offer a *lower* price and undercut the legacy players but don't need to do so in such dramatic fashion. In many cases, the opportunity is there to offer exponentially more value that they could actually charge more for; to have a low price-point on this makes no sense.

For many technical founders - and the thing that drives nontechnical people crazy - is that building the product is often relatively easy. The notion of "that's just a CRUD app with some filters and a couple of calls to the vendor's API" to a super talented developer might be the difference between a supplier to Walmart adhering to their latest mandate or losing a product line with their biggest customer. Get it? Easy for you (which is great) might have tremendous value to your customers.

Of course, the biggest reason for Under Valuing comes from the SaaS company failing to clearly understand the use cases or the potential of the product. Who is the customer? Why should they care? What's in it for them? Or more precisely... what is the Value Perception of the customers? Here's the hint, outside of IT/Infrastructure stuff, it is generally not the technology. Just as with the other problems of under valuing, when a company's executive team - or startup founders - are highly technical, they tend to focus on the "hard stuff" that they had to do, or that the application / service does and forget about the real value the customer would find in the product.

For a very honest, real-world, from-the-trenches view of this be sure to check out Chris Ashworth's great article titled "My 2 Bucks on Pricing" where he talks about his issues with pricing his software product too low, the feedback from his customers, and what happened when he raised his prices (along with a major feature update, by the way).

The bottom line is that you need to get out of your own head and focus on "What's in it for them?" - or what your customers get out of the service. This will change your game. If you under value and thus under price, you might have to raise prices later and unlike Mr. Ashworth's experience above, it could end disastrously - so try to avoid undervaluing and get it as right as possible first.

Focus on Margins

When we see margin-driven pricing it is generally for one of two reasons. 1) Trying to match what was in your investor pitch or 2) to meet what you think is a "good margin" (based on the net margin of publicly traded SaaS companies, perhaps?). If you consider "Pricing is Marketing" for even a second, you can understand that those two reasons as a driver of Pricing Strategy will lead to failure. Besides, backing into a price based on an investor pitch is a great way to make that entire pitch a wasted effort... investors aren't as dumb as you think. That is good to remember, too.

Inside-out or Bottom-Up pricing, where you take what it costs you to land and support a client plus some type of margin, is irrelevant. If your costs are high (support, infrastructure, customer acquisition, etc.) your market doesn't care. There is a price range they will support based on the current value proposition and if you can't cover your costs within that price range, too bad. You either need to figure out a way to lower your costs, figure out a way to get them to pay more, or accept that the market opportunity you thought was there, and your ability to capitalize on it, isn't. Of course, the best way to deal with this is to figure out a way to improve the value perception of the market ("What's In It For Them?") so that they will pay more for the product or service.

But wait... doesn't pricing have something to do with finance? Something to do with accounting? Aren't profit margins kind of important? Of course, but once you've covered your costs, everything above that is marketing. If you can't cover your costs with the price that the market is willing to pay, and you can't position your product or service so that the market will pay more, then you have not found a product / market fit. The market doesn't care what margin you want or what your cost of doing business is; they only know what they'll pay for the perceived value that your product or service delivers.

Pricing is so much more than just some numbers in a spreadsheet or on a Pricing Page. This is the basis of our Pricing Page Tune-Up™ service - many times its more about the presentation and structure of the marketing around pricing than the pricing itself. Here is a great example of that idea related to fruit for sale in a cafeteria - it wasn't the price, it was the presentation!

Just Guess

Ask 100 startups to answer honestly how they came up with their pricing and you are likely to find a statistically significant number that will say they just guessed. And not an educated guess, either. For many SaaS and Web startups, thin-air is the second most popular place to pull pricing from. The problem with freshly minted startups is that they lack time in the market so they don't understand customer behavior, buying patterns, etc.

Of course, time in the market is of little use, though, if there is not data to go along with it. SaaS & Web Apps that leverage an automated sales process have the ability to capture a great deal of the information associated with sales, churn, and usage unlike other businesses that require secondary systems to and processes to "capture" that data. This doesn't happen magically, though, so it is up to the company to ensure that they actually build-in the ability to capture that data - something to consider when architecting your SaaS & Web Apps, for sure.

But even when there isn't time in market, and where there aren't many competitors to look at, or when the competitors are not leveraging the same revenue model, you still shouldn't guess! When we help startups in this position with pricing, we use proxies or analogs (sometimes called benchmarks) which are companies that aren't in the same market or don't do the same thing but have a similar model. We apply a great deal of scientific as well as experience-driven processes to that data in an effort to try to get it as right as possible out of the gate.

But... none of this matters - analysis of historical sales data, proxies, etc. - if there is not a Pricing Strategy in place first. It is critical that SaaS & Web App companies come up with a pricing strategy that is part of their marketing strategy if they want to develop pricing that is aligned with their goals and the market's value perception. Collect data, analyze it along with other market information, and make sure you have a Pricing Strategy in place and you'll be much closer to getting it right out of the gate.

Copy Others

For those that didn't guess, under value, or focus on margins, copying another company's pricing is the logical option, right? No! I've written about this a couple of times before. Whether it is another company's Pricing Page or the pricing itself, don't copy. Do the work required to ensure your pricing comes from a pricing strategy that is part of your overall marketing strategy. (Is there a theme here?). But we have seen companies, startups and later stage alike, that copy competitors pricing exactly. This makes more sense, I guess, than those who copy companies who aren't even in the same business!

You absolutely should know how the competition charges (what revenue metrics they use, billing cycles, etc.) and what their pricing is - but only so you know how you are different. If they are the market leader and have set the tone for years, and you come in with a different model because you have a deeper understanding of the market, you will need to know how to position that different pricing in the eyes of your market. Even if you know this is how the market really wants to pay, what they want to pay, etc.

But let's look at the topic of "copying others pricing" from a different angle. Did you copy everything else your competitors do? Probably not. In fact, you are in business because you thought you could do it better, more innovative, more aligned with what the market wants, right? So why would you copy their pricing? Oh, because you think they got the pricing right? That could be a seriously costly assumption!

Avoid Pricing Altogether

Finally, the other big mistake we see are companies who want to avoid pricing altogether. Whether this is by offering the product for free or using Ads, this happens. Of course, Freemium isn't used to avoid pricing since the premium portion of the service requires a price. We often see companies launching their product with absolutely no revenue model at first just to "get traction" to gauge interest. First, this is no indicator of "interest" in a paid service - only a free one. Next, without a very well-thought-out plan for how to move from Free to a paid service, this could seriously backfire - this includes more than just a Pricing Strategy, but a strategy for ensuring you don't alienate the free user base.

Further, for companies that have a free service but use advertising as the primary revenue stream, here is an interesting insight - even ads have prices! Look at a company like Spiceworks, a B2B SaaS company that just recently hit 1M users and who's primary revenue stream is ads. They really only have ~150 customers - their advertisers - and you better believe they have a strong pricing strategy around those ads. You cannot avoid pricing unless you avoid doing business altogether.

Pricing is a critical piece of doing business - whatever the business. For SaaS & Web Apps that leverage an automated sales process, where the customer goes to the marketing website, to the pricing page, through the buying process, and then uses the product - without any human intervention - pricing is critical. There is no sales person or consultant there to answer objections or read body language. No one to offer discounts rather than lose the sale. For this reason alone, it is critical to get your pricing as right as possible out of the gate. To do this requires work and avoiding the 5 mistakes above.

Want help with your Pricing Page and Pricing Strategy? This is a topic is covered at length in the 5 Hour video series - the Pricing Page Success Formula - I put together to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Sixteen Ventures Guest Posts on Other Sites

Fri, 04 Jun 2010 18:28:56 -0500

The past couple of weeks have been really busy here at Sixteen Ventures. Working with some great SaaS companies, doing a lot of Quick Start sessions with some amazing Web App & SaaS startups, and of course our Pricing Page Tune-Up™ service has been cranking out Pricing Page reviews and recommendations for lots of SaaS and Web App companies.

So we haven't had a lot of time to post much over the last couple of weeks. Luckily, some of our content got picked up as Guest Posts on other sites and a post I wrote a while ago setting the stage for my involvement on a panel at HostingCon finally went live.

Enjoy more Sixteen Ventures content from around the web:

Sandhill.com - SaaS Acquisitions Create New Opportunities

HostingCon - For ISVs, Moving to the Cloud can be Foggy

47Hats.com - If Our Prices Are Wrong, We’ll Just Change Them Later

Thanks to those awesome folks for giving us an outlet to reach a bigger audience!

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Your Web App Prices Are Wrong? Change with Caution!

Wed, 26 May 2010 18:22:15 -0500

Sometimes you have to change your SaaS Pricing Model; just make sure you do it right!

Alternate title for this post: "The Great Zendesk Price Debacle of 2010"

If there was ever any doubt that the "Pricing is Marketing" mantra of Sixteen Ventures is true, just look at the SaaS and Web App pricing related stories that have come out lately. From the positive, where RightNow used changes in pricing in an attempt to disrupt the status quo in the SaaS CRM world, to the extreme negative press generated by Zendesk - and the accompanying customer backlash - last week when they jacked up their prices. Since I promised a "post mortem" on the Zendesk pricing announcement, I'll focus on the latter of those two examples in this post.

I'm going to lay it out plain and simple so there are no misunderstandings: you need to get your pricing as right as possible out of the gate - don't just guess or make up numbers. Once you are in the market, you will learn new information, customer buying behavior, feature bundling problems, etc. This is like the Mike Tyson quote "Everybody has a plan until they get punched in the face." This isn't terrible, as long as you got it close in the beginning - but if you are off by a significant factor, or if you didn't train to fight Mr. Tyson, then you are going to have a hard time changing your pricing without hurting your existing customer base, or you're going to get knocked out as soon as the bell rings

Pricing is not static; rather, it is fluid over time, moving with market conditions, time in market, market segmentation, etc. This doesn't mean it changes every day, or week, or month, but it is not something that you figure out once and then never think about again - until you need to make a huge adjustment. You want to avoid huge adjustments, and you can do that by getting your pricing as right as possible out of the gate and then monitoring it over time. Ensuring that your prices are part of an overall pricing strategy that is aligned with your overall marketing strategy is critical. It appears that Zendesk didn't get their pricing close to right at first and then had to make some significant, sweeping changes; and they paid for it - and likely still are.

It is even more critical for startups that don't have time in market and historical data to pull from to start with a solid Pricing Strategy. If you understand why you are developing the pricing that you are, you are more likely to get it right. Ask most startups what their pricing strategy goals are and some statistically significant amount will say something about "making sales." Then they'll ask what you mean.

But many companies don't get it even close to right at launch - likely because they neglected to develop or execute on a real pricing strategy. So what if they need to make a big change, like Zendesk did, and raise prices? Is it even possible to do this without a negative outcome? The answer is yes, but you need to have a strategy and execute according to plan. Some people will always be upset by a price increase - they will be vocal in their opposition. Let them vent and then let them move on. Have you successfully raised prices without causing a backlash? Please comment on this post and share your story!

Engage or Alienate

If you have a mailing list, a registered user base, or active customers using your app, you have what we refer to as a voluntarily captive audience; exploit it! When you need to raise prices, there are only two options with your users and customers: engage or alienate. Its your choice - I suggest the former. One method is to find your top users - the oldest active users - and get them to help you. Engage (there's that word again) with them. For startups with a beta user base, this is your chance - the kids these days are calling this "customer development" - whatever the term is, get out and talk to your users and existing customers. Maybe even call them on the phone.

Find out what these folks want, if they'll pay for it, what they'll pay, how they'll pay, etc. Just like anything, this should be executed according to a well thought out plan. Not only will you learn a lot while you engage the user base, you could even create evangelists. The more engaged and respected users and customers feel, the more they'll be happy to help you - which is what you're asking for.

The backlash from the Zendesk users was more likely that they felt betrayed and less about the actual pricing. Pricing is neither good nor bad - its empty - its all about perception and the betrayal likely clouded the perception of their customers (that, coincidentally, is very Zen-like itself). If Zendesk had actively recruited their customers to help or otherwise made sure that every customer knew something was going on with pricing, the customers might not have revolted in such a way. In fact, had Zendesk done this, they would have been made aware of some of the use cases that they should have known about, but obviously didn't consider - the ones that lead to the 300% price increase some customers mentioned.

But to find out on a blog or via email after the fact that the prices are now 300% higher is a slap in the face. Consider that your current users (especially early adopters, beta testers, etc.) and customers want to feel special - like they're in a club - and by telling outsiders first, you take away that special feeling of belonging that we all long for. At the end of the day, would Zendesk still have alienated and irritated a segment of their customer base? Sure. But it would have been a lot smaller and they would have had the rest of the customer base to defend them - rather than add the attack!

Grandfathering is NOT the Answer

Okay, so Zendesk admitted that they messed up with their price hike. They probably needed to do something to respond to the backlash, but what they did seems to further indicate that they really didn't have a strategy going into this. What did they do? They "grandfathered" existing customers and are only applying the updated pricing to new customers. Let me make this very clear: "grandfathering" prices is not an acceptable alternative to having a good pricing strategy or failing to execute on it!

So, while the tactic of grandfathering prices might appease some of their customers, what is the cost - in real dollars, PR, position as the market leader, etc? Why would a company backpedal on something that was good - their new pricing? Ultimately, this all comes down to lack of a strategy, lack of preparation, and an overall inability to execute if they did have a plan. It shows they didn't talk to anyone outside of perhaps some "star" clients and now it shows that the new customers are going to get the "bad" pricing. Pricing is Marketing and what message is grandfathering sending?

Remember, it isn't like this grandfathering is a secret - especially when the CEO posts this to their blog and it gets picked up by Techcrunch and every other tech news site - exactly Zendesk's target audience, by the way. It is clear that those who were members on or before 5/18/2010 paid one price and anyone else that joins after that date has to pay more. Period. What a great way to entice new customers to join, right?

Some commenters on the Zendesk site and Twitter said that they were talking to Zendesk about becoming customers in the days leading to the price hike and were not told about the pending changes nor given the option of locking in "legacy pricing." Way to start that relationship off on the right foot! I imagine sign-ups slowed immediately following the announcement and will be slow to come back until this gets swept under the virtual rug. Which it will, but that 2Q update to investors will be interesting, to say the least.

While the majority of this post has been talking about how to engage existing customers and users, it is very important to consider the impact of these changes on new customers. Does your value proposition correlate to the new prices? Obviously Zendesk didn't talk to their customers to get to this point so by continuing with the pricing, are they going against the customers' value perception? What about trust - are new customers going to trust that they too will be grandfathered on the next huge price increase?

It should be obvious that you just don't want to get to this point. It is much better to be transparent leading up to the pricing change than during the backlash and accompanying backpedaling. Forced transparency is ugly! But what happens if you do find yourself in this situation? How should you handle it? There are a lot of different ways to work with this. Keeping in mind that Pricing is Marketing, you want to make sure you clearly understand the Value Perception from the eyes of the customers who will pay the higher price. Nobody wants to pay a higher price just for the privilege of doing so. What's in it for them? Can we give them something more?

Perhaps you could consider one of the following if you must raise prices and are backed into a corner where grandfathering seems to make sense:

Grandfather privately - reach out to the legacy customers and tell them that their existing pricing will be in effect for some amount of time
Offer to let new customers lock-in "legacy pricing" for some amount of time if they sign-up in the next 30 days
Add value to coincide with the increase in price - this is the preferred option - is there a much-requested feature or service you can dedicate some resources to work on in an effort to appease them?

So, if grandfathering isn't the answer, what is? Strategy - plain and simple.

Intentional Alienation - or - Firing Unprofitable Customers

There is the reality that sometimes it is just wise to get rid of customers that cost more than they are worth - a strategy that was undertaken by Ning when it dropped its use of Freemium. Raising prices to force low-profit or high-cost customers to leave your company and hopefully bring their troubles to a competitor is a valid strategy. Just be prepared for the backlash! From what I've seen, it is usually the low-end customers that do the most complaining - they have more time to do that sort of thing which is likely why they are low end clients.

They will be loud, vocal, and spread the bad word everywhere they can. When they do, you know you did the right thing - now they will move to your competitor and be unprofitable for them. Win - Win. In dealing with them, it is wise to just let them vent and then let them move on. If you have a strategy in place and know that this will happen, it is easier to deal with them and you won't be as tempted to give in to the noise.

But to be clear, Zendesk obviously didn't just irritate the low-end customers - they hit everyone equally hard. Again, this is something you will want to avoid. By having a complete pricing strategy at the beginning, you will know who your target audience is and perhaps save yourself from having to deal with a similar mess.

The great thing is, with SaaS or Web Apps, you can actually create different versions of your application for different target market segments - in this case low-end and high-end customers - with the same code-base! This is why we advocate decoupling the pricing strategy from revenue model in SaaS and why single-instance, multi-tenancy is a key component of real Software-as-a-Service.

A great example of a this is the company behind SendPepper and OfficeAutoPilot. They have one marketing automation SaaS product that, through feature configuration and skinning, serves two very different market segments. Nothing like being able to send people to "the competition" and having that company be... you. Behold, the power of single-instance multi-tenancy in SaaS that few companies really understand and take advantage of.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Zendesk Pricing Fiasco; Many Lessons to Learn here

Tue, 18 May 2010 14:36:32 -0500

When a SaaS company raises it's prices – which might be required – communication is key.

It is time for SaaS & Web App startups to sit up and pay attention. Pricing is very important to your venture but not just to ensure you make a profit or cover expenses. It is so much more than that and you should seek to get it as right as possible out of the gate. Too many SaaS and Web App companies, startups or not, think that they'll just throw some numbers together, put it on a pricing page and that is the end of it. If they are leaving too much on the table, they'll just raise prices until people stop buying and then lower it a notch. Simple. They would be wrong.

Pricing is marketing. We say it all of the time, but what does it really mean? Well, look at Zendesk, a growing startup with $6.5M in funding and, until this morning, very well-liked. They decided to raise their prices and did so in a way that has caused an enormous amount of negative backlash. In some cases, customers are reporting a 300% increase in what they'll pay to use Zendesk. From the outside, this seems to be indicative of no real pricing strategy (as a part of marketing) and certainly no or at least very poor tactical planning around the price increase. Some simple polling on Twitter shows that Zendesk did not actively engage their customers in the process prior to raising prices.

My immediate reaction on Twitter to the backlash:

When you need to raise prices, there are two options: engage your user/customer base or alienate them. Its your choice. #zendeskless than a minute ago via webLincoln Murphy
lincolnmurphy

Did the price increase correlate to an increase in perceived value by the end customer? How is their market position now? How have they helped the competition? Look at this random tweet I grabbed when searching for #zendesk... this is why pricing is marketing!

Anyone got any recommendations for someone considering dumping #zendesk after their crazy stupid level price increaseless than a minute ago via webAdam Bartlett
abartlett

We will do a post-mortem on the Zendesk Pricing Fiasco of 2010 later, after more details emerge and the dust settles, but It is very obvious the planning around their price increase was either poor or was executed poorly. Just to be clear, Zendesk did not reach out to Sixteen Ventures for help with their pricing nor with the execution of the price increase, but they should have. This is something we help companies with all the time. Whether its a price increase, moving from beta to production, or from Free to a Paid or Freemium offering, Sixteen Ventures can help you. Please don't wait until its too late, though we have been known to clean up some messes...

We have always preached the message that Pricing and Revenue Modeling are vitally important for SaaS & Web App companies, startups or not. Unfortunately, this kind of thing happens a lot, and when the company is lower-profile than Zendesk, it doesn't get this kind of coverage. But it happens more than it should and that is because the message that Pricing is Marketing and vitally important to your business just isn't being absorbed.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Is Your SaaS Pricing Page a Momentum Killer?

Mon, 17 May 2010 18:36:11 -0500

The Pricing Page for a SaaS or Web App company that uses an automated sales process, where marketing and e-commcerce are tied with automated provisioning of the application, live and die by their marketing websites. For these companies, the most important page on that marketing website is the pricing page. Really? Yes. Read on...

Truth be told, especially in startups, we see at least 75% of all effort going into the application itself, with the remaining 25% going into everything else, including marketing. Since pricing is marketing, just a fraction of that 25% of effort is focused on this incredibly important factor in the success of a business. Developing pricing is often overlooked or put off until later - which sometimes never comes, only to have someone eventually throw some numbers on a page and call it a day. This is a great way to fail, by the way - an over-engineered app that no one will (because they don't know about it) or can (because it is priced wrong) buy. Too many startups you'll never hear of end up this way.

From our experience, too many SaaS and Web App companies do not have a real pricing strategy - that is, an actual strategy around their pricing decisions - and the window into that strategy, their pricing page, often makes this abundantly clear. Look at enough pricing pages for SaaS or Web Apps and you will notice a disturbing trend; seldom does a pricing page convey the same message as the overall marketing website. In fact, it is almost as if most companies say "I've done such a great job building my marketing site that when someone clicks 'Plans and Pricing' that it is just a formality at that point." It isn't, and you just killed any momentum you had built up because your pricing page is ineffective. Have you wondered why your bounce rate is so high on your pricing pages? There you go.

When we review pricing pages for our Pricing Page Tune-Up™ service, we look at over 100 different points in 10 different categories. One of the easiest fixes most SaaS or Web App vendors could make has nothing to do with their pricing itself, the display of the versions or pricing tiers in grid form, or even where the sign-up buttons are located. The very first thing to look at is their main Call to Action - the thing that says, "hey, you made it this far, let me remind you of why you're here so you'll hit the buy button"...

Understanding that the pricing page should maintain, or even better, build on the momentum generated by the rest of the marketing site, being the culmination of all of that effort where the buying decision is ultimately made (with sign-up or payment the next and last step), why would a company let this opportunity slip through their fingers? Because they don't view the pricing page for what it is: the most important page on your marketing website. There are always naysayers, but what I've found is that those who argue against this fact are simply trying to justify their lack of attention to their pricing page or overall pricing strategy - but I invite you to try; the comments are open.

Lets look at the pricing pages of three similar SaaS or Web App companies and to keep this post from getting entirely out of hand, we'll focus on just one small aspect of the overall design of the pricing pages; the Call to Action. Since Rags Srinivasan just called out some versioning improvements for Mind Mapping app MindMeister over on his Iterative Path blog, we'll stick with that theme and look at them, plus two of their competitors - comapping and Mindomo.

First, what is the Call to Action? At Sixteen Ventures we describe this as the main headline of the pricing page... or the first thing beyond the header that viewers of the page will see. This should be aligned with your overall marketing message! The stronger and more aligned with the "what's in it for them" to the end-cusotmer, the strong the Call to Action is said to be. Unfortunately, for the three companies we looked at here, there is simply no strong (or even passable) call to action. All of these vendors fall into the ill-conceived category of "presumptive close" - if you get to this page, you will buy.

MindMeister Main Page:

MindMeister Pricing Page:

Mindomo Main Page:

Mindomo Pricing Page:

comapping Main Page:

comapping Pricing Page

Unfortunately none of the key marketing elements from the main pages of any of these companies are present on the pricing pages, let alone in the main Call to Action. Each company simply presents the pricing page as if it is a given that the marketing job is done and now it just a matter of taking the customers' money. This is an incorrect assumption that could be costing them money.

Do not assume that their purchasing decision is made and that all you have to do is present three options and a buy button. Don't let your Pricing Page stop the momentum created by your marketing website. Understand the reason for the pricing page and how important it is to you as a SaaS or Web App company. Use the pricing page to remind the customer of what's in it for them should they decide to sign-up.

All of these pricing pages reviewed need a lot more help than has been detailed in this post. But sometimes just making one tweak will lead you down the right path so hopefully this was helpful to those three companies and you.

However, I would suggest that MindMeister, Mindomo, comapping, along with you, should purchase the 5 Hour video series - the Pricing Page Success Formula - I put together to help you get the most out of your Pricing Page.

For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

Cloud Acquisitions Create New Opportunities

Wed, 12 May 2010 11:55:25 -0500

So you've built a killer Web App and Google just bought your big competitor; is this good or bad for you?

Merger & Acquisition (M&A) activity around SaaS and Cloud seems to be heating up. Legacy Software, network and hardware infrastructure, and even Web 1.0 companies are are gobbling up SaaS pure-plays left and right these days. For every Salesforce.com buys Jigsaw (a SaaS company buying a Web 1.0-turned-2.0 company) or SuccessFactors buys CubeTree (SaaS buys Enterprise 2.0 firm) there are more deals where a legacy software company buys a SaaS / Cloud / Next Generation whatever company.

Some deals are small and fly under the radar, like EZFacility buys eFit Financial. Others are larger and really shake up an industry, like the announcement this week by Warehouse Management System (WMS) firm Red Prairie that they acquired SaaS WMS Smart Turn.

This uptick in M&A activity, which really started to heat up in 2009 at the tail end of the steep downturn when prices were low and SaaS companies that needed out wanted out, prompted Evangelos Simoudis from Trident Capital to write a great post detailing why now is a great time for M&A activity around SaaS. It makes sense for him to really understand this aspect of the "SaaS Market" since his firm has a large portfolio of SaaS investments and it is in the best interest of his investors for many of those companies to find a big exit.

But what is the real motivation for these acquisitions from the buy side? For SaaS, Cloud, or Web companies, the acquisitions seem to be a head start to certain functionality more than anything else. Salesforce.com could have built their own crowdsourced Rolodex, but instead used their massive cash reserves to just buy one in Jigsaw. SuccessFactors bought CubeTree to give it a head start in enterprise social networking likely as a hedge against SFDC's Chatter.

So what is the motivation for Legacy Software companies to buy SaaS companies? Likely its not to add features since there is a technology disconnect. Is it the recurring revenue? Yes. Is it the existing customer base that they can cross-sell their existing (or future) products / services to? Yes. Is it the jump start on a path to SaaS? Yes. Is it the "SaaS DNA" that their organization might be lacking? Absolutely yes!

Evangelos in his post on M&A activity in SaaS thinks it will be mid to late 2011 before legacy companies really ramp their acquisitions of SaaS firms. We saw an uptick in activity starting in mid-2009 with some major legacy vendors brining us in to help vet SaaS companies for acquisition, but I think it was just the tip of the iceberg. As he states, the ramp will happen when vendors realize that doing it themselves is harder than just buying a company; and it will likely be due to their lack of "SaaS DNA."

Whenever Sixteen Ventures is involved in due diligence or market intel work for a legacy company seeking to acquire a SaaS firm, a lot of effort is spent in understanding that "DNA" that makes up the target firm. Legacy companies still don't "get" SaaS so they think by acquiring or "injecting" SaaS DNA into their firm, the entire organization will overnight become a "SaaS company."

In theory that is nice, but in practice I'm not so sure. SaaS is often fundamentally different than the core business of a Legacy Software company. It just is. And while the "SaaS DNA" that they brought in could be beneficial, it is usually the acquiring company that is unwilling to change that causes the acquired DNA to whither away and die; the host is rejecting the transplanted material.

There are numerous examples where even a progressive web company like Google buys a company and the founders leave as soon as they are allowed to by contract and the product dies on the vine. While something companies don't often admit to, there are times where acquisitions occur specifically to kill a threatening competitor and lock-down the executives in tight non-competes for a few years.

But this isn't all doom and gloom! In fact, it is actually good news as it shows that every time a legacy company acquires a SaaS firm, a new opportunity is born in that space. For instance, if you have a SaaS WMS solution, you might have looked at Smart Turn being bought by Red Prairie as a death knell for your firm. A well funded market leader, possibly going IPO, just got acquired by a legacy market leader and now they'll eat your lunch.

But there are other potential outcomes. First, if the company that acquires your competitor has their own Legacy Baggage (negative market sentiment, a distrust of their practices, over priced, etc.) that baggage will spill over nicely to their "new On-Demand product." Plus, the new company will likely cave to pressure to do one-off installs and customizations of their product since they don't really understand SaaS, leading to the same negative market sentiment that befell the acquiring company.

In some cases, we recommend that firms start a new company from scratch or continue to operate the acquired company as a wholly owned subsidiary to keep from commingling the two. Trust is a HUGE factor in SaaS and many legacy software companies do not have the trust of their customers. The customers are happy to use their software if they get to run it themselves but would never want the vendor to run it for them. How can you take advantage of their newfound baggage?

Just as interesting is the serious likelihood that both companies have used negative marketing campaigns against each other or their delivery methods/business architectures (SaaS is insecure, legacy software is antiquated and broken) and now they are one. How do they position their products now? This can create an amazing amount of market confusion for another vendor to take advantage of.

Finally, there is always the possibility that the acquired company will die on the vine, never having a chance to really take off under the direction of their new owners. Perhaps the acquired company will linger in the purgatory that is a "hybrid" organization (both On-Premises and SaaS) while the executives, with strong non-competes in that space, wait out their prison sentence. This creates amazing market opportunities for savvy and strategic SaaS vendors.

Sixteen Ventures can help you perform market intelligence or due diligence on SaaS or Cloud acquisition targets, help you take full advantage of those strategic acquisitions and that new "SaaS DNA," or help you exploit the opportunities created by the acquisition of your competitor. If you would like to discuss retaining our services, contact us to get started today.

Author: Lincoln Murphy (@lincolnmurphy on Twitter)

SaaS Distribution: Time to Change the Channel

Wed, 12 May 2010 01:56:27 -0500

Do Web Apps require, or can they benefit from, distribution through a 3rd party?

I've written in the past about SaaS channels and how most people are doing it wrong, and there seems to be renewed interest in this topic. Unfortunately, things haven't changed much. Since this is "software" as-a-service, people cannot get away from looking at things from a legacy software channel point of view.

The recent heat-up seems have been pushed over the edge by the announcement earlier this month by Salesforce.com of their partnership with VMWare (and their subsequent acquisition of Gemstone) to introduce VMForce. This partnership will supposedly provide the ability to run native Java server applications on the Force.com platform, in addition to apps written in SFDC's proprietary Apex language. This seems to be similar to other PaaS offerings, like Heroku, that use "open" languages and technologies, but have proprietary functions, data stores, and services to interact with.

Just to be clear, I'm not talking about integration by one SaaS application with other SaaS or On-Premises applications through open APIs and custom code or via 3rd party services such as Boomi or connectors like Cazoomi Snaps. This type of integration is absolutely critical if the vendor wants to become an integral part of the ecosystem its customer-base is building. Lack of integration options by SaaS vendors will be their downfall as companies move to "the cloud" and want one version of the truth, single-sign-on, etc. But integration is not a channel issue or a SaaS issue; it's just an issue. This is why IBM just bought Cast Iron Systems. But I digress...

The thing that has analysts and pundits excited by things like VMForce is that now the "channel has something to do"... as if the only reason for a channel is to build on or extend a platform. Extending an application, and essentially building a platform, a la SFDC's Force.com and AppExchange can be a fantastic opportunity for the core vendor and the surrounding ecosystem; but its exactly that - an ecosystem. This has very little correlation to traditional channels and more closely resembles developer programs in legacy software companies, but that analog doesn't do it justice. Further, the notion of a true ecosystem is an opportunity quite unique to SaaS or other single-instance, multi-tenant "cloud" applications or platforms. Celebrating that technology VARs finally might be able to add value to SaaS or Cloud apps is not progress. In fact, its a rerun from legacy software and an attempt to justify the existence of VARs.

There has always been a HUGE opportunity for SaaS and the channel that only a few companies are really taking advantage of. The reason? Other than the lack of industry support and promotion of these opportunities, it requires the SaaS or Cloud (or whatever) company to stop thinking like a "software" company and start understanding just what they have at their fingertips. They are service companies who can provide tremendous value not only to the end-customer but to intermediaries that help the SaaS vendor reach those customers. In some cases, its possible to directly monetize the relationship the SaaS vendor has with the intermediary.

Of course, progress isn't helped along by the traditional channel consultants or former VP Channes at XYZ Legacy Software Corp who wants to get into SaaS or "Cloud" trying to force their traditional channel management best practices square peg into the round hole that is SaaS. There is so much Legacy Baggage coming into SaaS and Cloud (due to bandwagon-jumping) that it is really bogging down the substantial progress that seemed to be happening in terms of next-generation channels, network effect, ecosystem, etc. Announcements like VMForce that are actually quite revolutionary unfortunately don't help because they can so easily be twisted to fit nicely into that legacy baggage being drug along by "industry insiders"

At Sixteen Ventures, we have always looked at SaaS as something far beyond "software" delivered over the web. Whether its SaaS or Web Apps, if there is multi-tenancy and you're solving a business problem, the opportunities for channels, specifically distribution via Trusted Advisors, is significant. Forget traditional VARs, the real opportunities are in understanding who the end-customer is, who they trust, and giving tools to everyone that sits between the vendor and the end-customer so that all involved can add, and extract, value. If there is a third party involved at the "technology level", they aren't a traditional VAR; likely they're an integrator using the services or tools from above. Think of the relationship between SaaS vendor, intermediaries, and end-customers as a value-chain or value-network.

Look at a company like Xero, with their SaaS accounting package, and how ~50% of their business is via channels; specifically CPA and Accounting firms. They work through the trusted advisors to get to the end-customers they want to use their products. But Xero isn't just giving spiffs or a cut of revenue to those professional firms; that would be misaligned with the business of their channel partners. Xero actually helps the trusted advisors do more of their CORE business by giving them tools, insight, visibility, etc. into their end-customers' activity, data, and operations. This is far more valuable to Xero's partners than some cut of monthly revenue and much more aligned with the business model of their partners.

Would CPAs or Accounting firms want to touch installed software? Some have in the past, including affiliations with products like QuickBooks, Great Plains, etc. because it made sense on paper; they shared the same end-customer. But the logistics didn't work. Few non-technical companies want to get involved in "software;" so Xero simply provides a service. And everyone in the value-chain wins.

It is great that VARs finally have something to do with "the Cloud," but for SaaS vendors, the message being sent by the "industry" is still off-point. Just because you don't have some technical layer that will allow you to engage technology VARs doesn't mean that channels are not available to you. On the contrary. There are likely far more lucrative channels out there if you understand how to find them; look for Trusted Advisors that share the same end-customer with you and figure out how to help them do more of their CORE business while also helping the end-customer.

It is up to you to ensure that you provide value not only to the end customers but to your channel partners as well. Value Pricing - which is the main focus of the 5 Hour video series - the Pricing Page Success Formula - will help you develop your Value Message and Transparent Pricing Strategy to better communicate the value proposition to everyone in the value chain. While this series is not specific to channels, many of the lessons are useful within that context.

For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory Price of ONLY $297.

Go get this amazing video series for only $297 right now. It is up to you to take your business to the next level... get the videos and let me help you.

Now go grow your Recurring Revenue and let's get you to your goals!

- Lincoln (@lincolnmurphy on Twitter)