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Jeff's talk on monetizing your SaaS application, extended remix version for Cloudstock!
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value created - some discount
= your price
simple, universal pricing formula
value created
mea
surin
g
Businesses: mostly rationalMake Money
orSave Money
BOTTOM LINE
Consumer
OR
Business
ConsumersAreNotRational
Businessesare PrettyRationalEvery decision driven two factors...
IncreaseRevenue
ReduceCosts
ORMeasurable Value
Whiten your teeth with Colgate Dental Proadvertisement
Xlearn more
No measurable value?Stick ads on it!
measurable value
business customersNeat!
have a framework for
so
be proudand put a price on
your junkbits & pieces
value generation
Start
Does my service generate value?
Back to the drawing board How Much Value?
YesNo
Cost Based Pricing
Margin =ProfitPrice
Profit = Price - Cost
Price = Cost / (1-m )
Price = Cost / (1-m )
Price = $10 / (1-0.5)
Target Margin: 50% (0.5)Costs: $10
= $20
What if your unit costs are basically zero?
Web Server Web Server
MySQL
$150 / mo
Value Based Pricing
Are they......saving money
by replacing a more expensive solution? #
...saving money on e"ciency because of you? #
...generating more revenue because of you?
HOW MUCH?
HOW MUCH?
HOW MUCH?
Are they......saving money
by replacing a more expensive solution? #
...saving money on e"ciency because of you? #
...generating more revenue because of you?
HOW MUCH?
HOW MUCH?
HOW MUCH?
- discount = YOUR PRICE
Competitive Pricing
Red Herring, see previous slide.
$$$
Cost Based Value Based
Competition
sanity check:
do they converge?
IsIt?
Customer Feedback Loops
Split Testing
$1,000 / Mo + 0.001 / Msg
$1,000 / Mo + 0.001 / Msg$0 / Mo + 0.10 / Msg
$1,000 / Mo + 0.001 / Msg$0 / Mo + 0.10 / Msg
Talk to potential customers, learn the value prop during private beta
(which can be free)
Start conservative, drop prices if needed
Raise prices if merited, but
don’t fool people :)
IsIt?
If you’re unsure, just make more pricing
options.
Maybe I need mustard instead
Audience Segmentation
Quantities
Quantities
Features
Features
Support
Support
Industry Segmentation
Industry Segmentation
O!er less attractive options
(that clearly, only suckers would buy)
Price Anchoring
Price AnchoringCHEAP!
CHEAP!
Figure out value generated
Test with Potential Customers
Free Private Beta
Go Public with a Price Tag
Adjust as necessary, ideally down
Use price levers & anchoring to Segment
