Customers aren’t always concerned with the price of a service when making a purchasing decision for brands they know well. Startups don’t have this luxury and have to attract customers with a pricing scheme that is highly competitive and designed to attract the ideal customer. Then, once the brand has established itself and has a stable brand valuation within the market, it can start to offer the same product at a more profitable rate.
The problem is in knowing what level to initially set your pricing at. Going too high can ward off many of the ideal customers, while going too low can attract the wrong customer, devalue your product and cause unnecessary losses.
Startup SaaS businesses have a particular problem with this as there is often a lot of competition in the market and many of the known suppliers have a large proportion of the market. Yet being competitively priced with a strong marketing portfolio can attract customers to your SaaS startup.
So how can you set the initial price for your startup? What factors should you be considering in your calculations?
1. What They Get Access Too
Many young software businesses think that customers are only paying for use of the programs but they want more than just the bytes and bits of your program, they want a customer experience that will make them feel valued and will support them. Therefore, consider the time you will spend on making the sale, on customer services and for any maintenance or updates of the program within your price calculations.
2. What Is The Perceived Value
The customer doesn’t know what the objective value (real) is of your product. They will have a perceived value that is probably vastly different from the objective value. You need to consider this and match the perceived value. If you can provide good service and excellent customer care, the customer’s opinion can change and this can lead to price increases.
3. Customer Grouping
This is about your ideal customer, so do some research on what they would expect to pay for your product. Certain customer groupings will pay a lot less for some products than others – therefore you want to aim your pricing at the correct user group.
4. The Market
If there is a lot of competition, prices have probably stabilised around a couple of price points. If you vary your prices considerably, customers will wonder what is going on and question the validity of what you have to offer. For instance, price too low and they may consider that you don’t offer the same value, or price too high and they may think you are only interested in money. Check your industry and see what the price points are and which customers are using which competitor.
5. Your Product’s Differential
If you product has a lot to differentiate it, especially from market leaders, you can control the pricing a little more. However, you will need to establish and advertise how your product is different (and better) than your competitors.
6. Complexity Costs
While having a tiered pricing system is great for offering customers choice, it can also add costs to your business and make selling difficult. Therefore, consider whether a tiered system is really something you would like to pursue. There might be other options for you which are better.
Once you have a customer onboard, it is far easier to keep them, as price has a limited impact upon their purchasing decision, they much prefer good customer experience. However, to attract a customer when you don’t yet have a brand reputation can be tough unless you set your initial price right. Consider how you are going to set your SaaS startup pricing and how your potential clients might react.
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