When people discuss just how important technology is in the world today, they are mainly focusing non the improved hardware which has been created, and the important software which knits it all together. In fact without software packages and suites so many businesses would find themselves in difficulties. We use software for HR, accounting, machine management, customer management and thousands of other functions within the world of business.
Whilst the customer understands the importance of this software, author Josh Melick believes that those selling the software are missing a beat when it comes to their pricing structure. Josh’s article on his own personal blog lays this out completely, and teaches us why the three dimensional structure is so important when it comes to these pricing plans.
Josh first alludes to the dangers of an all-inclusive sales approach, something which many startups rely on in order to get their product out there as quickly as possible. The reason why this poses a problem is that it is a single sale which all-but closes down the relationship with the customer. This prevents any opportunities for upselling in the future and it also means that they are selling a product which is then not able to generate revenue as business costs rise.
Most SaaS companies will use a structure which features a number of packages such as bronze, silver and gold option. Each of these packages will be broken down based on features offered, yet so many focus on one dimension as being the differential. Josh talks about how the dimension of usage on its own is simply not enough, and it doesn’t allow for the provider to value its products and their true worth.
The two dimensional approach is that which follows the same structure yet will offer different plans for each based on usage and number of users. This does bring things closer to an optimum level yet in Josh’s view it still doesn’t quite get the right amount of pricing for the product which is sold.
The Importance of Time
Josh talks about the fact that with one and two dimensions, it becomes much more difficult to raise pricing in order to match the rise in costs for the business to keep offering the product going forward. Price hikes are an essential part of SaaS and this is why Josh discusses the third dimension of time. Buying a software package for a single year, means that the provider is able to slightly adjust the price each year to match costs. This is something which doesn’t put customers off renewing and it is something which enables the provider to offer deals to the customer too. If a 10% increase is optimal, the provider could for example offer an 8% increase only, if the customer upgrades their package.
Ultimately this is the best way for SaaS providers to ensure that they can offer a great product and still get paid well for it.