Best practices for B2B software startups

Software Monetization - Introduction to packaging and pricing

Simon-Kucher & Partners

“While SaaS companies invest immense amounts of time in product development, the average SaaS company only spends 6 hours pricing its product”

Introduction to packaging & pricing Sound packaging and pricing are key enablers for both scaling your growth and optimally monetizing your product. Developing the right packaging & pricing strategy generally follows six key steps:

Step 1: Identify the building blocks Identification of building blocks starts with understanding your product, not only from an internal or development perspective, but from the perspective of the user. Translating technical features into marketable building blocks of functionality that make sense to your (potential) customers is key. Step 2: Assess the role of each building block Once you have defined your products’ functional building blocks, it’s time to investigate the role of each building block. When thinking about packaging there are four high level roles that we differentiate based on their perceived value and expected adoption: Leader, Filler, Killer, and Add-on.

Step 3: Determine the packaging structure What the right packaging structure is for your product, depends on many different factors (e.g. customer needs, strategic goals, growth phase, product usage, market dynamics). An example of a winning packaging structure is the Good/Better/Best structure. We found that 65% of the top performing SaaS companies use this packaging structure as it enables customer acquisition and monetization by providing a clear upsell path*.

*Simon-Kucher Software Benchmarking Survey 2020 Step 4: Select the price metric A price metric determines how you charge your customer. And we learned that ‘how’ you charge is even more important than ‘what’ you charge. A common example is charging by the number of users that have access to the product or platform, this however is not necessarily the best metric. There is a clear trend ongoing across the globe to usage-based pricing. The right metric for your product is the one that aligns price with the value delivered by your product.

Step 5: Define the price model A price model defines how usage of the product affects your customer’s total bill. An example of a price model is a regressive model; price per unit of usage goes down as usage goes up. If you want to incentivize usage of the product, this might be the right metric for you. Step 6: Set the price level Finally, when everything is in place, it’s time to set price levels. The key to setting price levels is making sure that the price is aligned with the willingness-to-pay of your customers. Finding the right price point is a delicate exercise, but rest assured, we have the tools to help you on this journey. The key is to apply different sources to triangulate results. Customer research should in any case not be excluded!