Try not to price SaaS contractson a per user basis, or at least don’t show the customer that you’re pricingper user. Instead, use a value-basedapproach where you can show the customer a 20x+ return on the overall use ofyour product. Once you’ve set pricing,delight the customer by allowing unlimited users on your platform. Here’s why:
1. More users make you sticky. As one CSprofessional at our portfolio company Apptopia shared with us: “More users onthe platform cost us nothing but make us very sticky. We now have 20 champions at the customer asopposed to just a senior level champion that may not be using the product asmuch as personnel below them. If we’rein multiple departments in an organization with many users, it becomes muchharder to say no one is getting value.”
2. Upsell based on product upgrades. Opportunities forupsells come when you introduce new features and products, not when thecustomer wants to add seats. If you’recharging the customer for every new seat, your software just became unscalable,whereas the point of software is to allow your customers to scale theirworkforce exponentially (not linearly) and drive productivity. Charging for each user prevents your customerfrom improving their margins, makes you a variable cost in the wrong way, andoverall makes you far less valuable to the customer.
3. Per user cuts both ways. If you charge peruser and your customers are expanding, you benefit. However on the flip side, if you charge peruser and your customers shrink, you get hurt. Your dollar retention metricssuffer not because your product is deficient but because your pricing isdeficient. In a recession, softwarecompanies that price per user see the ugly side of per user pricing.
4. Per user pricing leads to other issues. As one foundershared with me, “Per user pricing incentivizes users to share accounts andpasswords with coworkers, which leads to cyber security vulnerabilities and, inhealthtech, HIPAA violations.” It alsoleads to real revenue leakage due to the sharing.
If you’ve got a churn problem,offer your customers unlimited seats. Price based on value to the customer and to you. Said another way, price based per product,not per user. Your gross and net dollarretention metrics should improve markedly. Shoutout to our portfolio companies Apptopia.com (mobile data on everyapp) and Divvyhq.com (content marketing collaboration software) for inspiringthis article.
Thank you for your readership. Seemore blogs and SaaS data at blossomstreetventures.com. Email the author at sammy@blossomstreetventures.com.