Neil B.
CRM Architect and CRM MVP at Slalom Consulting (hiring SharePoint and .NET experts)
What's your preferred pricing strategy for software-as-a-service?
We're thinking of changing our pricing strategy for our hosted Microsoft CRM service, and I was wondering if you had a prerference?
Increase currently charges for its service using the following pricing formula: monthly fee = hosted infrastructure fee + (number of users * user subscription fee). e.g. £250 + (10 * £50) = £750 per month for a 10-user service.
Most of our competitors charge a flat user subscription fee (e.g. £75 per user per month). So their price is the same as ours for 10 users, but their price becomes more expensive for 11 or more users.
However, there is a simplicity in the flat fee that prospects like. Our model requires more explaining, and sometimes that leads to confusion.
What do you think? Which of the two models do you prefer? Can you think of other pricing strategies that we should consider?
Answers (17)
Morning Neil.
I think a flat fee works best. Really easy to work with (accounting / contracts etc). Another option is to tier the flat fee based on number of users (£75pp up to 10 users, £70 for 11-30 etc.)
I don't have any hosted solutions but I understand that you can also charge on top of the user license fee a maintenance fee to cover support / upgrades etc.
Tony
Neil -
Two things spring to mind:
1) Whilst your example is not complex, I think your approach risks countering to the message that "on demand" is easy to understand - i.e. "need to switch more people on ? -then it's £XX"
2) Make the price simple & spend your time elucidating/building the value of the "service overlay". Getting an on-demand service switched on is one thing, getting it to do what you need is more important.
Tiered buying (Tony W's idea) is pragmatic too.
HTH - David
Links:
Neil,
I think that if buting a crm system then some level of complexity on pricing is not an issue- i would stay with subsription but with server and user costs you can always present it as 1 monthly figure if people want a direct comp to sfdc or netsuite- ( call me if you want to discuss) Tim
PS have you received your contract from Matt yet?
Neil,
Having worked as a hosting solutions specialist for Microsoft, two models come to mind:
First, the flat fee pricing, in which you'd include the cost for infrastructure in the per-user price, is easiest to understand, and allows for easier competition with other hosted CRM services like Salesforce.com.
Second, I would consider offering a separate price for a dedicated environment (I am assuming you are using shared infrastructure for the flat-fee option), and a lower price per user (or lowering this price as users increase).
This combined method of pricing allows you to present an easy to digest package for most users, but at the same time leverage your technical expertise in you ability to host an isolated, dedicated environment for their CRM app -which many companies will appreciate also.
good luck,
Vincent Rais
Vincent R. also suggests this expert on this topic:
Phil S.
Managing Consultant at PA Consulting Group
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I agree with Tony Walker - simple per user, tiered, pricing.
You could go down the transaction pricing route but if it were me I would start with per user tiered until I knew what the transaction pricing would be in reality based on at least a years usage.
Neil,
I don't find 250 + 50 per user hard to explain. I think the real question is where do you want to be most competitive - under 10 or over 10. And of course price shouldn't be everything.
Jerry
Hi Neil,
Our company specializes in automatic provisioning of Hosted Microsoft (CRM) environments. I've been involved in lots of Business Development Sessions with customers in this field and can assist you on this as well.
The new release of MS CRM will allow for a shared hosting setup that will allow for a very competative pricing. Most of the current hosting pricing is around dedicated setups on the old version as that was still required. Even if hosted.
Be sure to not only offer the low-priced shared model and that will be offered directly by Microsoft as well using Live.com. Make sure you can upsell and cross-sell your customers and offer customizing / pre-build selectable customized template support to differeniate yourself from others, including Microsoft.
Having a clear price-policy and price plan with a front-page price calculator will solve most of the issues you are thinking about now.
I would recommend the following book to read :
Blue Ocean Strategy ( see link )
The solution to the adoption of small-usage customers is to offer exactly what they require and give them something in the same ( Single-Sign-On ) environment that brings good value but doesn't cost much, like Windows Sharepoint Services. And do it as if you would run a 24*7 online shop that also offers great support.
Also make sure you automate this all, as far as possible to keep your operating cost low and profitable.
Do send me a note if you like more information.
Links:
This is a complex question. At the very least, the price has to be less than the perceived value, otherwise the customer will not stick. Having said that, I owned pricing for a SaaS company back in the early days when nobody had ever heard of SaaS. It is combination art and science. However, in determining pricing, there are many factors to consider, here are just a few:
- Your pricing model relative to competition
- the customer will want to know why your model, whichever
you end up choosing, is more advantageous for them
- this needs to be (relatively) easy to explain
- Understanding how the budget process works at many companies
- funds are typically a fixed amount
- hence, most customers/companies like the idea of a fixed monthly
cost (without having to budget for a variable).
- Profit
- At what point is the price model profitable for your company?
- How long will it take to get to profitability? Or, if already there,
how long for each incremental 1% to the bottom line?
- Top-level view of various pricing models (which can either stand alone or
be mixed and matched)
- Concurrent license
- example: WebEx
- Named user license
- example: Salesforce.com
- Usage based pricing (i.e., per minute, per byte)
- example: text messaging or long distance telephony
My experience is that simplicity is usually the best course in how pricing is presented, but I say that with many qualifiers. And as one of the other posters mentioned, the ability to build the value of your service in the customers mind will be very important as well.
In any event, the pricing model should take into consideration the external environment (customers and competition) and internal environment (profit, organizational know-how -- systems, processes).
Hope this helps . . .
Troy W.
Data and BI Architect
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A monthly flat fee per user with annual renewal is your best bet and is what many SAAS vendors do now. From the vendor perspective, SAAS is all about Monthly recurring revenue. This in itself eventually pays for infrastructure and support especially in your second year of renewals. From a customer perspective you choose Software as a service over on Premise solutions to avoid all the costs and hassles of purchasing Hardware, software licenses and support. If you start charging for these, you lose your differentiators against on premise competititors. Its all about the reduced Cost of Ownership benefits of SAAS. You might even find that if you deal with enterprise level customers, an Infrastructure cost might move a SAAS purchase decision away from an operational budget expense to a capital expense, thus slowing your sales cycle down.
Hi Neil,
Good to hear from you - my philosophy is the simpler the better. However you do need to take into account the size of the customer, as there would be economies of scale that need to come into it.
To be honest, your pricing is not that complex. Flat rate + Price per user. Thats easy.But customers do like things to be as simple as possible and like to easily compare with your competition.
In addition customers also like a sliding scale costing - I know MS is not geared for it but if you charged a flat fee per user (incl the infrastructure cost) - you would be able to put in a sliding fee structure....by discounting the infrasructure portion as the scale grows.... This might seem more attractive to customers that feel there 500 users should be charged less than the 10 users....
Good luck and keep us posted on how things progress
Heath
www.ispartners.co.za
David H.
Global Marketing Network Online Community & CPD Director; Director of Marketing at Aqua Energy Scotland Ltd; Author
Pricing is arguably the most difficult 'P' to set, from the Marketing Mix.
(Our M mix is now at 17 Ps, compared to the original 4).
It is usually nothing to do with value, and everything to do with convenience (mainly for the supplier). We all still price using a cost-plus-markup policy unfortunately, which leaves the customer with nothing to genuinely compare, as they rarely compare like-with-like. Especially when it comes to intangible, service-oriented propositions, where each is trying its damnest to differentiate or be a true VAR.
Would welcome dialogue on this! This is where professional marketing can really help the ICT world.
David Hood
Links:
Neil;
We are working on a hosted pricing strategy. We are investigating partners for a N. American solution, and trying to determine a pricing strategy.
Christian S.
Marketing Director - Accenture Mobility Services
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Dear Neil,
I do agree with some of the answers provided so far that your pricing strategy should be "value-driven" and understandable.
Here is an excellent presentation on this topic from Jim Geisman, president of MarketShare, a software pricing consultancy.
Please, do not hesitate to visit my blog at www.saastream.com for further insight on this and related topics.
Hope you will find that helpful,
Christian Smagg
csmagg@gmail.com
www.saastream.com
Links:
I see pricing models as balancing two objectives. First, pick a model that's closely aligned with your real costs. Second, keep it simple. These two goals are naturally in conflict with one another, and so any pricing model you choose means that you will be absorbing some risk. As a general rule, the simpler the model, the greater the risk.
That said, I always err on the side of simplicity. Make it easy for your client to make the initial purchase, and make it easy for them to buy more. In the two models you've outlined above, the first option makes it hard for your client to make the initial purchase, but makes it easier to make additional purchases. The second model makes the initial purchase easier, but the ongiong purchases more difficult.
Why don't you use a slightly higher flat rate for users 1-X, and a lower rate for users X and above?
Adam P.
Owner, Sitemap Limited and Information Technology and Services Consultant
We use a flat fee but we have broken the CRM offering into modules, so with have “basic CRM”, “marketing” and “workflow” modules. We are also multi-tenanted so the infrastructure costs are not so relevant.
David K.
Entrepreneur, and management and technology consultant
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Personally, I'd favour the flat fee. Apart from simplicity, one of the attractions of hosted CRM is the low entry cost. If you start with £300 per month, you've lost that attraction. If you're trying to attract small customers, this is a problem.
If you have a flat fee and it turns out to feel too expensive for customers with high user counts, you can always use discretion to do individual deals, or even formalise it by reducing to £xxx per month per user after the first yyy customers.
The only real downside of the flat fee is if the risk of ending up with a bunch of unprofitable 2 or 3 user deals (because they waste lots of your time and never grow). With the hosted CRM market still being pretty young, I would be inclined to take that risk and take action to (a) mitigate costs of small deals, and (b) get good at converting smaller deals into bigger ones.
