On the Practical Founders Podcast, I had a compelling discussion with host Greg Head about the complex challenges and significant opportunities in SaaS pricing strategies. I shared insights from my experience, focusing on the critical aspects of understanding customer segments, the necessity of rational pricing metrics, and the impact of delivering differentiated value beyond just the price.
Key topics we covered in this episode:
- AI’s impact on SaaS pricing
- Differentiated value’s impact on price level
- Importance of understanding customer segments
- Structured approaches to target markets
- Use of pricing metrics
Timestamped Outline
12:00 Guidance for business inflection points
22:27 Companies vary in targeting customers, ongoing journey.
31:01 Understanding buyer’s situation, context, and needs.
33:01 Determining perception of product prices into ranges.
37:29 Caution in tracking costs.
47:09 Southwest Airlines strategically competes with drive times.
50:49 AI’s impact on pricing and monetization challenges.
54:01 Companies need to have monetization conversations about AI.
01:00:48 Lessons from successful CEOs on scaling businesses.
Potent Quotables
Strategic Decision-Making in SaaS Pricing:
“Many companies would like to be everything to everyone, but we have to decide which customer segments will we serve, where we are best suited to play and win, and who we are going to target.”
— Dan Balcauski
Understanding Value in Context:
“How much you value or and as a proxy of value, how much you’re willing to pay? I use those terms very, explicitly. But how much you’re willing to pay or how much you value water is going to be different if you’re on a road trip and stop at a gas station, versus if you’ve been wandering in the Mojave for the last week.”
— Dan Balcauski
AI Hype Caution:
“Do not make the mistake that our brethren in the crypto blockchain world made, where they said, “Hey, this product now has blockchain in it,” and all of our customers went, “I don’t get it.” I see a lot of that now with AI, where it’s like, “Hey, now we have AI in there, and we’re gonna charge you – besides maybe your per-user metric, we’re also gonna throw in something that gives you 2,000 user credits or tokens per month,” and everyone’s going to look at you and say, “What’s the token? Why would I use this thing? What does it do for me?” Don’t show customers your underpants.”
— Dan Balcauski
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