IP Applications Billing and Payments blog

Long ago in a company far, far away we used the expression "Space, the final frontier" for any event that dealt with building layouts, floor space and office allocations.  That's because, like the Star Trek's outer space, inner space was loaded with swarms of angry aliens, exploding stars and voracious wormholes.  Nothing was ever easy - everyone involved had an opinion (that usually included getting a rare and coveted window office), everybody hated their assigned space (unless it was a rare and coveted window office) and no matter what care you took to be transparent and logical somebody important would rip your plan to shreds and you'd have to start over.

Well, putting together a pricing model for SaaS billing seems to be a lot like allocating office space.  We're having a tough time coming up with something that's both simple and explainable.  The prices are fine, it's the logic behind them that keeps unraveling in the face of critical questioning.

Why is it so challenging?

Everybody wants a pricing plan that's simple to explain and implement and that makes sense.  The notion that "Our price for doing your billing will be a percentage of your revenue" has developed some momentum in the SaaS billing market.  It's a great little model - simple and easy to implement but pretty much impossible to defend under critical questioning.

We found this out early on a conference call with a prospective client we'll call "Targetco".  When we said we wanted a percentage, the Targetco finance guy on the call said "Really?  If we lower our price we can pay you less?  Why does that make sense?" Of course, what he really meant was "Hold on there buckaroo - do you really plan to charge me more than you'd charge to do the same work for a cheap product?"  There aren't very many ways to say "Yeah, pretty much" without feeling a trifle foolish.

So what did we come up with next?  Well, we started over with an earthshaking new concept: customers want to buy something tangible for a fair and competitive price.  Actually, I have to admit I'd heard that somewhere before.  Anyway, we got started by taking an interesting trip down memory lane. 

IPA's been doing subscriber management and billing for years, so we dug into our customer records and built up a market price model for online billing services.  It helped us to understand why the specific prices that we charge specific customers were fair and made sense to both parties.  We were on the road to a defendable pricing model.  Interestingly, the percentages it yields look kind of familiar, but the cool part is that it makes business sense.

So how did we use this newfound wisdom?  We distilled all the information down to a few really critical parameters and then we put prices to them.  Our next step will be a simple pricing tool on the www.SaaSAutomation.com website that lets a potential client estimate their costs for our service as a percentage of their selling price.  It'll be interesting to see how it works for site visitors.  While it delivers a percentage answer, the underlying model is built on specific prices for specific services - no filler, no padding, no awkward silences at our end of the phone call.

We're thinking it'll make prospect conference calls fun again.  We'll have really good answers for the finance guy's questions!