How To Perfect Your SaaS Pricing Using The 10-5-20 Rule
Have you mastered the black arts of pricing your SaaS product? In this video, I’m going to share with you how to perfect your SaaS pricing in the early days using a simple 3 step framework.
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If nobody’s pushing back on your pricing…
That’s a problem.
You might be thinking:
“But Dan.. isn’t it a good thing that everyone’s saying YES to my price without resistance? Why would I want to rock that boat?”
Simply put:
Without pushback, you’re leaving profits on the table and making your team complacent.
Two things that you literally can’t afford to be doing in the early days of growing your SaaS company.
If hearing this adds even more anxiety to your pricing decisions, let’s take a deep breath.
I’ve got you covered.
In this week’s video, I break down the 3-Step formula for nailing down the PERFECT pricing level that maximizes your profits, keeps customers happy, and creates a forcing function for you and your team to focus on creating massive value.
At a high level, here are the 3 steps:
1. 10x value
2. 5% more
3. 20% pushback
The 3 steps all build on top of each other to produce the coveted 10-5-20 rule.
But if there’s ONE thing you pull from this week’s video to start adding immediate profits, it’s this:
For the next 10 customers you talk to, raise the price of your software by 5%.
And then please… whatever you do… play it cool when they say “yes”.
Don’t crush the vibe by acting surprised 😉
The key here is to test the upper limit that your market’s willing to pay for your solution. And then keep testing until you find that line of resistance.
Might make you sweaty palmed at first. But do what you can to stick it out.
You owe it to your team, your product, and your bottom line.
Give the full video a watch and then let me know how your next prospect responds to that 5% increase.
Dan “profiting through pushback” Martell
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ABOUT DAN MARTELL
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“You can only keep what you give away.” That’s the mantra that’s shaped Dan Martell from a struggling 20-something business owner in the Canadian Maritimes (which is waaay out east) to a successful startup founder who’s raised more than $3 million in venture funding and exited not one… not two… but three tech businesses: Clarity.fm, Spheric and Flowtown.
You can only keep what you give away. That philosophy has led Dan to invest in 33+ early stage startups such as Udemy, Intercom, Unbounce and Foodspotting. It’s also helped him shape the future of Hootsuite as an advisor to the social media tour de force.
An activator, a tech geek, an adrenaline seeker and, yes, a romantic (ask his wife Renee), Dan has recently turned his attention to teaching startups a fundamental, little-discussed lesson that directly impacts their growth: how to scale. You’ll find not only incredible insights in every moment of every talk Dan gives – but also highly actionable takeaways that will propel your business forward. Because Dan gives freely of all that he knows. After all, you can only keep what you give away.
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Wow actual practical advice from a YouTube video without the fluff! Well done, thank you
Glad you enjoyed it!
Still struggling to price your SaaS? Execute the 3 Step Formula in this vid to maximize profit, keep clients happy, and motivate the heck out of your team
Hey Dan, there was a typo in the email you sent for this video. It read as “hot to…” instead of “how to…”.
Nice framework! ?️?
Dan these are amazing resources for our company. Please keep it up.
I won’t be stopping / got too much to share … glad you enjoy!
DM
awesome advice…practical and can be executed and tested easily.
Tom, that’s what I aim for … glad it landed.
DM
Very informative video. ?
Thx
That is quite a shirt!
@Dan Martell One day, I hope to own a shirt as fine as that 😀
Likely Logic Shinny 🙂
I always enjoy and appreciate your videos, Dan! I agree that most entrepreneurs are probably underpricing their product when first starting out. I like your 10x rule, as when you think about the amount of value you’re adding to your customer’s life, you can justify charging a higher price, both to them, and to yourself. I’m not sure about the 20% rule though. I wonder if a better way might be to really know your numbers and how much real net/net cash flow profits you make off a customer each month, AND their projected lifetime profit value, and then use that info to test your pricing in relation to your conversion rates? (and I’m talking real profits and real spendable cash flow, not just bogus accounting numbers here) For example, let’s say each new customer nets you a residual real cash net/net profit of $15/month at a price point of $39, and a real cash net/net profit of $25/month at a price point of $49, then you can plug these numbers into your conversion rates to see what yields you the highest overall profit per 100 customers. So maybe you can convert 30% of leads who sampled your product when the price is $39, and this drops by 20%, to a 24% conversion rate when the price is $49, so the math per 100 leads is then: 100 leads x 30% conversion x $15 profit = $450 total monthly profit, versus 100 leads x 24% conversion x $25 profit = $600 total monthly profit. So having the higher price, even though you lose 20% of your customers, still makes a lot of sense. In fact, you could justify this price increase until you lose/get pushback from 40% of your customers, and your conversion rate drops all the way down to 18%. (because 18 customers x $25 profit = $450 profit, the same as 30 customers at $15 profit) I guess if you’re running a business to extract profit to live on, getting a few dollars more of pure profit from each customer is often worth significantly more pushback and a significantly lower conversion rate. It might be different of course with a SaaS business where you are hoping to sell it (in which case revenue & growth are usually way more important than profit anyways) or you’re building a business that has a model dependent on network effects and capturing the market quickly. In any case your video gave me something to think about and made me more aware that in my case, where I’ll need profits to live on, I can’t be afraid to test higher pricing. Thanks!
Never got the “rocket demo thingamajig” to the email I put in. BTW It’s criminal you don’t have more views and subscribers. Test more baity titles and thumbnails.
I did. Nowhere. I even used two different emails. Nothing to both. Both are gmail though.
Did you check your spam folder? Just tested / it’s working.
DM
Great video Dan thank you
Great stuff dude, you’re shaping my startup
FromFame Great to hear!
I found this incredibly useful Dan. Makes total sense. My SaaS product is priced per unit. 99p per unit per month. Some customers would have 200 units on the system at any given time. Others may have 3,000. Is there a formula for discounting that you know of? The ceiling would probably be 8,000-12,000 units. Maybe discounts could be kicking in at 1,000 2,500 5,000 10,000 etc. I want it to make mathematical as well as commercial sense. Any ideas Dan?
Dan Martell Many thanks Dan. Appreciate the steer. I like the idea of the support level discount.
Dan Martell Many thanks Dan. Appreciate the steer. I like the idea of the support level discount.
I always look at pricing from a customers perspective and the size of organization they are vs. how they’re using my product as the bigger they are, the more resources (and needs) they might have so the pricing usually goes up as segment grows.
As for discounting … figure out what # would entice them to pre-buy or use the product more … if that’s not a factor in your business model, then don’t discount on the per unit, but maybe you could add a support level and discount that 🙂
DM
Great vid. The only thing I would add is that the inverse can also be true. Someone might have a scalable, impactful offer and the low hanging fruit in the beginning can be to shoot for a lower price if the margins make sense and it’s high ticket enough.