Running on an Escalator versus Quicksand Revolves Around Pricing

Running on an Escalator versus Quicksand Revolves Around Pricing

Analyzing markets and honing in on a problem is happening all over right now. Add into the excitement of AI and there is a revamped freshness to build and start. When thinking about markets and ideas, the topic of pricing comes up much quicker than before. Pricing is a major component of product-market fit and successful unit economics — the tighter the PM fit, the more you can charge and the longer a customer will stay. Great SaaS companies nail their unit economics early and that momentum leads into scalable and repeatable go-to-market motions. If pricing is nailed early, it feels like running on one of those walking escalators at the airport. If pricing is not nailed early, it feels like running in quicksand. I believe there are two predominant ways to achieve successful unit economics of a SaaS business.

First, through self sign-ons which is the cooler and most sexy way to build. The “bottoms-up” approach is also the hardest to achieve. Self sign-on approach has viral growth mechanisms in place (a la Calendly, MailChimp, or Dropbox), and the user flow to premium features is so seamless that upsells occur organically without having to pick up a phone. Other examples include games — nearly every game on the iPad for kids or adults has some premium feature upgrade. If the Field of Dreams (build it and they will come) occurs where users find your product and love it so much that world of mouth and viral growth compounds into more users, kudos to you, a bottle with lightning in it is upon you. Other examples include Asana, Loom, and Twitter. All of these companies started out as self sign-on applications but now each organization has sales reps. The key around nailing unit economics in this approach is to have enough velocity of users that not only use the product and stay, but their usage creates more users. If the intended viral loop is not there, most companies default to the second approach.

The second early approach is through traditional sales and marketing: calls, emails, trade shows, digital marketing, and more. This conventional approach is for the larger enterprises. I would argue at this very moment, after a company has a modicum of product-market fit with interest around the product, this moment is where the trajectory of the company is set – all by a simple decision regarding pricing. Pricing is one of the largest factors in your go-to-market. If a startup can begin charging customers anywhere from $15-$50k ACV, the leap to the scalable and repeatable phase is much smoother. At that price point, sales reps can make a competitive salary by closing 2-6 deals a month. Doable in the right market. Anything less is significantly harder but not impossible. Outlier examples include SpotHopper, Asana, and GuildQuality. These are successful companies with lower price points, but they also all have 1-3 call close sales processes making their sales cycles compact. Another added benefit of honing in on pricing; a company also specifies who they should prospect, adding clarity across the company from SDR’s to marketers.

Thinking about pricing much earlier in the go-to-market strategy as a company moves on from product-market fit and transitions to the repeatable and scalable phase is so helpful in future growth trajectory. If pricing is strategically analyzed early on, the expense could be spending years in a land of validating product market fit at a price point that doesn’t yield successful unit economics – this feeling is similar to running in quicksand. Find the lightning in the bottle or price the solution high enough to ensure the leap from product-market fit to scalable, repeatable sales that it feels like running on that walking escalator.

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