Is This The Best SaaS Pricing Model For Software Companies?
In this post, we’ll use publicly available MRR and ARR data to look at what the best SaaS pricing models are. What product price has the highest LTV and lowest churn?
How to Find the Best Monthly Pricing For Your SaaS
In this blog tutorial I’m going to talk about SaaS Pricing models and I’m going to show you vetted, publicly available data on the subject that I think shows what a superior SaaS pricing model looks like.
I’ve been thinking about this recently, because I run Kibi.one, which teaches non-technical founders how to build software products without having to code, and we also teach how to monetize the products we build.
But we also run many of our own SaaS projects as well. Some of the products we own are low priced products in the B2C space, while others are higher priced products in the B2B space. For example, we recently scaled a SaaS we own called Scribble to around $2000 in MRR. However, because it’s a lower priced product, it took us longer to get there.
Because at Kibi, we’re a small teach, we need to build products which have efficient monetization models built in. Over the years, I’ve noticed that SaaS pricing has had a huge impact on any given projects success. So in today’s tutorial, that’s what I want to explore in more detail.
So let’s jump in.
Gathering Pricing Data From Open Startups
The data that I want to look at is published by Baremetrics. It’s part of an initiative they’ve called “the open project”. Essentially, what this project allows startups to do is to build in public. And because Bare-metrics integrates with Stripe, we’re looking at verified revenue information here.
Essentially, there are two parts to the open project. The first part is called “open startups”. This part won’t be our focus today, but I will link to it below and touch on it briefly. As you can see here, we can see the subscription data for these startups building in public. We can see “here” for example, that convert kit is doing roughly 3 million dollars in monthly recurring revenue, bare metrics is doing about a quarter million dollars in monthly recurring revenue, while some of the smaller startups in the list are doing a few hundred to a few thousand in monthly recurring revenue.
You can click on any of these links to drill deeper into the company’s MRR growth, net revenue and churn over time.
SaaS Pricing Benchmarks
However, what we’re interested in today, is the other data-set within Bare Metrics. So let’s click on “benchmarks” here.
I think you’ll find this data fascinating. What we have here is data based on the average revenue per user. We can toggle between these different pricing options to see the “median MRR” of companies working within these different SaaS pricing models. You’ll also be able to see the upper and lower ranges to the right and left of the median MRR.
What I want you to notice as you toggle between these pricing cohorts, is that as a SaaS company’s product price goes up, their MRR tends to perform better. For example, look at the products that are under $10 vs products that are over $50. This difference is massive.
What’s more interesting, is that if you were to scroll down a bit, you’d see that as the average revenue per user goes up, so does the average lifetime value of a user. This might not be surprising, but the DIFFERENCES in numbers are shocking. For example, the LTV of a SaaS company charging between $10 to $25 per month is roughly $230.
However, if we were to look at the lifetime value of a customer for a SaaS that charges $50 to $100 / month, the customer lifetime value skyrockets to over $1100.
What’s equally as interesting is that as these numbers increase, the cohort’s churn doesn’t increase by that much. For example, the churn rate of a $10 to $25 product is actually higher than the churn rate of a $100 to $200 product.
When I found this data I wasn’t surprised, because this data mostly corresponds to my own experiences running my own SaaS companies over at Kibi.one and working with many others.
For example, as I’ve mentioend, early this year we launched a $25 per month product in the B2C space. Starting from scratch and using only organic YouTube marketing strategies, we were able to scale the project to just over $16,000 in ARR in about 5 months. This equals about
However, when we launched Kibi.one, our no-code development course and agency, we hit the same level of ARR in our first month.
Lower vs. Higher Priced SaaS Products?
These are just two examples of projects, but I’ve seen this same pattern time and time again.
It’s consistently been easier for us to launch and scale higher priced products in the B2B space than it has been for us to launch and scale lower priced products in the B2C space.
As an entrepreneur or founder what does this mean to you? Well I think it will mean different things to different people.
If you’re a solo-preneur without any outside financing and you’re just starting from scratch, you need to know that your SaaS’s funnel and the conversion rates corresponding to the steps down that funnel will remain fairly consistent.
With a low priced product you’ll need enormous amounts of attention at the top of this funnel in order to reach any meaningful levels of monetization. That said, it’s not impossible. However, if you’re bootstrapped and don’t have any outside funding, prepare yourself to play the long game, as your runway will likely be a bit longer before you take off.
Similarly, bootstrapped platforms that have lower priced products tend to have a harder time making the math work in terms of customer acquisition costs on paid ad channels like Google, YouTube or Facebook. Again, not impossible, but you might run into some awkward cash flow problems as your ad campaigns don’t recoup their full cost after their first month. It might take 4 to 8 months before you break even on ad spend. This might not be a big deal for venture backed companies, but it is a big deal for small teams or solo-preneurs.
For us, when we’re building products, and we’re still in the idea conceptualization phase, we think heavily on the topic of SaaS pricing and our monetization strategy in general. In fact, we’ve dedicated an entire section of our course to this topic. We’ve personally found it easier to add more value and charge more for that additional value than to always try to be the cheapest product on the block.
SaaS Pricing Conclusion
So that’s all I have for you today. I hope you found this tutorial and corresponding data on SaaS pricing models interesting. I also hope my personal experiences and insights help guide you in shaping your SaaS pricing, or deciding on software projects to work on in the future.
And remember, if you’d like to learn how to build and Scale software products without having to know how to code, head over to kibi.one today to learn more about our unusual approach to building and Scaling SaaS platforms.
Also, before you leave today, don’t forget to like and subscribe as we publish new tutorials and SaaS growth case studies regularly.
Thanks for stopping by today.
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