At Peak, we believe that a robust pricing strategy is like a well-trained muscle—essential for the growth and success of our portfolio companies. Recently, we hosted a Peak Founder Session on pricing and Go-To-Market strategies, featuring expert insights from Johan van der Poel, founder of Northlane. Johan has helped our portfolio companies on pricing and GTM (Go-To-Market) strategies, given his hands-on experience as VP PLG at low code SaaS solution Mendix, and director at pricing consultancy Simon-Kucher.
As this session was joined by over 30 founders & executives of our portfolio companies, it seems the merging of Sales Led Growth (SLG) and Product Led Growth (PLG) is a hot topic. It’s crucial to determine the right GTM/Pricing configuration for your value proposition and target segments, especially with the rise of AI.
So we thought it might be good to share some of the insights from this session.
1. Hybrid SaaS Pricing Models are on the rise 📈
Johan emphasized the importance of pricing as a part of a company’s overall commercial strategy and how it should evolve with the different phases of a company’s growth. He explored the shift towards hybrid pricing models in the SaaS industry, combining subscription fees with usage-based components. This trend, accelerated by PLG and AI, can improve both Sales Velocity and Net Dollar Retention (NDR), but also presents challenges in sales compensation and customer education. In general, we have experienced that pricing and packaging strategy should be continuously recalibrated from the (Pre)-Seed phase onwards, separate from the yearly price increase.
2. Optimize both Land and Expand with a clear SaaS Pricing Strategy 🔧
The strategic importance of packaging structure, price model, and price levels considerations like optimizing for sales velocity with the initial deal value while preserving future upsell levers, is crucial. In this puzzle, finding the right metric is critical for aligning pricing with customer value.
Johan emphasized starting with the lowest level of complexity that gets the job done; as the product/segments evolve, you need to gradually increase complexity to capture all potential. ‘Fencing’ strategies were highlighted to steer customers into appropriate packages, driving both volume and monetization.
3. Opportunities for ROI-Based SaaS Pricing Models 💡
We delved into the complexities of transitioning to ROI-based pricing models. While Outcome-based pricing can powerfully justify investments to potential buyers, it requires careful execution and clear benchmarks. The typical range for result-based pricing ranges from 10% in the early phase (price charged of the obtained value) to 30% in the later stages of a company.
We have learned it creates huge opportunities for value alignment with your customers and improves your NDR potential but also introduces risks in velocity (longer sales cycles) and churn if the product is not delivering as planned or there is no clear agreement on the return calculation. Especially AI applications make ROI-based pricing more accepted and feasible as it allows for a more explicit connection to cost saving or revenue generation, for example in energy management and outbound sales.
4. Unique Pricing Challenges for AI 🤖
Pricing AI services presents unique challenges due to more significant variable costs and uncertain usage data to make informed pricing decisions compared to typical SaaS companies. Starting with a base fee plus a usage component considering the perceived value of each feature to determine its pricing, and continuously gathering data, can help set more accurate prices. Also, be flexible on the frequency of repackaging and the challenge of introducing new products that don’t fit the current pricing structure.
5. Start Today with Customer Insights for Pricing & Packaging 🚀
A differentiated approach to product pricing optimizes offerings to meet customer needs and increase monetization. External validation and customer feedback are vital in setting product roadmaps and avoiding overpricing, while getting a fair share for the value provided. Aligning the team on the commercial strategy and leveraging external data boosts confidence and guides strategic decisions.
Customer insights enhance the accuracy of the pricing model, while understanding that these are still educated guesses based on imperfect data, and therefore need to be tested in real life. Johan emphasized how important it is to make pricing part of the strategic narrative early in the journey, to build the pricing muscle from the start.
👉 If you want to know more about SaaS pricing, reach out to one of our team members or Johan van der Poel.