Beta launch · Pricing strategy

Pricing and private beta for SaaS?

Vijay MD Founder Chefalytics, Co-owner Bite Catering Couture, Independent consultant (ex-McKinsey)

November 6th, 2014

I have a SaaS product that's just about to go into alpha and I'm trying to think through what a private beta looks like. (it's a SaaS product for the catering industry focused on streamlining operations and improving visibility of KPIs)

Debating whether to make the private beta free to reduce the selling friction (given they'll be dealing with something 3/4 baked) or if starting with an extended trial but with payment terms baked in is the better approach (to make sure we're getting feedback from people willing to pay/ who can also give us feedback on pricing).

Was curious what other entrepreneurs have experienced in the SMB space -- better to set payment terms up front for a still developing product, or better to get people on it and use the shift our of private beta to test the pricing model.

Thoughts?

Rodrigo Vaca Product & Marketing

November 6th, 2014

Vijay -

You talk about an alpha and then beta - so assume in the alpha you're doing free testing for a very close set of customers, etc.

With that in mind - I'd price the beta, and of course it clear that it is a beta and that you're still working out the kinks. Then let customers self-select. Customers who expect a fully finished product won't pay for it - and in my experience, they won't like it *even* if you give it away for free.

On the other hand, customers with a real pain that your software solves will be happy to pay for it even if there are are few (non-fatal) glitches here and there. They're called early adopters for a reason. Also, early adopters tend to not be very price-sensitive.

At the end, what you want to learn, sooner rather than later: "is anyone willing to pay a real money for this?". Pricing the beta gets you there faster, in my opinion.

Now, beta customers would be taking a chance on you. So treat them well. Make sure you are responsive to any bugs/issues. Hand-hold them through the initial stages. And later on, when your product becomes a hit and raise prices, always grand-father these customers into their original plan. 

You can always think of creative ways to offer more value for beta customers. For example, if you have two or three pricing plans, for beta purposes, you can make it a single price - and give the premium version at the lower cost. That'd be an incentive for them to sign-up now rather than later.

On this note - one thing I'd recommend avoiding - obscure pricing. I've written about this before:
https://www.linkedin.com/pulse/article/20140818192802-301714-3-sales-marketing-tactics-saas-vendors-need-to-kill?trk=prof-post

If you're focused on SMB, then by all means, please don't be one of those SaaS companies that hide their pricing!

hope this helps.

Rodrigo

Chris Weaver Technology and Business Consultant

November 6th, 2014

Vijay-

I've suffered from the same decision pain many times myself.  While I don't have the perfect answer, I'd suggest you check out the book Running Lean, specifically Chapter 8 under "Testing Your Pricing."  Ash brings up some great points and strong arguments for INCREASING friction through pricing instead of decreasing friction.

Best of luck.

Karl Schulmeisters CTO ClearRoadmap

November 12th, 2014

First off I have a serious problem with


>>Debating whether to make the private beta free to reduce the selling friction (given they'll be dealing with something 3/4 baked) or<<

If its 3/4 baked - then its still ALPHA not BETA.  BETA means Full functionality but with bugs. 

So that tells you to some extent what your pricing model should be.

If you are looking for

  • Alpha Customers to give you usability feedback and "agile/lean' "voice of the customer" feedback.  Then "free"  might not be a bad idea, but I think there is a better one (see below)
  • Beta Customers to give you feedback on the bugs in the system - ie "real world usage" feedback, then since you ARE already delivering value to them, they should be willing to pay you for that value.  And this will also give you the opportunity to test your value proposition

One of the problems with SaaS for Free is that unless you have the volume of a Google or an Apple or a Microsoft or Amazon, convincing folks to step up from "free" to "pay" is very very very hard.

Now how then do you compensate your Alpha customers?   Well I think Microsoft's model has been shown to have very good traction:  

  1. Promise them actual tangible feedback into the app and handhold them through the issues.   This means you cannot have more Alpha involvement than you have time to handhold
  2. give them a limited time free license and/or a discounted upgrade path to the full product once it is shipping. 
  3. Write up an "memo of understanding" as to what level of feedback and usage they are going to commit to and what they will get out of it if they follow through

What about Beta customers - well again clearly there is value here.  so Ive seen three ways that work well

  1. Give them a flat rate discount for the first X months/year of service, paid as 25% down, then the discounted rate minus the 25% once you ship
  2. Give them a coupon for upgrading to the product once it ships if they say file X number of bugs or their login usage time shows X number of hours of usage
  3. Give them a deep discount for the first X months/year of service with a deeper discount during the Beta Phase and a promise of N:1 free time added once shipping (where N is some number greater than 2)  IOW if during Beta your system fails them for 3 days - they get Nx3 Days of free usage


  4. Whichever approach you choose WRITE IT UP AS A GIVES AND GETS MOU.  Even Microsoft has been finding this out with Hotmail and SkyDrive (sorry OneDrive).   They initially gave a small drive away free and gave you a discount for an upgrade.   Now essentially you get free unlimited storage as a way to get you to use Office 365 on Android or iOS. 

    If MSFT can't get its customer base to go from Free to Paid.. I seriously doubt you can


But Free is a bad idea.  Because

  • it sets the idea that your product isn't generating them value
  • it allows you to avoid thinking through your value proposition very tightly
  • it reduces the incentive for  your Alpha and Beta participants to actually give you useful feedback.  Whereas if they have paid for something, they will use it and give you feedback as to whether or not it justified its price
  • It allows you to not think through EXACTLY what you expect out of your Beta customers

Grant Sernick Co-Founder at LoyolyPRO

November 6th, 2014

Hi Vijay,

There are pros and cons with charging and giving it away for free.  Ultimately, I think your decision point will be predicated on what you are trying to accomplish during the alpha/beta.  

On the one hand, doing an alpha is a good way to prove out technology, and do it in a way that is not intimidating.  There isn't a pressure to buy or put any money down.  You are helping the users with functionality, and they are helping you with testing/feedback.  

What I find is the most important thing, though, is to prove that people actually will pay for what you are offering.  The most effective test is really the 'penny-hurdle': will someone pay something...ANYTHING...to use your product.  This might seem like a poor test, but it really isn't.  There is so much static to get someone to open their wallet and give you their credit card number, that if people will pay you $0.01 a month, then you can get them to pay you more ($10?  $100? more?)  The difference between $0.00 and $0.01 is much larger than $0.01 and $100.00).

If that is your test, then you should focus on a model that charges something...anything.  You can discount your product...offer a trial period for free...other model.  But the goal is ultimately getting paid. This is the point where many entrepreneurs start to balk, and want to weasel out of asking people for money.  But let me tell you...the sooner you get over this hurdle, the better.  If you don't feel as though you can charge people, then you probably don't have a particularly good product.  I speak from experience (I kept on making excuses for not asking for money)...and I can say definitely that I am right.

Anyway, that is my $0.02 worth...not much value here, but it does get me over the hurdle.

Zai Sarkar Inviting travel executives to join our team

November 7th, 2014

SaaS is a very different business model.
Read this :
http://www.forbes.com/sites/jjcolao/2012/10/02/running-a-saas-business-answer-these-four-questions/2/

Remember:  'Free' is not a business model!
Listen to the guys like Grant who have beenthere.

Zai

Colin Smith Director of Sales @ BirdEye; Startup Advisor & Investor

November 6th, 2014

From my experience - highly recommend bringing a (SAAS) platform to market w/ paying terms. Give away to a few clients that you have relationships with to track, however charge majority of your clients. Having skin in the game from their end will more than likely have them use the platform, otherwise engagement will likely fall off. Let me know if I can help clarify. Cheers, Colin

Peter Jackson CEO

November 6th, 2014

Vijay-
You will encounter too much friction if you decide to create a payment process from the "get go".
However, not knowing the way your service operates I can't tell you what triggers you might create to be successful at starting a bill program. I like to start revenues based on some predetermined measurement of use. Billings can created in a variety of ways; Revenue platforms that look at going over a 'threshold" by data use, time, transaction's or say some form of upgraded services are the most common.
Better to give credits as well for feedback.

Good luck
Peter

Todd Nuckols COO EnterBridge and Director Lighthouse

November 7th, 2014

Depends on your goal with the beta. If it is strict learning then perhaps free is fine. However, SMBs can be tough to monetize so proving a willingness to pay as early as possible even if it is free trial would potentially give you better chance to measure the value proposition - unless them paying subscriptions is not the long term monetization model.

Dennis Velasco Technopreneur & SMB Evangelist

November 6th, 2014

Free is my suggestion based on the stage you're at. This will give you: 1) a pool of prospects to upsell/monetize when your product is ready 2) direct feedback from the audience that you're trying to create demand from 3) help you identify new revenue opptys Just my 2 cents 

Chris Carruth VP/Director. Strategy | Business Development | Operations | Product | Solutions

November 6th, 2014

One time in a land far away a telecom company decided to test appeal of a new service...for free. The findings were very strong, so they decided to charge. Mysteriously the appeal went to zero. What kind of sorcery is this say ou?

Consumers (businesses are consumers too, just with different purchase motivators) are always impacted by price if we are talking traditional products and services. Giving away for free and seeing traction is NOT the same as actually testing the product and related offer.

IMHO always test under the same conditions as you propose to launch..otherwise those "great results" will be miles off from reality.