Entrepreneurship · MVP Development

Should I charge for an enterprise saas MVP product?

Stanley Diji Software Engineer with an Entrepreneurial mindset

Last updated on August 20th, 2019

I am trying to determine a pricing structure for an enterprise saas product.

The product is currently at the MVP stage, I wonder if you should charge you customers to use the MVP or provide it for free.

If the answer is yes, what do you think would be a decent price range for an enterprise MVP.


MVP = Minimum Viable Product.

Sina Experienced CTO - Hire us as your virtual CTO @NuBinary

August 16th, 2019

Let me first answer your question about how to price your product. There are two factors:


1. the value it provides to the customer: this should always be your criteria for pricing the product. How much time/cost does it save your client? What does it translate to in terms of time value? That's the price you should charge. Answering this question would also help you design the pricing tiers. For example, if the more users from customer use the product the more value they get, your pricing tiers should be based on number of users. If their value is based on some other resource usages, such as storage, compute power or your traffic bandwidth etc. your pricing tier should be based on those factors.


2. Your cost to host and maintain the product. This shouldn't include the engineering cost to build the product, but the recurring hard costs that scales with scaling the number of users. If there is manual human work added per new account (which shouldn't be really in the long run but fine in the early stages), include those in the calculation but the cost of adding features and bug fixing shouldn't be accounted for. This is basically cost of compute power, storage, traffic etc you pay to keep the service alive per customer. If you pay $10 per 10000 emails to sent to AWS and your user can send unlimited emails with a $10/month plan, something is wrong in your pricing and you should adjust it. In fact, you shouldn't decide your pricing based on this factor, you should still always price your product based on value it provides but you should do these calculations to make sure your recurring costs are lower and are negligible compared to the value. Based on this determine if your service pricing makes sense as business after all! Another notion of good pricing is that what you charge is in order of 10x or more higher than your recurring costs.



Now about whether you should charge in the beginning or not: you most likely shouldn't charge for an MVP, but that doesn't mean you have to give it away for free forever. Go with a freemium model (some features free, more advanced features paid) or a free trial period options (free for some period of time) or a hybrid model, for example full features available for three months, then they have to pay for the advanced features, but basic features still free.


You might want to give more advantage to your early adopters with extended trials or freemium, but make it very clear that this is a discount (even if it's 100%).

Your MVP might not have the advanced features in the beginning at all, so what you are offering is really the free tier in your MVP, in that case make it clear to your customers that current features are available to them for free indefinitely, but they are not gonna get the advanced features for free in the future.


Metric number 2 above also would help you to determine the free perks you are going to give away in your free tier. If it costs you more than few bucks per month to maintain a client's free tier, there is probably too much freedom in the free tier, limit it by usage or whatever resources that are costly.

Paul Garcia marketing exec & business advisor

August 19th, 2019

Here's where I tend to disagree with all the supplied replies so far. Yes, a lot of companies utilize a free trial, but if you're able to give it away for free, then what impression did that make that will linger beyond the trial period? I stand with the philosophy that you should always charge for your product (an appropriate price), but you can choose to offer a money-back guarantee. It's better than a free trial because there's a commitment from the customer to actually trying to get their money's worth from usage, and you demonstrate a high degree of confidence by offering a guarantee. It doesn't have to be an unlimited guarantee, you can set limits.


But here's the point I'm trying to get to...we can't tell you what to charge. This is the most fundamental research that should be done before you start work on your product. You totally skipped your basic research if you're asking this question now. If you had done your research, you would have made a list of your assumptions, including how much customers are willing to pay. And you would have validated/tested those assumptions to KNOW the answer to the question you posed. Your marketing strategy would have come before the product development began. And you would be confidently ready to launch your MVP today instead of just now thinking about the marketing steps.


How do you know you have product-market fit? How do you know customers are willing to spend money on your product?


I'm sorry, but you need to stop everything and do your basic research, which is not picking our brains, but your future customers' brains. What does the competitive environment tell you about what customers expect to pay? What have users told you will make them choose a product like yours over others? How different did you have to be before potential customers were willing to switch? Where do they learn about products like yours? Where do they complain about products like yours? How do you know your MVP contains the elements customers demand as a minimum to consider?


You're not alone, many companies start backwards. Hopefully you can fix things with the research you still need to do and your software isn't too far off track from where it should have been pointed. Foundational research like pricing information is essential even to write a basic business plan. What did you write into your business plan? How did you arrive at that figure?

Yogesh Maheshwari Focused on improving day to day life

August 16th, 2019

It depends on the product and the type of customer you are targeting.


Following strategy may work better for big whales:

I feel that it may be better to set a med-high price by default but keep the price negotiable and give the customers a decently long free period(~3 months) in direct sales negotiations. This will give you some face-time with the customers to get direct feedback and you will also learn how much someone is willing to pay for it.


Following may be better for small/mid fishes:

Have a long enough free period (~1-2months) for anyone to try the product. After the free period, have different buckets for different size customers but keep the price low so hat it’s easy to onboard anyone.

Stuart Silverman Retail Tech Entrepreneur

August 17th, 2019

Charge whatever you think you can get. I offered to do a free pilot with a 100+ store retailer. They gladly agreed but 2 months later they still haven't started. On the other hand I offered to do a pilot for $500 for another retailer and we are moving much quicker. I think clients take it more seriously when they pay.

Mike Moyer

August 19th, 2019

Yes. Your MVP should be a minimal VALUABLE product. If you can't charge for it, what's the point. Nobody cares if you can give stuff away. People only care if you can charge for it. Charge $5, $20...anything. Just ask. Revenue matters more than anything.

Leon Rubinstein Co-Founder @ Mobiiuz - products that improve people's life

August 22nd, 2019

Stanley,

Here's my 2p worth:

  • I fully agree with @PaulGarcia that you should charge for anything you give to your clients that has value for them. I also agree with him that you should go and do the product market fit research ASAP.
  • As for the value, knowing the value of your product to your client is obviously a must. BUT, think how you yourself (or anyone of us) buys things. If somebody offers you a product that saves you $100, but the product itself costs $100, it doesn't sound as a great deal. So, you need to know what's your "value-add", i.e. the value that your client will get out of your offering MINUS the price they'll pay for it. If that value-add is significant, than they'll run for it. It's of course easier said than done, as you need to watch your margins. But I guess you get the idea.
  • Finally, don't forget the #2 most important objective of the MVP trial (apart from getting the PO, or at least an LOI). It's an incredible opportunity for you to learn what really matters to your clients, how they use your product, what they don't use or use "badly" etc. Use this opportunity to measure everything and prepare yourself to be able to react in real time in order to keep them happy enough to sign that PO for you at the end!

Good luck!