Setting B2B SaaS & Marketplace Pricing

Tie your pricing metrics to how your product or marketplace delivers value

In the highly competitive world of B2B software and marketplaces, setting the right pricing strategy and identifying the correct value metrics are crucial for your business’s success. Understanding the most common pricing strategies and associated value metrics can help you navigate this complex landscape.

Here, we explore three common pricing strategies, provide real-world examples, and offer insights into determining your ideal value metrics, highlighting the differences between SaaS and marketplace pricing.

Three Common Pricing Strategies

Competitive Environment: Common

Pricing based on the competitive environment involves anchoring your prices to what others in your category or market are charging. This approach is often used in crowded markets with price-sensitive buyers. For example, cloud storage services like Dropbox and other small competitors commonly price based on the amount of storage provided. While not ideal, this method is practical and widely used in markets where differentiation is minimal.

Product Cost Structure: Worst

This strategy focuses on covering the product’s cost structure and ensuring a fair margin. Companies with fixed costs and fixed delivery expectations often adopt this approach. Basecamp, a project management software, is an excellent example. Basecamp uses a fixed pricing model that allows it to recover costs while delivering value to its customers. However, this approach can limit pricing power in crowded markets, especially if the product is not sufficiently differentiated to command a premium. Sometimes, there may be unique costs that a company may wish to pass onto customers (OEM product or integration costs). This may make sense but may weaken the value perception if this is not tied to value the component delivers.

Customer Value: Best

The most advantageous pricing strategy is to base prices on the value delivered to the customer. This method allows for the highest potential revenue, particularly if the product can clearly demonstrate its unique value. This also allows for feature-based capabilities that are necessary for different purposes. Salesforce, for example, offers multiple editions and tiers of its products, each with different capabilities, support levels, and custom solutions. This approach aligns pricing with the perceived value, making it the ideal strategy for businesses with unique and high-value offerings.

Understanding Value Metrics

Determining the right value metrics is essential for aligning your pricing with the value your product delivers. For B2B SaaS companies, value metrics typically fall into two categories: user-focused and buyer-focused. For B2B marketplaces, additional considerations are needed due to the presence of both buyers and sellers.

B2B SaaS Pricing Metrics

1. User-Focused Revenue Metrics:

These metrics are tied to how users interact with and derive value from the product.

Examples include:

• Usage-Based Pricing: RESOURCE. Companies like AWS charge based on the amount of compute resources used. This makes it transparent to user the precise resource being consumed and how it is measured for pricing.

• Subscription-Based Pricing: TIME. Many SaaS Services like Zoom charge on a monthly basis. This is the simplest since pricing is time based.

• Seat-Based Pricing: VOLUME. Also, many SaaS apps charge by number of users. Salesforce charges based on the number of sales reps using its product. Most productivity apps which have large user base in a company price based on seats.

2. Buyer-Focused Revenue Metrics:

Buyer cares about total value delivered within a predictable budget over a fixed period of time. They may be open to additional services along the way. So, their pricing considerations get reflected in annual contracts and SOWs, even MSA (master service agreements).

Examples include:

• Annual Contracts: BUDGET. Companies like Oracle, SAP, and Adobe Cloud often use annual contract values (ACV) and service bundles for long-term agreements with buyers.

The key is to understand each of these value metrics and what combination of user & buyer metrics are appropriate for your SaaS product and company business model.

B2B Marketplace Pricing Metrics

B2B marketplaces need to consider both the buyer and seller sides, often resulting in potentially more complex pricing models:

1. Transaction-Based Pricing:

This is the most common market place pricing model. It involves taking a percentage of the transaction value passing through the platform. Examples include:

• Take Rate: Marketplaces like eBay or Etsy charge a fee based on the transaction value between buyers and sellers.

There are additional revenue sources in a marketplace, based on demand (buyer) and supply (seller) side dynamics.

2. Subscription-Based Pricing:

Either the buyers or the sellers, or both based on the market dynamics, may be charged subscription fees to access the marketplace. Typically, if the market place is built on demand aggregation, buyers access the services for free and sellers are charged . The opposite may be true if the supply aggregation is of high value.

Examples include:

• Seller Subscriptions: Shopify charges sellers a monthly fee to use its platform.

• Buyer Subscriptions: LinkedIn Sales Navigator charges buyers based on the number of seats.

3. Usage-Based Pricing:

Similar to SaaS, marketplaces may charge either the buyer or the seller (or both) for usage of a marketplace resource. For instance:

• API Call Charges: Google Cloud Marketplace charges based on the number of API calls or resources consumed by buyers.

Again, a B2B marketplace should understand the right mix of these value metrics for their marketplace pricing.

Applying the Principles

Choosing the right value metrics requires a deep understanding of your business model and the value you create for your customers. Here are some key principles to consider:

• Align Metrics with Business Model: Choose metrics that closely reflect the value you create.

• Combine User and Buyer Metrics: In some cases, a combination of metrics may be necessary.

• Proximity to Customer Value: Select metrics that serve as a proxy for the value generated, making it easy for buyers to understand and purchase.

Conclusion

Setting the right pricing strategy and identifying the correct value metrics can significantly impact your business’s success. Aligning your value metrics with how your product generates customer value will help you create a sustainable and profitable pricing strategy.

Whether you are a SaaS company focusing on user or buyer-based metrics or a marketplace balancing the needs of both buyers and sellers, these principles can guide your pricing decisions.