Comment by freedomben
1 day ago
Oh I might add another huge thing: Have a way to justify/explain your pricing and how you came to that number. When you have to "learn about my company" in order to give me pricing info, I know you're just making the price up based on what you think I can pay. That's going to backfire on you because after you send me pricing, I'm going to ask you how you arrived at those numbers. Is it by vCPU? by vRAM? by number of instances? by number of API calls per month? by number of employees? by number of "seats"? If you don't have some objective way of determining the price you want to charge me, you're going to feel really stupid and embarrassed when I drill into the details.
>you're just making the price up based on what you think I can pay
It should be based on the email address used. If, for example, your email ends in @google.com, you get charged more. If it ends in @aol.com, then they take pity on you and you get a discount.
My co-worker's grandfather owned a TV repair business. The price was entirely based on the appearance of the person and had nothing to do with the actual problem. This way rich people subsidize the repairs of poor people.
More like the people who appear rich subsidize the repairs of the people who appear poor. Probably usually fairly accurate but it's amusing to think about the edge cases where the truly rich don't feel the need to dress wealthy anymore and get their TV repaired for cheap.
One of the big benefits of wealth is that everything costs less. This is just an extension of that.
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According to "The Millionaire Next Door", this is actually a surprisingly common "edge case". The "rich" are the people who diligently save and invest, get their hands dirty at what they do, and don't care about pretenses -- they'll drive a beat-up pickup truck because it helps them at their work, and they can take it out for fishing and hunting, and they can have it paid off -- while that pretty Porsche is going to just sit in a driveway and rust, because it's too nice to take it for a run doing the things you want to do!
Whereas the "high income" people -- typically doctors and lawyers -- are spending lots of money on nice suits and cars and homes, but have little to show for it in terms of actual wealth.
Having said that, I don't mind the rich who aren't pretentious getting a discount. I'd call it a "pretention tax". What's further ironic is that the former tend to appreciate paying a little extra if it ensures that a job is well-done, whereas the latter tend to skimp on paying extra, and often get the poor-quality results you'd expect.
And yes, there's exceptions to both categories, too -- indeed, it's not as if it's hard to live within your means as a doctor or a lawyer, if you don't mind looking a little "lower class" as a result (and if your clientele are the working class, this may even be a bonus!). But it's nonetheless a fascinating dynamic to keep in mind!
I know at least one millionaire who seem to own maximum one pair of pants that doesn't have holes in it. Especially in tech, it can be hard to tell. The one conversation I had with a FAANG CEO, he was wearing athletic clothes, as if he'd ducked into the office during a run.
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Correct. Market value is not the cost of making X plus a margin. Many people get that wrong.
Marker value is what someone else is willing to pay.
If I remember correctly, Amtrak does something like this for pricing their train tickets. It is not the cost of going from A to B. It is priced so the more populated area travelers, North East Coast, pay higher to help reduce the cost for those in the middle of the USA. This helps make tickets more adorable for the more poor individuals.
> make train tickets more adorable
amtrak uwu
> This way rich people subsidize the repairs of poor people.
tbh I have no problem with this as long as the work was done well.
I've always wondered about this. My wife always tells me to close the garage when folks come to the house to give us bids on jobs so they don't see the cars. Not that a Tesla indicates wealth but I guess it indicates something? I tell her she's paranoid... maybe she's not.
I think your wife is right. I have a tesla and I always think about that indicating something. Also Tesla's are so ubiquitous it doesn't matter that much like it used to be, and you can get a used one for pretty cheap. But that rich guy reputation still persists.
And then now that we have Elon Musk following the Howard Hughes self destructive cycle (greatest video game player AND ceo of 5 companies who posts all day on social media), there's a very possible negative takeaway - especially in tech it's hard to know. I live in a ridiculous world, I actually see 'got mine before elon was a doofus' bumper stickers. We should all try to judge each other on actual behavior and choices. I'm an asshole completely separate from buying a tesla a decade ago, people.
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>just making the price up based on what you think I can pay
It's called supply and demand, and it's the way things have been priced since the dawn of commerce. The only time the price is based on cost is when the market is competitive enough to drive that price down, and the cost acts as the floor. Even then, if you can get your costs below those of your competitors then it's your competitors cost that can act as the floor.
The way things should be priced is based on the value it gives you. If your service makes me or saves me $100 of value per month, I should be prepared to pay up to a little below $100 for it.
No it's not called supply and demand, it's called price discrimination. The way things should be priced is based on the value it gives the market as a whole. Anything further is an anti-competitive attempt to vacuum up more of the buyer surplus.
> It's called supply and demand
Supply of the kinds of services under discussion here is rarely limited in any practical sense, so scarcity does not play.
> The way things should be priced is based on the value it gives you. If your service makes me or saves me $100 of value per month, I should be prepared to pay up to a little below $100 for it.
This ignores opportunity cost. Very few buyers have infinite cash, they do tend to have infinite ways they could spend money though and many of them will give a far better return than a couple of percent.
In reality if you're adjusting your pricing to try and extract the most you think you can get away with from the customer, you will lose a substantial number of buyers - and probably more so with buyers who have a technical mindset.
And also, the customer has the money and gets to make a choice. Sure, supply and demand is a real thing. But there is also a notion of friction blocking the sale. Everyone absolutely hates considering a new purchase that doesn't give you clarity on details and price.
So that CTO says I'm probably not going to bother with you if you don't have a clear price. I also practice this purchasing way. Everyone should. So sure, someone in sales will fight to the death to justify their strategy of obfuscation and charging what the market will bear, and to try to justify their presence in the sales process with some kind of commission and argument about how they caused pain for the buyers and got more money. Meanwhile, company B sold me a widget for whatever, I already paid them, there was no salesperson wasting time on either side.
As a corporate executive, buying things for good prices is a substantial part of your job. You're not some grandma looking for a movie to watch who will bail if she can't figure out how much it costs. Sure, you can refuse to buy things altogether, but it won't be very good for your company - these kinds of companies seem to have been broadly outcompeted by ones that do buy things.
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What you're saying is akin to someone entering a clothes shop and the store clerk asking what they work on, to gauge the T-shirt prices according to the client's salary.
You know it might be also priced on “this guy feels like a pain to work with after the way he asks questions, let’s put the price up”. There is no way to objectively explain that without having person offended - so I am going to put a price I think will cover me dealing with BS questions or attitude of the customer and if he walks it is still a good deal for me.
We might think that companies need every single sale - well no sometimes you want to fire a customer or not take one on.
You don't have to change you process, so you can still explain it rationally.
Just leave off the "then I multiplied by 10" part.
Which I did by accident once ( not by 10, but it was still substantial )... but it turned out the customer was delighted because we were still 50% vs their existing vendor.
Enterprise pricing is a farce.
I very much agree with the poster above about vendors disqualifying themselves.. another red flag for me is the Two Suits and Skirt pre-sales Hydra Monster that big vendors love to send around, to scare you into letting them capture all the value that their purporting to provide you.
And yes, the above shows I've been both sides of the fence. I felt it was going to be good experience, and it was, but I have regrets too.
I'm confused by this, why would sales team know in detail the vRAM contribution to sales price, and how is it relevant to your purchase decision? I've never heard of enterprise/SAAS pricing to be based primarily using cost plus pricing.
Some products (especially infrastructure) still bill based on (outdated and often irrelevant) core counts and memory count. A few years ago I talked to a seller of a PDF library/toolkit who wanted to know my production and staging core count before they would quote me a price. Explaining to them that it runs in a serverless function on-demand was fun, especially because they would say things like, "well, what's your average?" I would often reply and say my average is defined by a function where you take the number of active users (which itself is highly elastic) and calculate for average runtime at 4 cores per user for approximately 50 ms per page (which page count is highly elastic too) and sum to get "average core use per month". Needless to say it was like pushing a rope.
More common now with SaaS seems to be employee count or some other poor proxy measurement for usage. I love actual usage based billing, but some of the proxies people pick are ridiculous. Like, if I have 5 seats or 500 employees, but 2 users spend 6 hours a day in the software and then 10 others maybe look at it once a quarter, paying the same for those is absurd and is not usage-based billing at all.
I spend a lot of time on pricing and packaging of SaaS software and the challenge is real. Everybody says they want simple pricing, which often aligns to seats or MAU - but then they want usage-based pricing, but then they're concerned about unpredictable costs and spiky usage.
Unfortunately, there's no such thing as a free lunch - you can have simple and predictable but you will have some users that you pay for that aren't getting value. You can have usage-based billing, but then you run the risk that anyone who uses an antipattern for the product will suddenly cost you a ton (or consume all of their allocated quota and be dead in the water, which is differently bad).
The more flexibility you offer, the more complexity you're putting onto customers and sales teams to understand what's the best way for them to consume the software.
There's also a lot of market pressure to "follow the crowd" - even if you have an option that is (in your mind) more customer friendly/favorable, if you are structuring your pricing differently than the competition, there will be customers who are concerned that they're not getting "a good deal" or concerned that the structure will end up being less favorable to them over time (after all, why does everybody ELSE do it this other way?). Sales reps also prefer pricing strategies that are at least structurally consistent with other products on the market, because it makes their lives easier.
Similarly, it's very difficult to change pricing nad packaging later on - changing price is relatively simple, but changing units of billing or retiring an old offering can be an extremely difficult task.
(disclaimer: these are just my own opinions, everything is hard)
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Usage-based pricing makes sense when you’re buying infrastructure products. For (most?) other things, the price is based on value, not material cost.
The cost of that PDF generation might as well round up to zero, but developing the tech cost multiple man-years of work. How do you price that “objectively” unless you’re given a breakdown of the company R&D expenses, operation costs and margins. That is not a reasonable request. Either you’re happy paying $X because it solves your problem and brings equivalent value to your business, or you’re not.
I do agree seat-based pricing is often ridiculous, but that’s a problem for the free market to solve. Alternatives usually pop up given enough demand.
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What you described is likely usage-based, in the sense that the (presumably cloud) vendor usually has to reserve a certain amount of resources per user, “just in case”, because they don’t know / can’t predict your activity pattern. Same reason VMs are still charged for when started but idle: they reserve their CPUs.
What people really want, when they say “usage-based billing”, is outcome-based billing. They want to get charged money whenever they hit the button in your software that makes them money (or, for a cost-center, saves them money.)
Think of e.g. tax prep companies. (For the average Joe employee), they don’t charge you money up-front; instead, they take a part of the net-positive return they fully expect to find you. They make you happy, then take a slice of your happiness at the exact point that they’re making you happy. Outcome-based billing.
Yes. There’s nothing more obnoxious to me than products like Figma where my company has a limited number of full licenses. They are super stingy with what my account type can do, so the 2 times per year when I need to get involved inside a Figma document or even a FigJam board I have to go begging for someone else’s license, but it would be way too costly to pay as much per seat for the entire company as we pay for our designers, for whom that’s obviously a core tool.
Isn't that exactly how a lot of things are priced? Ie. Snowflake. Pay for compute, pay for storage, etc.
Some things are sure. But not most. You wouldn't expect to go to McDonald's and they tell you (or even know) how much the fertilizer to grow the corn that feed the pigs that made the bacon contributed to the price you pay for a burger
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Yes especially enterprise software marketed toward platforms/infrastructure usually are priced this way. SaaS products aimed at consumers or high-level business (like HR, Accounting, etc) often don't, so depending on what people's experience is mostly they may think differently
I've always agreed with this take but now as a B2B founder doing sales, I think it can honestly be interpreted a lot more charitably.
I get on an initial discovery call to learn a few things, like:
* How much will it cost us to support you based on what you're using our platform for?
* How expensive is this problem for you today?
* From there, how much money could we save you?
My goal is to ensure a (very) positive ROI for the lead, and that we can service them profitably. That's how I put pricing together. It seems pretty reasonable.
Our platform is also rather extensible, and I want to make sure that they'll understand how to use it and what it's for, instead of becoming an unhappy customer or wasting their own time.
>When you have to "learn about my company" in order to give me pricing info, I know you're just making the price up based on what you think I can pay.
That is how 99% of sellers do business. The upper end of the price range is what the buyer can pay, the lower end is what their competitors are asking for. Some sellers are lucky to have few competitors, so they can waste more of the buyers' time trying to narrow down exactly how much they can or are willing to pay.
Which is why you shouldn't engage with those sellers and companies they represent unless you have no alternative and are truly desperate.
This is how a lot of consumer businesses are pricing now.
Then they use the same consulting firm as their competitors to set prices.
It’s how any sensible business sets prices. Your cost sets a floor, that’s all. You set the price at whatever level makes the most money.
Many prices end up being a little higher than costs, but that’s because competition drives prices down close to the floor, not because businesses set out to do that.
Why do grocery stores have coupons? It’s not because they’re charitable. It’s because coupons are a way to charge higher prices to people more willing to pay. Trying to figure out your customer’s willingness to pay and matching that with your price is nothing new or unusual. The tactics just change when the purchase is big enough to have dedicated salespeople.
That is actually price fixing and illegal. Not that in the current regulatory environment that there's likely to be enforcement.
So the college model.
The price is set by the market. It never was and never will relate to the seats/resources used/etc.
The price is set by the market as a function of some sellers charging by seats, others by resources used, etc, and some buyers preferring simple pricing models, others preferring usage-based, etc.
is that how you present the price to your own customers? or do you operate on value based pricing?