363: SaaS Pricing: Using Starter Packages to Attract Smaller Customers

[0:00:01]Steli Efti: Hey, everybody. This is Steli Efti.

 

[0:00:03]

Hiten Shah: And this is Hiten Shah. Today on the Startup Chat, we’re going to talk about a new trend that Steli mentioned and I’ve noticed as well when it comes to pricing. You want to break it down, Steli?

 

[0:00:15]

Steli Efti: Yeah, I don’t even know what to call this. Let’s just call it, you know, let’s maybe say customized packages or startup packages. So in pricing tiers there’s been this idea for a long time that’s been around, which was like kind of a startup plan or a super low entry plan, either a very cheap plan, or very limited plan for people that are individual users maybe. Or very, very early on, so very small budget, but you want to kind of get them into using your product in the early days. That’s been around for a long time, but something that I’ve seen trending up, especially in SAS lately, has been these kind of startup packages or startup packages where a company will create a specific landing page for this. Sometimes it’s not even on their pricing page. Sometimes it’s kind of hidden, but they’ll have a full fledged kind of landing page around that and as a good example, they’ll have like the startup package and it’s like this massive discount for a number of seeds, maybe five seeds, you know, 60 percent discounted, but they’ll have a bunch of kind of criteria to qualify for it. You’ll have to apply, which is a new thing, right? You’ll have to like fill out a form and full fledge apply to qualify for the starter or the startup package. And some of them will have criteria like you have to be part of an incubator or you have to raise VC funding. You’ll have to have revenue less than a million. You have to have less than 20 employees. And then if you hit all these criteria, we’ll give you this massive discounted package, but you have to prepay for a whole year. So you have to pay like whatever, $400 bucks and you get like five seeds for a whole year that would have cost you whatever, two k or something. And I found this super interesting, like this is kind of a very customized package that customers or prospects have to fill out a form and apply for and qualify for.

 

[0:02:13]

Hiten Shah: They have to earn it.

 

[0:02:14]

Steli Efti: They have to earn it and it’s very manual, it seems like, right. It’s not like self serve or anything like that. And so I’m wondering about that trend and I thought that it might make sense for us to unpack that.

 

[0:02:26]

Hiten Shah: Yeah, I think that there’s companies out there that, okay, first of all, I think for the longest time startups and servicing other startups wasn’t really a market, and it was just like something you did in the early days of your business just because it’s the easiest type of customer to get or that’s what it used to be. And so there’s a lot of these companies that have grown up, so scaled and essentially got less and less friendly from a pricing standpoint and maybe even a product standpoint to these smaller companies. And so I think the trend started with companies realizing that and then wanting to sort of get that startup, get those startups again. And so there’s two examples that come to mind when you say this. One is Intercom. They have this kind of package and they introduced it like within the last year or two, but in the early days startups loved Intercom. I don’t think startups loved Intercom after like the first, second, the second year because Intercom really went upmarket and the way, one of the ways they went upmarket, one of the key ways that Intercom makes more and more money over time from a customer is the way they shift around their plans and give you more features, whether you want them or not and call you up and say, our prices are going up in the next two or three months. This is what it’s going to be for you in after two months or three months. And it’s the kind of churn where, you know, they might not have cared for the longest time because they were making more and more money. It’s one of those products where once you start using it and start using it for more than one thing, let’s say customer support and website chat for example, you don’t stop really using it. You’re kind of hooked on it. So it makes it harder for you to leave. But if you’re a younger startup and you can’t afford those price hikes, what do you do? So that’s one problem that happens with companies and Intercom’s a good example. And so then they put out a pricing plan like you just said. Then another one is actually HubSpot. They have a free plan for some of their products and then they have a whole number of products, but they also have a plan, I believe, where they’ve partnered with accelerators. And if you are an accelerator, you can apply or, I’m not sure it’s accelerator if you’re a small company, and then you can get heavily discounted pricing for like the first year. So these companies I think are just trying to attract the smaller customers without cannibalizing their core business and changing the pricing that they know works for the kind of average customer that they get. And so, you know, obviously what happens is companies, larger companies, HubSpot and Intercom, they’re larger, do that, and then smaller companies that are SAS or whatever are like, oh, that’s a good idea. I should do that too.

 

[0:05:36]

Steli Efti: And do you think smaller startups, which is going to be many of our listeners, right? It doesn’t make sense for them to copy this specific strategy from kind of companies that have outgrown a lower tier price, and outgrown focusing on startup customers. Or do you think that smaller companies should focus on having kind of a native plan pricing structure if a lot of their customers aren’t for this example, startups that just fit that versus doing a separate package for it?

 

[0:06:10]

Hiten Shah: It’s probably a waste of time to think of your customer the way these large companies think of that small customer. I think you should think through whether you want this customer or not, and think through what the pricing should be for that customer right now. Knowing that in the next three months or six months or a year, your pricing will be changed as you learn. So it’s more about deciding whether that customer segment of the small company of like one to 10 team members is something that actually is good for your business or that you want that type of customer for some reason. And then if you want that type of customer, just go get them directly. Like you don’t need to play these games because they’re not, the reason those other companies do them is much different than why you should sort of go after that segment of the customer.