How I Approach Pricing for a Brand New SaaS

Reading Time: 7 minutes

It’s “pricing week” for my SaaS A few weeks ago, when I made the product public, it had only one price. I had pretty much guessed a random number to start with, and I landed on $25 per month. In the weeks after, I had many conversations with prospective customers. It was clear that I served multiple audience segments with the same product, each with its own pricing expectations. Twenty-five bucks a month wouldn’t cut it.

At the same time, I have been focused on building the product that I can use in my work. The calls I had with prospects weren’t sales calls; they were validation calls meant to verify that my assumptions were not completely wrong. However, I snuck in a few questions every now and then that would help me figure out how much they were already paying for similar things. So I have some data to go on.

That’s what I want to share with you today: how I approach pricing for a business that doesn’t have any customers yet.

Not having paying customers means that I can’t just increase prices and see if people churn. This will be an exercise in research and data interpretation.

I started with some introspection. In my experience, the most robust pricing systems are based on the value metric of the customer. Intercom charges for their helpdesk by the number of active users in your product, Mailchimp charges by the number of people on your email lists. They have found the one thing that allows them to make more money when you make more money.

When I tweeted about this project a few weeks ago, my dear Twitter friends Simon and Brennan immediately talked about this. How much would people pay for something that is both very simple and expected to be around forever? What is the motivation of writers to have their links be reliable and customizable? They want to sell books. Increasing book sales is the primary goal of any author.

But I don’t have access to their sales figures. If I wanted to charge for in relation to the number of books sold, I would need insight into numbers that authors likely won’t share. In fact, many authors — myself included — don’t even know their sales figures until two or three months after sales take place. Publishers and distributors are relatively slow with these numbers since there are a few special publishing rules: books often are considered returnable if stores don’t sell them. They might be sold to a bookstore, only to be returned and reimbursed a few weeks later. That certainly makes counting sales reliably quite hard.

So, without sales numbers, what’s the next-best indicator for the success of an author? And which of those numbers could I reliably measure myself?

How about the number of distinguishable people clicking links in a book? If I could track them like Intercom tracks active users, I could charge by the “amount of readers,” which would be very close to the number of books sold. But wouldn’t that collide with my privacy-first approach? Right now, I don’t use cookies or anything that would allow me to identify a reader. I don’t really want to do that either. “Active readers” won’t work.

So, how about counting link clicks and charging for click volume? That might work, and I could count those reliably—in fact, I already collect those metrics for the link analytics feature. This would also scale pretty well with my expenses: the more links are clicked, the more database space will be used, and more bandwidth will be required. “Click volume” is a good candidate.

On a less “real-time” level, there are two more measurable items: the number of books an author wants to have represented on the platform, and the number of permanent links, either for each book or overall. I could create a few tiers here, creating a few segments that are priced according to how much I assume each customer would be able to pay for where they are at in their career: a beginner would only need one book and a few links, while a seasoned author will have a few books under their belt. Anyone beyond a few books could be considered a publisher with their own tier. While this doesn’t necessarily scale along the value metric of book sales, “book and link count” is a good candidate, too.

The interesting thing here is that for authors, their sales figures are pretty much unplannable, mainly when they are self-published. The whole endeavor is a gamble, more often than not. If I priced along “link clicks” exclusively, this could quickly get quite expensive for a book with many links. This would punish authors who want their readers to have a lot of useful links and references. Also, I have this strange feeling when I consider a customer hitting the link click cap of their tier. What should happen then? Should I just not forward their readers to links anymore until the author upgrades their plan? The whole point of my service is that it’s reliably and non-surprising. Anything pricing scheme that scales with usage has the risk of accumulating charges the user doesn’t expect. Through abuse, neglect, or ignorance, this could cause financial and reputational damage to my users—people with who I want to build a decade-long business relationship.

If I were to segment my pricing tiers by book and link count, I could make this much more predictable for my customers. The technical implementation of the redirect isn’t the expensive part of this business. The analytics and data collection is. So no matter how many links are clicked, my customers would know when they’d need to upgrade. They would run into tier limitation while using the product to create a new link or a new book project, so this would not be a surprise. It would undoubtedly scale well with the expenses they incur. 

So, while “counting clicks” is closer to my customer value metric, I will choose “book and link count.” I might consider a very high link click cap to protect myself against usage that could be destructive to my platform, but that’s something I can introduce later. 

For now, having chosen to price along with book and link counts, this leads me to the tiers. How many do I want to offer? During my calls with prospects over the last few weeks, I found three distinct customer personas: 

  • The first-time author, trying to make sure their book would be a success
  • The professional writer, having run into the issue of link rot and trying to make sure their work stays relevant and reachable
  • The publisher, pretty much anyone who has to deal with multiple books by multiple authors

Initially, my target audience was the professional writer, but I want to make sure the service also provides value to beginners. I don’t want my users to outgrow my service, though, so I need to fulfill their requirements when they start writing (and selling) more.

That means three tiers—Beginner, Professional, and Publisher. The middle tier is the one I find myself in, so that looks good to me. That leaves me with probably the most challenging choice: dollar values.

Thankfully, this is not an entirely new industry. While resilient link-forwarding is a novel concept, redirection, link shortening, and branding are not. There are many competitive alternatives around that authors could and do use to accomplish what permanentlink offers. And I am not just talking about competitors here. Anything that gets the job done is a competitive alternative. 

Here are the two main things that people do to retain control over their links. Either they have some script or configuration on their personal blogs or websites, or they use a link shortener service that allows for branding.

Neither of those solutions notifies them when links break or keeps detailed author-specific analytics like which readers their links are opened on or how far in the book their readers got, but that’s the value add that I am providing. The essential feature of link forwarding is solvable, and people are using solutions for this already.

Since we know that this is already in the budget for professional authors, how much do they usually pay for this? 

The first solution, running a script on your own server, requires some technical skill but is usually relatively cheap. Hosting a PHP script on a shared server might set you back $10 a month. If you wanted a fast system with a custom domain attached, you’d probably be looking at $20 a month.

For link shortening services, pricing turns out to be around $30 a month for any meaningful usage. Most services like rebrandly or bitly have a free tier with many links, sometimes allowing for custom domains. Five-hundred links, maybe a thousand, are usually included. Other services charge by link clicks, capping the $20-$30 tier somewhere between 15.000 and 25.000 clicks.

So, for an average author, we could expect their monthly cost to be between $10 and $30. That’s a useful data point to have.

This price segment also shows one crucial thing: this is a service that is considered to be cheap and reliable. People don’t interact with link forwarding services much. Once they create a link, they expect it to stick around forever. The monthly fee is an insurance payment. At best, they won’t have to hear from my business ever again after they’ve added their links. They are buying peace of mind, and that usually can’t be too expensive.

Who do I want to serve most? What’s my motivation here? I want to help authors who aren’t yet making millions off their books. I want them to have access to a reliable service built by an author, for authors. I want them to be professionals even when they’re just starting out.

Particularly my first few customers will be early adopters and innovators. I’ll be pricing for what it will be, not for what it is right now. Plenty of features are missing or very rudimentary, but that’s fine as long as the core functionality is there. I won’t spend a year building the world’s most technically complex link forwarding system that nobody will use. I want customers to try this product now and give me their feedback immediately.

So, here’s what I have come up with. There will be three tiers, with subscription n fees of $5, $10, and $25 per month. Also, yearly subscriptions will be offered for $50, $100, and $250, respectively. 

The $5/month tier will be limited to one book and a few hundred links, and it will be called “Beginner.” Not only does that accurately reflect who will use the tier, but it will also make customers consider upgrading to a more professionally named plan eventually.

Like the $10/month plan, which I call “Professional.” It will be limited to 5 books, with 500 links overall. This number might need to change, but the idea is that users are prevented from just adding more and more links to the same book project, thus never upgrading to the final tier.

That tier is the “Publisher” tier, which is the unlimited plan. As many books and links as you want, for $25/month. I know this is risky, and I am considering adding limits for this one as well, plus an “enterprise tier” if anyone needs more than that, but I think for now, if someone trusts me enough, they’ll get $25/month for whatever they need — for a few years. I won’t make the mistake of grandfathering users indefinitely again this time around. You can read more about that in my book Zero to Sold. I wrote about the pricing approach and the mistakes we made at FeedbackPanda there at length. 

So, there we have it. That’s how I have determined the pricing for, right now. It’ll be fluent because pricing is never done, but if you ever wanted to know how I approach this complicated issue, I hope this provided some insight.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.