Ask HN: How to price your first enterprise customer?
87 comments
Hey, nothing to add to the pricing advice, but do be aware that having one big customer paying a lot of money could well change your product/engineering culture, or even the company culture.
Imagine having that customer and then them saying they're considering dropping you in a year if you don't have a particular feature that's not on your roadmap (or maybe not even that related to your product in your opinion). Do you drop everything to please them, or do you stick to your plan? How much pain do you endure to keep the one big customer happy?
I've seen close friends work in companies with 2-5 large customers, and the team regularly endured significant pain to keep one of them happy because it would be business-changing to lose one.
Unless you are very intentional about how you handle this sort of thing, it'll be bad by default. Don't take this as discouragement, but do make sure you really know this in advance.
Imagine having that customer and then them saying they're considering dropping you in a year if you don't have a particular feature that's not on your roadmap (or maybe not even that related to your product in your opinion). Do you drop everything to please them, or do you stick to your plan? How much pain do you endure to keep the one big customer happy?
I've seen close friends work in companies with 2-5 large customers, and the team regularly endured significant pain to keep one of them happy because it would be business-changing to lose one.
Unless you are very intentional about how you handle this sort of thing, it'll be bad by default. Don't take this as discouragement, but do make sure you really know this in advance.
I've seen a startup in the Netherlands that never made it beyond mega-client #1. They are still doing well, but basically they have become a service provider for what was their first bigger customer and, years later, is now their only one.
This is in line what others here are warning, but the way I would deal with it is specify a price where either it is similar to the single-seat price with no longer term obligations OR a much reduced price with a very long contract duration (so they can either make you so rich that you don't need them or they can save money but then they cannot threaten to leave you as a means to elbow you into building off-roadmap bespoke features that only they need). Note that this is theory ;-) I have not been in that situation myself.
This is in line what others here are warning, but the way I would deal with it is specify a price where either it is similar to the single-seat price with no longer term obligations OR a much reduced price with a very long contract duration (so they can either make you so rich that you don't need them or they can save money but then they cannot threaten to leave you as a means to elbow you into building off-roadmap bespoke features that only they need). Note that this is theory ;-) I have not been in that situation myself.
> Unless you are very intentional about how you handle this sort of thing, it'll be bad by default.
I don't think it's necessarily bad by default. Any single customer (large or not) is going to be clearer with their requirements, than trying to distill something that can fit several other customers' problems. It tends to put firmer constraints on your design, brings more clarity to your direction. It also depends on what you're comfortable with - personally I prefer to focus on solving the technical challenges, so I find that constraints on product direction leave me with more brain cycles to tackle the tiny details. Once I have a well-engineered solution, it tends to generalise more easily.
I don't think it's necessarily bad by default. Any single customer (large or not) is going to be clearer with their requirements, than trying to distill something that can fit several other customers' problems. It tends to put firmer constraints on your design, brings more clarity to your direction. It also depends on what you're comfortable with - personally I prefer to focus on solving the technical challenges, so I find that constraints on product direction leave me with more brain cycles to tackle the tiny details. Once I have a well-engineered solution, it tends to generalise more easily.
I don't think it's necessarily bad by default.
Everything I've read indicates that bad by default is the way to bet.
Small companies routinely think one big customer will have them set for life. They will have it made in the shade.
It seems to be the small business version of the "winning the lottery" fantasy.
And most of the time, you become their bitch. They make demands, you have no real choice but to meet them because it's such a big chunk of your revenue that you can no longer make payroll without them.
Rule of thumb: Don't let one client be more than 20 percent of your income if you want to actually remain an independent business and not get pwned by these people.
They are unlikely to worry about your welfare and you can get into financial hot water if they come up short financially and decide to stiff you.
They likely have a legal department or lawyer on retainer who has told them just how much they can legally shaft you and it can threaten to put you out of business.
Sometimes small businesses who survived such incidents change their stated policies in defense after nearly going under.
Everything I've read indicates that bad by default is the way to bet.
Small companies routinely think one big customer will have them set for life. They will have it made in the shade.
It seems to be the small business version of the "winning the lottery" fantasy.
And most of the time, you become their bitch. They make demands, you have no real choice but to meet them because it's such a big chunk of your revenue that you can no longer make payroll without them.
Rule of thumb: Don't let one client be more than 20 percent of your income if you want to actually remain an independent business and not get pwned by these people.
They are unlikely to worry about your welfare and you can get into financial hot water if they come up short financially and decide to stiff you.
They likely have a legal department or lawyer on retainer who has told them just how much they can legally shaft you and it can threaten to put you out of business.
Sometimes small businesses who survived such incidents change their stated policies in defense after nearly going under.
> Everything I've read indicates that bad by default is the way to bet.
Agreed. Once the customer realizes that they make up the vast majority of the vendor's revenue, 99% of customers will press that leverage for everything it's worth. They'd be irresponsible not to!
They might not be too demanding or screw the vendor over right away, but when push comes to shove they will pull that ripcord faster than you can say "Net 30".
Here's the double whammy: chances are that the customer's success will be correlated to the rest of the economy, so when the vendor really needs the money is exactly when the customer will stiff them.
The only exception is government, but that's a different class of sales.
Agreed. Once the customer realizes that they make up the vast majority of the vendor's revenue, 99% of customers will press that leverage for everything it's worth. They'd be irresponsible not to!
They might not be too demanding or screw the vendor over right away, but when push comes to shove they will pull that ripcord faster than you can say "Net 30".
Here's the double whammy: chances are that the customer's success will be correlated to the rest of the economy, so when the vendor really needs the money is exactly when the customer will stiff them.
The only exception is government, but that's a different class of sales.
We even did this to ourselves, internally, at a prior workplace.
They wanted a new web-based system to make it easier to onboard client work (less coding!) but picked a test case of a fairly complex client. The idea was of course some combination of them being complex enough to expose requirements, needing a rewrite anyway, and hoping they'd pay for some of it (funding the system development).
What happened in the end was a fundamental tying of the mental model of the software to this particular client - like some weird cousin of Conway's Law, the system was overly complex and complicated for the vast majority of our simpler client work because it was too strongly coupled to the business model and structure of this major client and their work. And it never got simpler, because by picking this complex one to start with, the sprints were always racing to catch up. These wounds were all entirely self inflicted.
They wanted a new web-based system to make it easier to onboard client work (less coding!) but picked a test case of a fairly complex client. The idea was of course some combination of them being complex enough to expose requirements, needing a rewrite anyway, and hoping they'd pay for some of it (funding the system development).
What happened in the end was a fundamental tying of the mental model of the software to this particular client - like some weird cousin of Conway's Law, the system was overly complex and complicated for the vast majority of our simpler client work because it was too strongly coupled to the business model and structure of this major client and their work. And it never got simpler, because by picking this complex one to start with, the sprints were always racing to catch up. These wounds were all entirely self inflicted.
> Rule of thumb: Don't let one client be more than 20 percent of your income if you want to actually remain an independent business and not get pwned by these people.
I agree in principle but how does this work in practice?
Keep rejecting clients until they are right sized?
I agree in principle but how does this work in practice?
Keep rejecting clients until they are right sized?
> They make demands, you have no real choice but to meet them because it's such a big chunk of your revenue that you can no longer make payroll without them.
Would you have been better off never having had that money in the first place?
Would you have been better off never having had that money in the first place?
Possibly. You could have made money from other clients who weren't going to do that to you.
There are only 24 hours in the day. Time spent serving them is time not spent on other clients.
One piece of advice I've seen: Diversify your client base if you are seeing too much of your income from one or a few clients.
There are only 24 hours in the day. Time spent serving them is time not spent on other clients.
One piece of advice I've seen: Diversify your client base if you are seeing too much of your income from one or a few clients.
You describe being a freelancer (or some of US folk call contractor).
It's a pretty good & comfortable life ;)
It's a pretty good & comfortable life ;)
Seen this too. Sometimes companies think of themselves (or aspire to be) product companies but are really service providers. Not that there’s anything wrong with one or the other the same strategies don’t necessarily work for both.
Absolutely, I've gone through this at most of my past employers and am currently experiencing it. We've always had a very careful engineering culture, taking the time to thoroughly plan and future proof features, and it's been great. But now we've got a big industry name waving a blank check in our face and we're suddenly rushing features to win their business. Our architecture is becoming brittle and we're spending as much time fixing defects in the new features as building them.
We're a startup and I get why management sees this opportunity as our big break, but I have to wonder if it'll be worth it in the long term. Sucks to watch the best codebase you've ever worked on devolve into the standard enterprise ball of mud in real time.
We're a startup and I get why management sees this opportunity as our big break, but I have to wonder if it'll be worth it in the long term. Sucks to watch the best codebase you've ever worked on devolve into the standard enterprise ball of mud in real time.
Agreed, but the switching costs for for this customer are likely significant, especially for 5,000 users. Something to keep in mind if one is to gauge the level of idle-ness to their threats.
Study Crossing the Chasm, this is the exact challenge of doing startups focused on enterprise and that book is fantastic for understanding how to navigate it.
A multi-year contract could mitigate that risk.
Your journey will be unique, so take everyone’s advice with a grain of salt. However, here is one thing I have learned about pricing after two decades of recurring revenue software and services: you can ALWAYS raise your price.
Many people will tell you that your price cannot be raised. That is utter BS. For the first enterprise customer, I suggest giving them a price they can’t refuse; something that will cover your bases providing a healthy gross margin (something like 70-80% after paying your hosting costs, support costs, and other direct selling expenses). But don’t make a “meal train” out of them yet.
Once you get their logo on your sales slide deck, it will be far easier to close enterprise deal #2. And once you reach perhaps ten enterprise customers, all of whom are extremely happy, then you can announce to the initial group that you intend to raise your price “a year from now”. For new customers, the price is already raised.
Keep doing this a batch at a time, but don’t let the price get too far behind. It is far more difficult to raise ancient customer prices by 50% all at once vs. a steady 5-10% per year all the way along. So long as you are continuing to provide good value, customers will stick with you.
Many people will tell you that your price cannot be raised. That is utter BS. For the first enterprise customer, I suggest giving them a price they can’t refuse; something that will cover your bases providing a healthy gross margin (something like 70-80% after paying your hosting costs, support costs, and other direct selling expenses). But don’t make a “meal train” out of them yet.
Once you get their logo on your sales slide deck, it will be far easier to close enterprise deal #2. And once you reach perhaps ten enterprise customers, all of whom are extremely happy, then you can announce to the initial group that you intend to raise your price “a year from now”. For new customers, the price is already raised.
Keep doing this a batch at a time, but don’t let the price get too far behind. It is far more difficult to raise ancient customer prices by 50% all at once vs. a steady 5-10% per year all the way along. So long as you are continuing to provide good value, customers will stick with you.
Having been the enterprise customer for two decades I've never worked in a place where this wouldn't have been a sure way to lose our business. In fact, Microsoft is in the process of losing us right now because of their continual Azure increases.
The reason may not be what you expect. It's not that we're angry with Microsoft for raising their Azure prices. It's because they've raised them so high that the competition is getting to the point where the business case for spending the next 10 years on our own iron (renting space at facilities that sell that sort of thing) is turning green. The only way you can continue to increase prices 5-10% a year is if you have a monopoly on what you sell. Eventually it's going to cross into an area where not only the annual licensing but also the migration will be cheaper at your competition.
The reason may not be what you expect. It's not that we're angry with Microsoft for raising their Azure prices. It's because they've raised them so high that the competition is getting to the point where the business case for spending the next 10 years on our own iron (renting space at facilities that sell that sort of thing) is turning green. The only way you can continue to increase prices 5-10% a year is if you have a monopoly on what you sell. Eventually it's going to cross into an area where not only the annual licensing but also the migration will be cheaper at your competition.
The general form of this is “don’t let your pricing become uncompetitive.”
For basic server capacity, leasing or buying your own hardware is a competitor.
But for software higher in the stack, like collaboration or marketing platforms, there’s often no “on-prem” option. So a SaaS business just needs to stay close enough in price to competitors that the pain of staying is less than the pain of migrating.
If all your competitors are raising prices… well, so can you. (And vice versa.)
For basic server capacity, leasing or buying your own hardware is a competitor.
But for software higher in the stack, like collaboration or marketing platforms, there’s often no “on-prem” option. So a SaaS business just needs to stay close enough in price to competitors that the pain of staying is less than the pain of migrating.
If all your competitors are raising prices… well, so can you. (And vice versa.)
100% agree with this.
Azure price increases are ridiculous.
And Azure is not even the best cloud service provider compared with AWS and GCP. Azure documentation is horrendous and performance is subpar. Although I do think their storage is slightly cheaper than other the other two. But I think they might still win compared to GCP as they are pretty strong in enterprise sales. I keep hearing good things about Oracle cloud too but haven’t tried it yet.
Azure price increases are ridiculous.
And Azure is not even the best cloud service provider compared with AWS and GCP. Azure documentation is horrendous and performance is subpar. Although I do think their storage is slightly cheaper than other the other two. But I think they might still win compared to GCP as they are pretty strong in enterprise sales. I keep hearing good things about Oracle cloud too but haven’t tried it yet.
In your cost comparison are you including headcount to maintain all of that infrastructure? Security? And the equivalent of multi zone redundancy? Scale headroom?
Yes. Before Azure/AWS became the “obvious” choice for a lot of European non-tech enterprise many organisations had already moved to the cloud of sorts. Basically there are companies that house servers, and you rent a place to put your hardware. They’ll maintain it and do support on it and really it’s basically renting with more steps. They have zone redundancy, though not global, but that’s rarely needed. Or in short, they tend to handle all the physical parts of having hardware.
When Azure blew up it did so because it was cheaper, much cheaper, not so much because of the features it offered. They are nice, but for a lot of industries you sort of can’t use them because it’s a bureaucratic nightmare to upkeep the required exit plans if you do too much vendor lock-in. For some industries this isn’t an issue, but for many EU enterprise organisations it is. So anyway, the big cloud was cheaper, but since it’s been raising cost pretty steadily, and, because all those hardware houses lost customers and the survivors became cheaper, the scale has now tipped.
As far as operations go on the software side, I’m not sure the headcount is that different. We frankly tend to buy that from third party companies anyway, but the pricing difference isn’t too different between whatever you want to do. I’m personally a fan of doing it with your own staff, but it’s just such a challenge because your IT budget isn’t going to be big enough to do in a way that is resistant to people finding new jobs. The third party agencies don’t have this issue because they sell things like networking to a bunch of organisations, so it’s not just one or two guys for them like it would be if we did it ourselves.
But yeah. Big cloud operational costs are getting to where it makes absolutely no sense to use them, all costs included. When we draw up plans for hardware we have extra budget for when some net controller fails 5 years before it’s supposed to, that sort of detail. Otherwise you can’t make an informed decision. Judging by the local tech environment here in Denmark, we’re frankly even going to be late to the party of leaving big cloud because of costs. Likely because we weren’t using it too heavily in the first place.
I fully expect that the pendulum is eventually going up swing back. It’s not like we’re stopping our contracts on Office365 or Windows licenses anytime soon, and eventually we’re going to get offered the same sweet package deals that landed us in Azure and not in AWS to begin with. But for the next 5-10 years I think a lot of EU based non-tech orgs are going to leave big cloud over cost.
When Azure blew up it did so because it was cheaper, much cheaper, not so much because of the features it offered. They are nice, but for a lot of industries you sort of can’t use them because it’s a bureaucratic nightmare to upkeep the required exit plans if you do too much vendor lock-in. For some industries this isn’t an issue, but for many EU enterprise organisations it is. So anyway, the big cloud was cheaper, but since it’s been raising cost pretty steadily, and, because all those hardware houses lost customers and the survivors became cheaper, the scale has now tipped.
As far as operations go on the software side, I’m not sure the headcount is that different. We frankly tend to buy that from third party companies anyway, but the pricing difference isn’t too different between whatever you want to do. I’m personally a fan of doing it with your own staff, but it’s just such a challenge because your IT budget isn’t going to be big enough to do in a way that is resistant to people finding new jobs. The third party agencies don’t have this issue because they sell things like networking to a bunch of organisations, so it’s not just one or two guys for them like it would be if we did it ourselves.
But yeah. Big cloud operational costs are getting to where it makes absolutely no sense to use them, all costs included. When we draw up plans for hardware we have extra budget for when some net controller fails 5 years before it’s supposed to, that sort of detail. Otherwise you can’t make an informed decision. Judging by the local tech environment here in Denmark, we’re frankly even going to be late to the party of leaving big cloud because of costs. Likely because we weren’t using it too heavily in the first place.
I fully expect that the pendulum is eventually going up swing back. It’s not like we’re stopping our contracts on Office365 or Windows licenses anytime soon, and eventually we’re going to get offered the same sweet package deals that landed us in Azure and not in AWS to begin with. But for the next 5-10 years I think a lot of EU based non-tech orgs are going to leave big cloud over cost.
I am on the procurement side of the house. ~10% to even 20%+ increases were normal in the past couple of years, and it was considered acceptable for some products as the market was so wild. But it's obvious at this point through budgetary estimates for 5-year+ contracts that companies are going to expect to see this every year moving forward.
When we start seeing our license and support costs planning on almost doubling in the next 5 years, that have already skyrocketed in the past couple of years, it makes us start talking about shifting to a different solution.
When we start seeing our license and support costs planning on almost doubling in the next 5 years, that have already skyrocketed in the past couple of years, it makes us start talking about shifting to a different solution.
I think you are missing the first half of the GP’s advice - they said “give them a price they can’t refuse”, ie price below market/competitive level. The 5-10% per year is getting you back up to the “market price”.
The reason this is useful advice is that, as the GP notes, many think they will be locked in to selling below-market forever if they give their first customer a good deal.
This really does not apply to MS. They do not price anything below market rate, in some sense they set the market rate. (Or get to charge a monopoly/lock-in premium above it).
The reason this is useful advice is that, as the GP notes, many think they will be locked in to selling below-market forever if they give their first customer a good deal.
This really does not apply to MS. They do not price anything below market rate, in some sense they set the market rate. (Or get to charge a monopoly/lock-in premium above it).
Have they been increasing value along with that?
I can point to very few IT systems that are actually increasing our value. They are necessary because it’s hard to run a 300 employee investment bank using just excel and outlook, so they sort of are. If you look at the per employee performance, however, it is down compared to when the organisation was just using excel and outlook. This is despite getting a lot of neat systems that work well, but they obviously don’t work well enough. Which is probably combination of the implementation among employees, the lack of custom fits, the lack of integration between different systems and of course some of the systems themselves.
As far as where we run things, well, no. Things aren’t better in azure than they were 20 years ago when it was run on a server in the basement. It’s not even cheaper per usage. But a lot of this comes to how you buy these things in enterprise. Our biggest expense is never going to be anything but the windows licensing, the rest is sort of just added on. Right now Azure is getting too expensive to compete, so we’re likely going to leave, but it’s not like it really matters for the organisation beyond the budget. We could run things on raspberry pies tied to a racoon who’d power them from the movement it makes while it attacks random people in the IT department and the organisation wouldn’t care as long as it worked and was cheaper than it’s competition.
As far as where we run things, well, no. Things aren’t better in azure than they were 20 years ago when it was run on a server in the basement. It’s not even cheaper per usage. But a lot of this comes to how you buy these things in enterprise. Our biggest expense is never going to be anything but the windows licensing, the rest is sort of just added on. Right now Azure is getting too expensive to compete, so we’re likely going to leave, but it’s not like it really matters for the organisation beyond the budget. We could run things on raspberry pies tied to a racoon who’d power them from the movement it makes while it attacks random people in the IT department and the organisation wouldn’t care as long as it worked and was cheaper than it’s competition.
> So long as you are continuing to provide good value, customers will stick with you.
Just to add: Provide value or provide context along with value.
For example, "our partners and providers continue to raise prices due to economic factors" is contextually a totally acceptable point to make.
For example, if an upstream infra provider goes "our electricity bill is nuts, welcome to your new pricing tier" but changing that provider would cost your customers even more.
A lot of people also don't understand their value proposition in a non-technical way, which is really important as well. Once you can understand it better on your client's side, the context is generally even more clear..."you've helped us identify and solidify plans to upgrade our platform to better suit your need to X and Y within your organization."
Just to add: Provide value or provide context along with value.
For example, "our partners and providers continue to raise prices due to economic factors" is contextually a totally acceptable point to make.
For example, if an upstream infra provider goes "our electricity bill is nuts, welcome to your new pricing tier" but changing that provider would cost your customers even more.
A lot of people also don't understand their value proposition in a non-technical way, which is really important as well. Once you can understand it better on your client's side, the context is generally even more clear..."you've helped us identify and solidify plans to upgrade our platform to better suit your need to X and Y within your organization."
Enterprise customers are a double-edged sword. They have money and they're very professional. That's the good part. The bad part is that they can pull your product in a direction that will kill your startup.
SaaS software -- with very few exceptions -- can be made either for SMB or for enterprise customers. Very rarely you can keep both happy. For SMB you need a funnel and volume, for enterprise you need sales and handholding. For SMB you need to optimize onboarding for Enterprise it's about integrations and certifications and audits.
Do you have a strategy and a desire to serve many enterprise customers? If not, this enterprise customer will just be a giant distraction and not worth the headache. Your SMB customers won't care about the enterprise features you develop. And likewise, you won't attract many enterprise customers with the kind of casual and friendly website that appeals to smaller businesses. Your vocabulary will need to expand to include words like "webinar" and "turn-key solution" and "Soc2 compliant". And some enterprises need 6 or 9 months to figure out if they actually want your product and are ready to sign that check. Enterprise sales requires stamina.
When an enterprise customer approaches you they're asking you to throw away your existing business model and to serve them instead. Is that what you want? Do you realize that's what's going on here? Do you know how to get the next 10 enterprise customers? If yes, go for it and charge at least 5000x the single-seat cost. If your typical customer is 50 users, then you want to charge about 1.5 * (5000/50) = 150x what you charge your typical 50 seat customer. Then maybe offer them a discount from that headline price if you think that's appropriate. But I would try to anchor them on higher per-seat costs for an enterprise license.
But then again, what you charge this customer is pretty insignificant compared to the real question: do you want to throw away your business model and become enterprise SaaS?
SaaS software -- with very few exceptions -- can be made either for SMB or for enterprise customers. Very rarely you can keep both happy. For SMB you need a funnel and volume, for enterprise you need sales and handholding. For SMB you need to optimize onboarding for Enterprise it's about integrations and certifications and audits.
Do you have a strategy and a desire to serve many enterprise customers? If not, this enterprise customer will just be a giant distraction and not worth the headache. Your SMB customers won't care about the enterprise features you develop. And likewise, you won't attract many enterprise customers with the kind of casual and friendly website that appeals to smaller businesses. Your vocabulary will need to expand to include words like "webinar" and "turn-key solution" and "Soc2 compliant". And some enterprises need 6 or 9 months to figure out if they actually want your product and are ready to sign that check. Enterprise sales requires stamina.
When an enterprise customer approaches you they're asking you to throw away your existing business model and to serve them instead. Is that what you want? Do you realize that's what's going on here? Do you know how to get the next 10 enterprise customers? If yes, go for it and charge at least 5000x the single-seat cost. If your typical customer is 50 users, then you want to charge about 1.5 * (5000/50) = 150x what you charge your typical 50 seat customer. Then maybe offer them a discount from that headline price if you think that's appropriate. But I would try to anchor them on higher per-seat costs for an enterprise license.
But then again, what you charge this customer is pretty insignificant compared to the real question: do you want to throw away your business model and become enterprise SaaS?
Great comment, obviously informed by experience.
However, they recently launched this product, and this new client will be worth $3mm in ARR. Unless the SMB biz is seeing great early traction too, it would seem crazy to even consider not jumping at the enterprise opportunity.
This also depends on how many similar enterprises there are, of course.
However, they recently launched this product, and this new client will be worth $3mm in ARR. Unless the SMB biz is seeing great early traction too, it would seem crazy to even consider not jumping at the enterprise opportunity.
This also depends on how many similar enterprises there are, of course.
I've done a few of these. Basically, you need to quote them significantly more than you're currently comfortable asking, because it's basically going to suck up months of your time and you're going to have to re-tool your business to meet their requirements. Let's say $10k-$20k, assuming from your numbers they're 100x the size of a typical customer.
Quote them such a large amount that you expect them to say no, and then make your peace with them saying no. Don't accept a significant discount on what you quote them. Instead, let them go, and wait for another enterprise customer to come along.
Do a call to understand why they want to buy your product ("I wanted to know what you were having trouble with and how you think our product could help") and come up with requirements up front. Charge extra for things like enterprise sign-on if they haven't been built yet.
This customer could make or break your business. If you quote is too low you risk regretting the deal not only on your end, but the potential that your enterprise customer backs out as well when you inevitably hit some stumbling blocks.
Your first enterprise customer is like winning the lottery – it's okay to play, but don't bet everything on winning. Expect to lose, and set yourself up for a big payoff if you end up making it work. Plan to learn from your mistakes either way.
Quote them such a large amount that you expect them to say no, and then make your peace with them saying no. Don't accept a significant discount on what you quote them. Instead, let them go, and wait for another enterprise customer to come along.
Do a call to understand why they want to buy your product ("I wanted to know what you were having trouble with and how you think our product could help") and come up with requirements up front. Charge extra for things like enterprise sign-on if they haven't been built yet.
This customer could make or break your business. If you quote is too low you risk regretting the deal not only on your end, but the potential that your enterprise customer backs out as well when you inevitably hit some stumbling blocks.
Your first enterprise customer is like winning the lottery – it's okay to play, but don't bet everything on winning. Expect to lose, and set yourself up for a big payoff if you end up making it work. Plan to learn from your mistakes either way.
Perspective from a CTO at a small b2b saas startup:
Pricing is incredibly tough, and at my startup, we’ve had tons of hours-long conversations on pricing internally, with consultants, etc.
We also have a mix of customers, both very large companies with thousands of employees and very small ones as well. My answer is a little complicated because we have two products right now, with very different approaches to pricing.
For our first product, it worked really well to charge by the number of physical locations at the business. (We tried usage-based pricing, but it was too confusing for what that product was; and also incentivized less engagement.) The price per location is fairly high, but we do tend to discount down for larger deals.
For our second product, pricing has been very tough. For very large customers, we’ve carved out special deals, where they get billed a flat monthly negotiated amount for unlimited service. These have been a little annoying to set up, but pretty profitable for us. For all other customers, we charge by usage.
Also, I see some people saying bringing on an enterprise client is a way to kill your startup. I’m skeptical of this. Large businesses, in my experience, are very pleasant to work with, have a lot of money to spend, and, yes, are demanding, but in ways that make your product better, not worse. It’s true that you’re going to have more fire drills for your engineering staff (last-minute demands to add an important feature), but this isn’t a bad thing. Security questionnaires are probably the most annoying thing to deal with, but it’s solvable (talk to Vanta).
Feel free to hit me on Discord or send me an email; happy to say more.
Pricing is incredibly tough, and at my startup, we’ve had tons of hours-long conversations on pricing internally, with consultants, etc.
We also have a mix of customers, both very large companies with thousands of employees and very small ones as well. My answer is a little complicated because we have two products right now, with very different approaches to pricing.
For our first product, it worked really well to charge by the number of physical locations at the business. (We tried usage-based pricing, but it was too confusing for what that product was; and also incentivized less engagement.) The price per location is fairly high, but we do tend to discount down for larger deals.
For our second product, pricing has been very tough. For very large customers, we’ve carved out special deals, where they get billed a flat monthly negotiated amount for unlimited service. These have been a little annoying to set up, but pretty profitable for us. For all other customers, we charge by usage.
Also, I see some people saying bringing on an enterprise client is a way to kill your startup. I’m skeptical of this. Large businesses, in my experience, are very pleasant to work with, have a lot of money to spend, and, yes, are demanding, but in ways that make your product better, not worse. It’s true that you’re going to have more fire drills for your engineering staff (last-minute demands to add an important feature), but this isn’t a bad thing. Security questionnaires are probably the most annoying thing to deal with, but it’s solvable (talk to Vanta).
Feel free to hit me on Discord or send me an email; happy to say more.
Discounts? I'd go the opposite direction...
Expect pain.
Enterprise sales means annoying security questionaries, contract negotiations, and lots of hands-on conversations. If anything the acquisition cost is very high and there's a reason the enterprise pricing is not listed online anywhere for many companies.
Expect pain.
Enterprise sales means annoying security questionaries, contract negotiations, and lots of hands-on conversations. If anything the acquisition cost is very high and there's a reason the enterprise pricing is not listed online anywhere for many companies.
This. You'll want to charge at least $1k/mo for enterprise. They take a lot of back and forth. Mostly due to security and compliance questionnaires. But once it's done, it's generally gravy. Always do Net30 or Net45.
Peek my company's pricing if you want to see how I've priced things. It's worked well for me. Link in bio.
Peek my company's pricing if you want to see how I've priced things. It's worked well for me. Link in bio.
I don’t understand this comment. $49/seat for 5,000 seats is $245,000. That’s a lot more than the “$1k/mo” you’re suggesting.
I misread the OP. I thought it was $49/mo, not $49/mo/user.
Sure there is pain, but 5,000 seats all at once is usually worth it. The thing to avoid like the plague is RFPs. They will kill your startup faster than anything. Your customers should be early adopters and early markets do not do RFPs.
Can you elaborate on this please?
Why it a death sentence to sell to organizations with RFPS
Is it cause of other people putting bids? What if I want to sell to government agencies as a bootstrapped business
Thanks so much
Why it a death sentence to sell to organizations with RFPS
Is it cause of other people putting bids? What if I want to sell to government agencies as a bootstrapped business
Thanks so much
IME it's because you end up spending tons of time on the proposal, with no guarantee of revenue. And then you're in their process, and they'll have their procurement folks hammer you on price. They'll know that after investing all that time in the RFP process, you won't want to give up on the revenue, and they'll take advantage of that.
Big picture: it just frames things the wrong way — if they want to buy from you, then they're buying from YOU. If you get pulled into an RFP, then you're selling to THEM.
That doesn't mean RFPs are always bad, just that they can be terrible for startups that are too small, and not prepared for the process.
Big picture: it just frames things the wrong way — if they want to buy from you, then they're buying from YOU. If you get pulled into an RFP, then you're selling to THEM.
That doesn't mean RFPs are always bad, just that they can be terrible for startups that are too small, and not prepared for the process.
Have sold to a lot of governments and large contractors. I wouldn't say its a death sentence, just different business model than most startups. Government and large orgs that send out RFPs are essentially asking for a product/service to be made and maintained specifically for them. Unless your essentially in the consulting business, its rarely worthwhile for a normal startup as it eats A LOT of time for a single customer. Government can be very lucrative if you can find the right niche but its always exceedingly painful and one of the governments favorite pastimes is completely 180ing requirements right after you complete them.
Problem here to not underestimate is that if you are not experienced in RFPs you will spend 10x to 20x the time than someone that has experience int these processes, and then there is a real risk that you optimistically misinterpreted some qualification criteria that disqualifies you in the process. So if you have done this before, do it. If have to do it for the first time, you want to consult someone who has walked the path.
This is why companies that sell enterprise saas have separate support contracts. That or they have affiliate consultancies that offer support.
So charge a flat fee and a rate card to deal with all the extra stuff. Enterprises are used to purchasing service along with a product
When I've entered a new tier in terms of customer size, I find it helpful to ask my contact "what would be a low-friction price for you?". Since we have low costs, this price suggestion (or something a little higher) typically works for us. We give them a year at this price, and if it seems like we're providing way more value than we're being paid for, then we renegotiate in the future.
When price is a sticking point, don't forget to consider intangibles. We give discounts for customers that gather efficacy data and write up a white paper, or who actively publicize our partnership. This can be helpful in bridging the gap on value (although you need to make sure the marketing or other folks are on board, otherwise your contact may make promises that his colleagues aren't willing to follow through on).
When price is a sticking point, don't forget to consider intangibles. We give discounts for customers that gather efficacy data and write up a white paper, or who actively publicize our partnership. This can be helpful in bridging the gap on value (although you need to make sure the marketing or other folks are on board, otherwise your contact may make promises that his colleagues aren't willing to follow through on).
I've never sold an enterprise SaaS but have procured them. Rarely, if ever, is it a simple pricing situation. A big thing for me is always SLAs. We will pay more if we can get a good SLA and a guarantee that your end will take care of problems quickly and with priority. We have also dropped/sued companies who failed to meet their SLAs (though legal action has only been taken once in my career). There's also a "serious business" price point to consider. It's often easier to raise your price than give discounts to enterprise clients. There's perceived value in simply paying more.
Work out exactly what they want. Ask if they want guarantees, what those guarantees are, and how you can service them. I doubt you'd be able to meet a strict SLA at $49/seat. Imagine you have what amounts to a small outage that puts them out of work for a day. Total up that labor cost and ask yourself how much you'd want to make to insure you can service that problem. Price accordingly. Since, of course, if they wanted your normal pricing they'd just procure a bunch of seats the usual way. There is a reason that most enterprise contracts are long and worth XX-XXX million dollars.
Work out exactly what they want. Ask if they want guarantees, what those guarantees are, and how you can service them. I doubt you'd be able to meet a strict SLA at $49/seat. Imagine you have what amounts to a small outage that puts them out of work for a day. Total up that labor cost and ask yourself how much you'd want to make to insure you can service that problem. Price accordingly. Since, of course, if they wanted your normal pricing they'd just procure a bunch of seats the usual way. There is a reason that most enterprise contracts are long and worth XX-XXX million dollars.
Sounds promising. But be skeptical. Large companies will rarely risk trying something new with 5000 people. $5000 * $50 * 12 = $3M. This level of spend (on anything) will require c-level executive approval. Typically for a large enterprise anything over $250K / year needs to be negotiated with a procurement officer who will create an RFP process with your competitors to ensure the corp gets the best deal. These are professional software price negotiators, they know all the tricks.
You should ask your customer champion what the value of your solution is to them. If they can't explain to you the tangible value/ROI, they won't be able to sell it internally.
You should ask your customer champion what the value of your solution is to them. If they can't explain to you the tangible value/ROI, they won't be able to sell it internally.
Our understanding is that they expect to replace a few existing tools with ours, so there should be an existing budget, at least partially.
We are currently meeting with execs on the VP level, but it's still early in the relationship. They are quite aggressive on receiving at least a indicator on price.
We are currently meeting with execs on the VP level, but it's still early in the relationship. They are quite aggressive on receiving at least a indicator on price.
If they are asking about price early in the discussions, it can be a buying signal. It indicates that someone there intends to buy and needs to know what kinds of haggling they’ll have to do internally to get it approved.
Enterprises are just a collection of people with their own personal interests. You are selling to those people, not the enterprise. Find out what the stakeholders need and address those needs one by one.
For instance, you probably have a technical buyer who may have been your first contact. Make sure you find out what they need now and what they will need in the next few years. Try to sketch out a road map that will make them exceptionally happy.
There is always a financial buyer as well - likely that person’s boss. Find out what financial objectives they are trying to meet buy replacing the other tools with yours.
At the end of the day, a deal is done when the people who need to sign off on it are all adequately satisfied. You can definitely do this and when you crack the code, it’s extremely rewarding. Good luck!
Enterprises are just a collection of people with their own personal interests. You are selling to those people, not the enterprise. Find out what the stakeholders need and address those needs one by one.
For instance, you probably have a technical buyer who may have been your first contact. Make sure you find out what they need now and what they will need in the next few years. Try to sketch out a road map that will make them exceptionally happy.
There is always a financial buyer as well - likely that person’s boss. Find out what financial objectives they are trying to meet buy replacing the other tools with yours.
At the end of the day, a deal is done when the people who need to sign off on it are all adequately satisfied. You can definitely do this and when you crack the code, it’s extremely rewarding. Good luck!
Ok. In that case, I'd position a paid pilot for 100 users to prove out the value/ROI at some rate that's less than the cost of the existing tools. This should be within VP discretion and won't trigger a procurement process. Once the ROI is clear, then you can negotiate a larger deal. Rolling any software out for 5K people especially if it includes replacing tools is a large undertaking for a company.
You should expect it to take at least a year. There are other contracts they will have to get out of. There is data in those systems that will need to be dealt with.
You should expect it to take at least a year. There are other contracts they will have to get out of. There is data in those systems that will need to be dealt with.
I’m a tech consultant, former VP at an enterprise, former entrepreneur and regularly deal with vendors. General advice is to always lead with a flexible plan (per-seat), throw in more for account executives, level of support, onboarding and etc. Price as high as you can and negotiate. Also use this as an opportunity to potentially land and expand - enterprises are typically made up of multiple business units under a single brand. Be wary of effort to get past security and procurement as well.
With enterprises, pricing depends on many factors including your product, integration, adoption, support, training, alternatives, etc.
I’ve advised and signed off deals ranging from $40k to $2m in annual contract value. It all depends on product and the value it delivers to the company (and the enterprise - I.e. other teams)
If you’d like to have a chat further, happy to share my experiences in greater detail if you can share more.
With enterprises, pricing depends on many factors including your product, integration, adoption, support, training, alternatives, etc.
I’ve advised and signed off deals ranging from $40k to $2m in annual contract value. It all depends on product and the value it delivers to the company (and the enterprise - I.e. other teams)
If you’d like to have a chat further, happy to share my experiences in greater detail if you can share more.
The enterprise wants the deal to be successful and your business sustainable.
They probably also want it to grow with locked-in pricing for deal term for that - predictable, safe, etc.
They'll need a lot of integration & ongoing support, comfort of 24/7, and that you have enough profit that it's good, not destructive. Imagine how many people hours / week they'd expect - maybe even 1-2 employees worth.
I can imagine say 150k base pricing and then 2-4x / user your normal SMB pricing for some base tier of user count. As they do higher user counts, price per user goes down for new accounts.
Also, you can charge an extra 10-20% for platinum support, and variable number of additional professional services hours. They may even want to pay for a dedicated person at some % time (half, 2x, ...). You don't want that to be you though.
They probably also want it to grow with locked-in pricing for deal term for that - predictable, safe, etc.
They'll need a lot of integration & ongoing support, comfort of 24/7, and that you have enough profit that it's good, not destructive. Imagine how many people hours / week they'd expect - maybe even 1-2 employees worth.
I can imagine say 150k base pricing and then 2-4x / user your normal SMB pricing for some base tier of user count. As they do higher user counts, price per user goes down for new accounts.
Also, you can charge an extra 10-20% for platinum support, and variable number of additional professional services hours. They may even want to pay for a dedicated person at some % time (half, 2x, ...). You don't want that to be you though.
I recently had a similar situation.
Getting someone involved who really understands the enterprise buying process was a massive help.
I worked with Alice from https://lookingglasssolutions.com (UK based). She was great and gave us much more confidence in our responses.
I recommend having a call with her and/or finding someone in your part of the world/market that offers similar services.
Getting someone involved who really understands the enterprise buying process was a massive help.
I worked with Alice from https://lookingglasssolutions.com (UK based). She was great and gave us much more confidence in our responses.
I recommend having a call with her and/or finding someone in your part of the world/market that offers similar services.
I’m really hoping that Alice is the principal of the business, and chose to name it as a hat-tip to her fictional and real namesake.
- Talk to your tech and customer service people about onboarding and supporting another 5000+ users. Does the server load of your SaaS really scale linearly with user count? Does your product need more customer support when the users are less bright? (For this purpose, large-company employees typically are.) You can kill yourself trying to swallow a whale.
- Next, give a very cold, hard business look to this potential customer. Large enterprises too-often treat their smaller vendors quite poorly. Will they expect you to jump through hoops of fire every time they snap their fingers, then pay you on "Net Eventually" terms? Maybe learn about their industry's norms in treating smaller vendors, too. (At $Job, we got burned badly once by an automotive supplier. "Normal" norms of honesty did to apply, and we'd delivered product on verbal assurances, without full legal paperwork in done advance.)
- Next, talk to some experienced business people about whether an "Enterprise Edition" could add serious value to your product, or not. As an old manager once told me, "There's no EE of Post-it Notes, only a volume discount."
- If that EE-value answer is "no", then your "Enterprise" product may be something like "Same price per seat, but at 250+ users you're allowed up to 5% overage until your next annual renewal. And we're currently working on a few more user-management and reporting features for large customers."
- If that EE-value answer is "yes"...then life gets interesting. Large customers can be happy to spend $20M to save themselves $50M. OTOH, $20M is real money. How wide & deep is your moat?
- Next, give a very cold, hard business look to this potential customer. Large enterprises too-often treat their smaller vendors quite poorly. Will they expect you to jump through hoops of fire every time they snap their fingers, then pay you on "Net Eventually" terms? Maybe learn about their industry's norms in treating smaller vendors, too. (At $Job, we got burned badly once by an automotive supplier. "Normal" norms of honesty did to apply, and we'd delivered product on verbal assurances, without full legal paperwork in done advance.)
- Next, talk to some experienced business people about whether an "Enterprise Edition" could add serious value to your product, or not. As an old manager once told me, "There's no EE of Post-it Notes, only a volume discount."
- If that EE-value answer is "no", then your "Enterprise" product may be something like "Same price per seat, but at 250+ users you're allowed up to 5% overage until your next annual renewal. And we're currently working on a few more user-management and reporting features for large customers."
- If that EE-value answer is "yes"...then life gets interesting. Large customers can be happy to spend $20M to save themselves $50M. OTOH, $20M is real money. How wide & deep is your moat?
Before you can give a price, you need to talk about their expectations.
What's the SLA? Is it business hours in certain time zones? 24/7/365? Simply being able to provide that support is a cost you will need to factor in.
Will you need to provide SSO capability? Finer grained access control? If you expect to sign up additional enterprise customers, it might be worth eating the cost of this, but if not, you might want to account for it.
What's the SLA? Is it business hours in certain time zones? 24/7/365? Simply being able to provide that support is a cost you will need to factor in.
Will you need to provide SSO capability? Finer grained access control? If you expect to sign up additional enterprise customers, it might be worth eating the cost of this, but if not, you might want to account for it.
Not qualified enough to give my own advice on this but I have been reading a lot on SaaS pricing so I'll drop a few resources that may help.
https://venturehacks.com/pricing https://tomtunguz.com/the-100m-arr-deal/ https://tomtunguz.com/categories/pricing/ https://www.willingnesstopay.com/ https://www.youtube.com/@SaaSPricing/videos https://www.priceintelligently.com/
(Look up more stuff from Patrick Campbell)
https://venturehacks.com/pricing https://tomtunguz.com/the-100m-arr-deal/ https://tomtunguz.com/categories/pricing/ https://www.willingnesstopay.com/ https://www.youtube.com/@SaaSPricing/videos https://www.priceintelligently.com/
(Look up more stuff from Patrick Campbell)
Also recently Adam Watham and Ben Orenstein talked about this in their podcast https://pca.st/episode/93d3e7c6-0472-4f49-a794-270d560424c8
You will have to include extra costs. They will probably require a dedicated support team, or at least a TAM (technical account manager) and an account executive. 24x7 might be required, depending on their time zones/locations.
What about training?
You will also need to manage the rollout, or at least assist with the rollout.
Do they need SSO? What integrations do they need? If they're replacing n things that's a lot of integrations. You'll need to understand the integrations and what it'll take to do them. The customer will need to prioritize them for you, and get you access to the systems you need. Those are extra cost.
When you price enterprise you need to charge for 24x7 support, or at least for priority support. And don't forget your margins. Don't discount too much, and never discount maintenance.
There's a lot more i could say, but i have to go to ikea right now. Good luck!
What about training?
You will also need to manage the rollout, or at least assist with the rollout.
Do they need SSO? What integrations do they need? If they're replacing n things that's a lot of integrations. You'll need to understand the integrations and what it'll take to do them. The customer will need to prioritize them for you, and get you access to the systems you need. Those are extra cost.
When you price enterprise you need to charge for 24x7 support, or at least for priority support. And don't forget your margins. Don't discount too much, and never discount maintenance.
There's a lot more i could say, but i have to go to ikea right now. Good luck!
Calling out SSO is a really good point. If your product doesn’t support SAML, will you need to build it? Who is their vendor for their auth system? Okta or something funky? Expect to do professional services work for each new SSO customer you win.
It’s annoying but enterprise seats tend to cost more because enterprise SAML integrations often end up being super painful.
It’s annoying but enterprise seats tend to cost more because enterprise SAML integrations often end up being super painful.
100% true! If you don’t support SAML (and occasionally OIDC) then you’re not an enterprise product. Period. It is practically mandatory these days. Additionally, if your product has any provisioning requirements you may need to support SCIM for automated provisioning, too.
You should start higher than your small customer plan. Enterprise customers have larger budgets and you will most likely have to build enterprise-specific features for this customer and future ones. Factor in the cost of developing enterprise feature requests (extra security, auditing, reporting, saml/sso etc). Calculate a per user rate, but quote them as a single site license for their org, give them flexibility to add a certain amount of users per year before renegotiating renewals. Also starting higher will give you room to negotiate if they push back. Good luck
This!
They will be more work. They do have the budget. They will negotiate, hard.
Think of your highest price, then add 15%. It will be ok.
If they don’t buy, it wasn’t because of price if you’ve already made it this far.
They will be more work. They do have the budget. They will negotiate, hard.
Think of your highest price, then add 15%. It will be ok.
If they don’t buy, it wasn’t because of price if you’ve already made it this far.
Be prepared to spend a little money on a contracts lawyer and to purchase some insurance to cover your terms of liability in the contract.
Depending on the nature of your product you may need to bring in an auditor to help establish compliance to a framework like SOC2.
Enterprise customers are use to spending more, however huge budgets isn’t a guarantee. Price to the value they perceive and avoid creating disincentives for them to expand the use of your product. For example cliff pricing my user base (200-400 users is $X) will drive them to avoid adding the 201st user.
Depending on the nature of your product you may need to bring in an auditor to help establish compliance to a framework like SOC2.
Enterprise customers are use to spending more, however huge budgets isn’t a guarantee. Price to the value they perceive and avoid creating disincentives for them to expand the use of your product. For example cliff pricing my user base (200-400 users is $X) will drive them to avoid adding the 201st user.
The best kind of "problem" to have. Expect to build features, integrations and other customizations, and factor in the costs. You can do that with a higher "base" price, or include professional services into the contract (but be careful with IP rights). Use a per-seat model internally (more users = more support etc) and offer fixed price point per year. Expect to them to want to negotiate a large discount on the "list" price, so start higher than you might think.
> The best kind of "problem" to have
Optimistically yes but unfortunately this often results in a lot of wasted time
Optimistically yes but unfortunately this often results in a lot of wasted time
You will inevitably give the best deal to your first enterprise customer, embrace it.
Enterprises negotiate. So, no matter what you propose, they will want a better deal. The simplest way to start is extend the current best pricing you offer to small businesses and throw in a modest 10-20% discount. It's a stake in the ground and shows you want their business.
Now, here's the key. Make sure you specify what that covers. For example, if small companies don't get weekly meeting during onboarding and monthly / quarterly meetings with a TAM, say that. If the enterprise wants that, they'll pay for it.
Does the enterprise want professional services? Do they want support with an SLA? Make sure they know it doesn't come with it or what it comes with is standard for all. If they want more, they should pay for it.
Once you tell them what's baked into the price, you'll find yourself with a list of things that they want, that don't come with it. Then, figure out what you can do for them and what it's going to cost.
Even after all of that, you'll look back to find they got the best deal and rightfully so. They are taking a huge risk on you. Off the cuff, if a single seat costs $49, if you can land them at $30 per user with 10-15% on top for enterprise support, it's a huge win.
Licenses in the enterprise vary, but seat-licenses are common. Multi-year agrees, for additional discounts are great, some take them and some don't. But, larger companies tend to have generous termination rights.
A lot goes into enterprise contracts. I'm happy to talk offline and congrats!
Enterprises negotiate. So, no matter what you propose, they will want a better deal. The simplest way to start is extend the current best pricing you offer to small businesses and throw in a modest 10-20% discount. It's a stake in the ground and shows you want their business.
Now, here's the key. Make sure you specify what that covers. For example, if small companies don't get weekly meeting during onboarding and monthly / quarterly meetings with a TAM, say that. If the enterprise wants that, they'll pay for it.
Does the enterprise want professional services? Do they want support with an SLA? Make sure they know it doesn't come with it or what it comes with is standard for all. If they want more, they should pay for it.
Once you tell them what's baked into the price, you'll find yourself with a list of things that they want, that don't come with it. Then, figure out what you can do for them and what it's going to cost.
Even after all of that, you'll look back to find they got the best deal and rightfully so. They are taking a huge risk on you. Off the cuff, if a single seat costs $49, if you can land them at $30 per user with 10-15% on top for enterprise support, it's a huge win.
Licenses in the enterprise vary, but seat-licenses are common. Multi-year agrees, for additional discounts are great, some take them and some don't. But, larger companies tend to have generous termination rights.
A lot goes into enterprise contracts. I'm happy to talk offline and congrats!
No real advice but be ready for the security questionnaires and “are you SOC2” etc. Hopefully that wont happen though.
SOC2 for recently launched should be much easier than where I work where it is retrofit. But might still be a full time job for someone in your team for a few months plus expenses on systems like Drata to manage it. I am a believer that it is also useful for security though not just a tick.
SOC2 for recently launched should be much easier than where I work where it is retrofit. But might still be a full time job for someone in your team for a few months plus expenses on systems like Drata to manage it. I am a believer that it is also useful for security though not just a tick.
I've made enterprise-size proposals while working as a consultant for a large service providers, but I've also made proposals with my own tiny SaaS for public companies.
Whenever I'm in the second situation, I partner up with a large service provider that I really trust, and they cover most of the typical (non-functional) enterprise requirements, and also handle things like integration etc (my SaaS uses simple webhooks & restful APIs, and they create & maintain an intermediate anti-corruption layer etc).
I realize I'm giving away a piece of the cake, but for me it's the most efficient way to get access to these enterprise level customers while avoiding most of the hassle...
This might also be highly dependent on the type of system you're offering. I offer a system of engagement, but I can imagine a system of record or a system of report require another approach.
Whenever I'm in the second situation, I partner up with a large service provider that I really trust, and they cover most of the typical (non-functional) enterprise requirements, and also handle things like integration etc (my SaaS uses simple webhooks & restful APIs, and they create & maintain an intermediate anti-corruption layer etc).
I realize I'm giving away a piece of the cake, but for me it's the most efficient way to get access to these enterprise level customers while avoiding most of the hassle...
This might also be highly dependent on the type of system you're offering. I offer a system of engagement, but I can imagine a system of record or a system of report require another approach.
Oh, and for the price: I prefer a fixed yearly license price with different modules as add-ons, and use the same price for both enterprise and SMB clients, as long as the usage is within reason. Per location also works...
The major difference is that I multiply my implementation effort by 3 for the enterprise clients. (Which is quite realistic in my experience.)
The major difference is that I multiply my implementation effort by 3 for the enterprise clients. (Which is quite realistic in my experience.)
The lack of questions around perceived value is interesting to me. Try to get yourselves into their shoes. Try to have a chat about the problem they are looking to solve. It could be a problem that warrants a (much) higher price or not worth your time (depending on how much incremental work it creates for you).
As someone who has been an enterprise customer this depends on a lot of factors. First being who your competitors are and how their pricing is structured. At work we are evaluating three products and the one that has a yearly fee will win because the other two charge based on usage. I would definitely tend to start with a yearly model until you have lots of customers.
One thing to consider is, can you put their logo on the front of your website? Some companies I've worked for do not allow this while others will endorse your product. Be sure to think about the overall value of the customer and how you can leverage having them, but don't make your business depend on their contract.
One thing to consider is, can you put their logo on the front of your website? Some companies I've worked for do not allow this while others will endorse your product. Be sure to think about the overall value of the customer and how you can leverage having them, but don't make your business depend on their contract.
There is some really good advice here. I've been on both sides of this: pricing new enterprise service as well as negotiating them.
$49 per seat. Is that per month or per year?
Concretely look at the market and the value you are providing. Split up the user count to occasional users and permanent ones.
From the other side of the table I am expecting some type of volume discount because I am not spending 250k a year if the tech is not core to my business. I'd expect discounts for multi-year deals. You need to come in at a price point that makes sense to them depending on the market.
$49 per seat. Is that per month or per year?
Concretely look at the market and the value you are providing. Split up the user count to occasional users and permanent ones.
From the other side of the table I am expecting some type of volume discount because I am not spending 250k a year if the tech is not core to my business. I'd expect discounts for multi-year deals. You need to come in at a price point that makes sense to them depending on the market.
Charge 5x more. Enterprise clients are much more demanding.
Do things like create a second tier price, call it enterprise, and for SSO and other enterprise focused features only put these in the more expensive tier.
Do things like create a second tier price, call it enterprise, and for SSO and other enterprise focused features only put these in the more expensive tier.
Every single product, situation, customer, etc is different. So take everything including mine with large grain of salt.
1. Tell / Ask them to write out all the details of the requirement. If there are any that is any different to your current plans. And seriously consider if you can even fill those needs.
2. Ask if how much are they willing to pay.
3. Tell them you have something double of Point 2 in mind because of X.
And if you are a small SME, you should read up on 37Signals / Basecamp how to deal with large customer.
1. Tell / Ask them to write out all the details of the requirement. If there are any that is any different to your current plans. And seriously consider if you can even fill those needs.
2. Ask if how much are they willing to pay.
3. Tell them you have something double of Point 2 in mind because of X.
And if you are a small SME, you should read up on 37Signals / Basecamp how to deal with large customer.
Basecamp has a really simple pricing for companies. All companies pay the same price, no matter how many users.
It makes all companies equals, none can influence the features/business. If you don't do XYZ we leave with our 5000 users. At Basecamp they are just another client. No pressure.
Id just go with a 5000*49 give them 30-40% volume discount and add something ontop for lerning, support and certification.
If that's too much then add more discount or make part of the leaning included, just keep the original price the same for everyone if that is what you feel the product is worth.
Long answer .. is an hour discussion.
If that's too much then add more discount or make part of the leaning included, just keep the original price the same for everyone if that is what you feel the product is worth.
Long answer .. is an hour discussion.
Good point: training is good not just for boosting the price, but also to ensure that people get onboarded properly, which is important for customer success/retention.
I'm just an engineer, so I doubt I can really contribute, but a manager I've worked with once told me:
The price of anything is as much as you can have the customer pay you.
Meaning, in your case, as much as you think you can charge without having they quit the deal.
The price of anything is as much as you can have the customer pay you.
Meaning, in your case, as much as you think you can charge without having they quit the deal.
Don’t underestimate your support cost. Enterprise customers come with enterprise level issues.
It’s often a good idea to have a separate support fee line item - and your customer will appreciate if it comes with an SLA they can rely on you to provide.
It’s often a good idea to have a separate support fee line item - and your customer will appreciate if it comes with an SLA they can rely on you to provide.
They might come with extra support requirements be sure to factor that in - they may be specifically demanding while you will be keen to entertain their every feature request because you want to keep them.
Consider giving a discount only on time commitment. The time burden with enterprise customers is heavy up front. Legal, accounting, compliance, etc. They will often prefer a commitment as well.
If X is cost/per user, Y is your profit margin, X+Y is usually offered.
But for 5000+ users, profit will be like Z = 5000+ * Y.
So question can be how much of Z, you can let go (assuming you want to market to future customers, using this account as reference/example).
Question is, are they actually going to onboard all 5000+ ? You don't want to run in losses, if you offer rates, below your operational cost. May be ask them to do pilot run with subset of user with same rate, how much pain they will cause? Then, you can decide accordingly.
That sound risky, but hey, that is what business is all about. risk/reward ratio? I am afraid, there is no definite answer.
Whatever is the domain/industry, do you have some baseline pricing to compete against ?
But for 5000+ users, profit will be like Z = 5000+ * Y.
So question can be how much of Z, you can let go (assuming you want to market to future customers, using this account as reference/example).
Question is, are they actually going to onboard all 5000+ ? You don't want to run in losses, if you offer rates, below your operational cost. May be ask them to do pilot run with subset of user with same rate, how much pain they will cause? Then, you can decide accordingly.
That sound risky, but hey, that is what business is all about. risk/reward ratio? I am afraid, there is no definite answer.
Whatever is the domain/industry, do you have some baseline pricing to compete against ?
It might be good to double the price of your per-seat plan as you are likely going to cater to that customer even more and give them priority.
Just take the current price, multiply by 10x, and offer them “enterprise support.” Then get ready for a lot of pain …
Signing the 900 lb. Gorilla, eh?
We did too.
We were a $250k ARR legacy app when we were introduced to our 900 lb. Gorilla.
A Fortune 10 Financial Services company. We signed them (for +$1M/yr, 5 yr min) and then lived the dream, then lived thru the nightmare.
It was a good move for us, but here are some things to consider:
- The legal departments of companies of these size review EVERYTHING. And they will try to prove their own internal value by negotiating every single sentence in your terms of service and license agreement. These lawyers have never even met your customer and the things they will say are "deal breakers" will boggle your mind. Getting to a "Green Light Go!" from your customer is one thing. Getting a signed contract thru the black hole of their legal department is another. ADD 4-5 months to your go live timeline for this bullshit.
- Very large companies in the US have all adopted management policies I like to call the "Wal-Mart Business Model". It goes like this :
During license negotiations, they will ask for 'most-favored nation' status. This means that if any customer you currently have (or ever sign in the future) has lower fees than them, you agree that they will get their fees reduced to that level too. And they will want to audit you to ensure that this actually happens. Do not let them audit you.
On the go live anniversary, it will primarily manifest itself in the form of a process these big companies run called 'zero-based budgeting'.
Zero based budgeting is exactly what it sounds like: every single line item in a department's proposed next year's budget has to be re-submitted de novo, as if they were doing it for the first time and the ROI re-justified.
Because of this, every single year, your Gorilla will do two things:
Finally, more than anything, Enterprise customers want customization and special treatment. The reason they are going with you as a SAAS is they can't get their internal people to do it. So give them something they can't get internally: their own private woodshed. Instead of giving them volume pricing discounts, give them "funny money". For every 3 months at full $49/month pricing per user, you'll credit them $49 in arrears towards training/custom development/support/etc. Consulting margins typically run north of 50%, so this funny money gives your customer champion a load of flexibility to customize, keeps them out of arguing their internal company IT backlog, adds features to your product and keeps your margins where you want. Win-Win-Win.
Good luck!
We did too.
We were a $250k ARR legacy app when we were introduced to our 900 lb. Gorilla.
A Fortune 10 Financial Services company. We signed them (for +$1M/yr, 5 yr min) and then lived the dream, then lived thru the nightmare.
It was a good move for us, but here are some things to consider:
- The legal departments of companies of these size review EVERYTHING. And they will try to prove their own internal value by negotiating every single sentence in your terms of service and license agreement. These lawyers have never even met your customer and the things they will say are "deal breakers" will boggle your mind. Getting to a "Green Light Go!" from your customer is one thing. Getting a signed contract thru the black hole of their legal department is another. ADD 4-5 months to your go live timeline for this bullshit.
- Very large companies in the US have all adopted management policies I like to call the "Wal-Mart Business Model". It goes like this :
1) Screw your employees.
2) Absolutely fuck your vendors.
3) Pass the savings along to your customers to undercut your competitors.
During license negotiations, they will ask for 'most-favored nation' status. This means that if any customer you currently have (or ever sign in the future) has lower fees than them, you agree that they will get their fees reduced to that level too. And they will want to audit you to ensure that this actually happens. Do not let them audit you.
On the go live anniversary, it will primarily manifest itself in the form of a process these big companies run called 'zero-based budgeting'.
Zero based budgeting is exactly what it sounds like: every single line item in a department's proposed next year's budget has to be re-submitted de novo, as if they were doing it for the first time and the ROI re-justified.
Because of this, every single year, your Gorilla will do two things:
1) Put your process/function/idea out for RFP or for T-Shirt sizing for their internal IT to develop their own version (now that you've shown them how to do it).
2) Tell you unless you cut your pricing 50%, they will replace you with someone else.
Finally, more than anything, Enterprise customers want customization and special treatment. The reason they are going with you as a SAAS is they can't get their internal people to do it. So give them something they can't get internally: their own private woodshed. Instead of giving them volume pricing discounts, give them "funny money". For every 3 months at full $49/month pricing per user, you'll credit them $49 in arrears towards training/custom development/support/etc. Consulting margins typically run north of 50%, so this funny money gives your customer champion a load of flexibility to customize, keeps them out of arguing their internal company IT backlog, adds features to your product and keeps your margins where you want. Win-Win-Win.
Good luck!
What is your sales process? Is it turn key, does it require a white glove approach
My company (heystage.com) provides flexible pricing infrastructure to allow you to easily change your mind if you get this wrong the first time. I'd love to hear your thoughts and see how your changes work out for you!
What is your target market for "making money"? (large or small customers).
If you expect to make real money on large customers then negotiating a special relationship where you actually "get in bed" with the large customer to learn their requirements will really accelerate your product development focus - ie. give them even more of a price break IF they commit resources to help direct your product.
The reality is you WILL have problems with this large customer and you want to lay the groundwork for a give and take relationship where you will both be winners in the long run.
The reality is you WILL have problems with this large customer and you want to lay the groundwork for a give and take relationship where you will both be winners in the long run.
Great thread!
We now have, somewhat unexpectedly this early, the interest of a large enterprise that wants a deal to onboard 5000+ users. The problem is that we have no idea how to price this, as we have not yet had time to scale up our pricing enough to gain the necessary experience.
Our current pricing model, for smaller customers, is a simple, linear $49 per-seat plan.
- How do pricing for enterprise SaaS usually work? - What kind of volume discounts are they expecting? - Should we offer a "flat" price for 1-3 year contract, or per-seat model? - How did you handle your first large-scale customers?
We honestly feel a bit thrown into the deep end here, and we don't want to miss this opportunity just because we are inexperienced.