Ask HN: How to price your first enterprise customer?
We are a small SaaS company with a recently launched product. Currently we have mostly smaller customers (50+ users is "large" for us at the moment).
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.
87 comments
[ 0.18 ms ] story [ 250 ms ] threadThey 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.
Optimistically yes but unfortunately this often results in a lot of wasted time
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.
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.
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.
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!
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.
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
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.
Peek my company's pricing if you want to see how I've priced things. It's worked well for me. Link in bio.
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.
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.
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.
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.
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.)
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.
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.
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).
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.
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."
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.
- 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?
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.
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 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.
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.
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.
It's a pretty good & comfortable life ;)
I agree in principle but how does this work in practice?
Keep rejecting clients until they are right sized?
Would you have been better off never having had that money in the first place?
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.
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.
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.
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.
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 ?
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?
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.
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.
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.
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.
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.
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.
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).
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.
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!
It’s annoying but enterprise seats tend to cost more because enterprise SAML integrations often end up being super painful.
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.
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.