Pricing AI and SaaS products for SMBs

I realize pricing is a boring subject. It shouldn’t be–hardly anything is more important for growth and leverage. But I’ll drop it for a while after this post… just need to cover the other end of the market before I get off my soap box.

If you haven’t signed up yet for our SF Tech Week event, we’ve got ~100 signups already. Sign up here. We won’t talk pricing–we’re talking about how to get your company acquired. And how to hang out with other founders/VCs and the S2S team. Would be great to see you IRL.

ICYMI Tech Week, (presented by a16z) is a week of events hosted by VCs and startups to bring together the tech ecosystem. SF Tech Week takes place October 6-12, followed by LA Tech Week October 13-19. View the full schedule at: tech-week.com/calendar

This post is brought to you by PicoMES. The next generation of manufacturers are building smarter, faster, and with fewer mistakes—and PicoMES is their partner on the shop floor. PicoMES helps innovative factories digitize and streamline assembly operations with modular software that scales as you grow. From digital worker guidance to error-proofed workflows with full traceability, companies as small as 6 operators to those as large as 1800 per shift trust PicoMES to bring startup speed and enterprise-grade reliability to modern manufacturing.

How to get your pricing model right in SMB markets

SMBs are a great place to start because for most startups, this is where you should start selling. SMBs move more quickly than enterprises and in some ways act more rationally, as we will discuss. There are, however, far more permutations of pricing models that apply to this market so it can be tricky to decide on one to begin with, and trickier to stick to it.

If you’re just picking this up, I highly recommend going back to the first post on pricing AI and SaaS products which covers some key concepts.

What Makes SMB Pricing Fun

You can’t build a company targeting SMBs without having a lot of customers. An enterprise SaaS company might be successful with 20–100 customers total. That simply won’t work in SMB land.

Lots of customers means you can experiment–something you cannot do safely with enterprises. Losing a deal doesn’t matter. There are a thousand of prospects just like it. That freedom makes SMB pricing the perfect laboratory.

You have to start your experimentation somewhere. Early on you’ll likely fall into one of two paths:

• Self-serve / low price ($20–$100/mo)

• Larger SMB deals ($1K–$10K+)

Either way, always err on the side of higher prices. We’ll get there. Let’s start with the first path.

Self-serve and PLG at low price points

At low price points, interviews and negotiation doesn’t matter nearly as much as experiments. You should do the homework we talked about in the first pricing post to start near the right price, but volume and experiments are how you build confidence in your pricing. If you’re selling something at $20–$50/month, you can test conversion sensitivity directly: