‘Call for Pricing’ is trending in SaaS – and that’s not good
- Summary:
- Price transparency is going out of fashion among SaaS vendors as many say 'Call for pricing'. Zoho's Vijay Sundaram explains why that's a bad thing
Given that SaaS companies don't carry the same implementation and maintenance costs as old-school ERPs, pricing transparency should be a way for these businesses to stand out and compete in an already crowded field.
Curiously, the data does not bear this out. Increasingly, businesses are relying on a "call for pricing" model, even at the SMB level – a trend that doesn't appear to be born of necessity but rather of a changing attitude in the tech industry.
In 2016, OpenView Labs conducted a study of 87 of the largest public and private SaaS vendors in the United States to evaluate which companies post their pricing online and what that says about their business model. More than half (55%) of the private businesses sampled – 33 SaaS unicorns including Dropbox, InsideSales, and Slack—hosted pricing information online. Only 28% of the 54 publicly traded companies posted theirs.
Some SaaS vendors do publish prices
One notable finding is that three-quarters of the SaaS companies that listed their prices in 2016 began doing so within five years of the survey (since 2011). It would seem that by 2016, pricing transparency had become a trend among even the largest SaaS businesses in America, especially with private vendors.
Private businesses post their prices more often because they are typically young, nimble companies that lead with straightforward cost models to grow their customer base. In many cases, these companies provide a tool (application or simple suite) rather than an entire, comprehensive business solution. As they scale and their solutions become more complex, these young companies tend to adopt a "call for pricing" model.
This isn't always necessary. In fact, there are several companies, many of which have been around for 10 years or more, that publish their pricing and features, no matter how complicated they may be. Chargify tracked the pricing pages of Zendesk from 2008 to 2017, noting that even though the company had grown considerably in that time, it consistently published its pricing, even at the enterprise level. The article goes on to say:
"Being able to only purchase the specific Zendesk products they needed and selecting from a variety of pricing plans for each product allowed Zendesk customers to leverage more customization in their purchases than many other SaaS companies."
‘Call for pricing’ is trending now
By 2018, the era of pricing transparency was in decline. A survey that year by Process Street of all of the Montclare SaaS 250 found that more than 80% (202 companies) did not list the prices of their products. Additionally, OpenView Labs conducted a second survey in January of 2018 of the same 87 companies from 2016, and found that only 47% of the 33 private SaaS companies were still publishing their prices – down from 55%.
When the survey was extended to include an additional 33 SaaS unicorns, the combined number of private vendors who published their pricing dropped to 21%. OpenView Labs goes on to say, "No companies that had previously hid their pricing shifted towards transparency in the most recent study." It would appear that even new SaaS companies don't find value in publishing the cost of their software. What changed?
A common answer is competition. If software companies were required to post their prices online, customers could comparison shop, theoretically forcing vendors to compromise on their products to compete on price.
This is problematic thinking for two reasons. One, there are many successful and proficient vendors that do publish their pricing – there are 48, afterall, on Montclare's SaaS 250. And two, it's suspicious to customers, especially those who believe pricing transparency is a sign of an honest company. Certainly there were concerns among SaaS vendors about price competition back in 2016, and yet companies were more willing to adopt a transparent pricing model.
Holding out for pricing transparency
Another reason most SaaS businesses remain tight-lipped about their pricing is scale. It can be incredibly difficult, especially for new companies, to estimate the costs of providing software to a customer at the enterprise level. Similarly, it's a challenge to price out the value of added features to a particular customer. A miscalculation can cost a business millions of dollars. This is a reasonable concern, but it doesn't need to be a barrier to price transparency at every level.
Companies like DocuSign publish the pricing of their Personal, Standard, and Business Pro plans, but ask customers to "call for more information" about their Advanced Solutions option, which includes added features and enterprise level support. There is arguably a downside to not listing pricing at all levels, but at least in this case they won’t scare off customers in lower pricing tiers. It’s better than “call for pricing” across all tiers.
Put simply, customers need more information, not less, about business software in order to make informed decisions. Price is often the first thing a customer will look at when weighing their software options. Customers who see plans listed as "call for pricing" may think, "If I have to ask, I probably can't afford it." This isn't a model for customer growth, and it is concerning that the industry is trending away from pricing transparency.
