Sales coaching session with Steli: CloudSponge
Ever been on a content-sharing site and had to manually input all your friends’ email addresses? Yeah, it sucks. CloudSponge does away with this process by seamlessly integrating your contact lists through a widget like the one below.
In a sentence, they connect the world's address books through a single point of integration.
With an impressive spread of customers including Yelp!, Airbnb, and ESPN, CloudSponge has already established themselves as an authority in database integration. They’ve reached escape velocity and don't rely on investor funding. As they continue to grow and evolve, Jay found himself with questions about how to transition into enterprise sales.
Market mastery, the CloudSponge way
There was a time when contact integration software was a highly competitive marketplace. Today, as Jay explains, the competitor they face most often isn’t another vendor, but programmers who think they can build their own in-house integration software for free.
So how did CloudSponge thrive while companies like Plaxo threw in the towel?
While there’s not one answer to this question, one thing stands out above all else: CloudSponge is committed to the continuous evolution of their product.
CloudSponge began without a marketing team and were purely focused on product. In the beginning, they relied solely on self-service bots for sales. When Plaxo went out of business, CloudSponge partnered with them and, as a result, saw a large influx of customers.
Although word-of-mouth and organic search results were incredibly effective for them in the past, Jay says that he means to grow CloudSponge's customer base by ramping up both their sales and marketing.
For this coaching session, they focused on expanding into the enterprise market and charging more money.
Is it okay to change your SaaS pricing?
“The mistake we made with pricing was that we stuck with pricing that was working for too long without making any experiments”, Jay explains of their current pricing model. CloudSponge’s initial subscription plan was $25/month.
One day they decided to double the price and measure the response. Imagine their surprise when the metrics didn’t change! The only difference was that they were now making twice as much money each month.
So they doubled it again and they divided the features up between subscription tiers. Again, the metrics didn’t suffer.
Their current pricing model is divided based on organizational complexity. Although many users will find all they need within the Free plan, more sophisticated and profit-focused use cases will need to invest in the standard plan. Their Pro plan is differentiated from Standard only by the ability to rebrand the product.
“What you’re looking at right now is pricing experiment number seven,” Jay said of their current subscription model (seen above), “We’ve gone through six before it and there will be seven more after it.”
Today’s assignment: Lose customers over pricing
One of the key reasons Jay and his team continue to experiment with pricing is because they want to attract and sell to enterprise customers. They're learning more about all that's involved in selling to large organizations and the requirements that come with it: web signatures, SLAs, security audits, etc. As Jay explained, they’ve been trying to hone in on the perfect price by slowly and incrementally raising it over time. This strategy has seemed to work for them, but I challenged him to try a different approach.
If you want to find your subscription ceiling, start high. Start really high.
Why ask for $2,000 when you could ask for $20,000? As we’ve stated before: If you never lose customers over pricing, your product is too cheap.
Find a number that makes you feel something; a number that excites you! This is especially true if you’re not a “natural” salesperson.
You need to find a number that motivates you to pick up the phone every day. A number that makes dialing up prospects and facing rejection not just worthwhile, but even a little fun.
Sacrifice deals for insights
Take that number, that number so absurdly high that you’re certain your customers will never pay it, and subtract ten percent. Now, start calling up leads.
If that sounds like a terrible idea, that’s okay; asking for a lot of money can be scary.
But you’re not just asking for more money because of the dollar amount. You’re asking for more money because you want to discover how much value your solution can create for an enterprise customer.
CloudSponge charges their top-customers $500 a month. 90% of the customers on this plan might not be willing to pay any more. But 8% of customers might be willing to pay them 10 times that amount and 2% of customers might pay 100 times that amount.
CloudSponge will never learn this if they charge $500 from the get-go. The only way to learn how much value they’re really able to create for an organization is by starting with a high price.
Plus, you’ll probably find the the ceiling is a little higher when you start from the top and work down, rather than starting from the bottom and trying to work up. It is always easier to ask customers to pay less than it is to convince them to pay more.
CloudSponge became the market leader they are today by delivering a superior experience to their customers. But they might have grown even faster had they experimented more aggressively with their pricing at an earlier stage. What pricing experiments have you run in your company? What have you learned? Share in the comments below!