Setting SaaS [software as a service] pricing is an important but daunting task for most early stage start-ups, especially when they don't have a track record. The first task in selling SaaS, writes Bob Warfield in a recent post on Enterprise Irregulars, is getting anyone to pay anything for your software—and then be willing to talk about it so that you have a reference. In fact, it's not uncommon for a start-up to give software away in the early days. But before you do so, develop a plan to get your SaaS pricing on a rational path to "full retail."

"Initially your prices are not based on competition so much as they are based on your credibility," writes Warfield. That's what the early stages are about: building credibility via satisfied customers. To acquire three or four good references, you may have to offer deep discounts on software, or give it away.

But think carefully about how you define "good" references. For example, will your next tier of customers be impressed with those references? Do they come from markets you want to target? The more compelling those initial references are, the easier it will be for you to grow.

Once you establish some credibility in the market, adjust your price schedule up and stick to it. Work to break your sales staff of the "let's make a deal" mentality before it becomes part of your culture. Also, push the approval of future discounted deals high up in the organization and establish clear guidelines for future discounts.

The Po!nt: Discounts are a necessary part of early stage SaaS pricing. Just make sure your pricing—and discount rates—are codified, and lead you to a logical, measurable path of revenue generation.

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