Pricing - The 4 p’s that have built a multi-million dollar SaaS business

When Jonathan and I left our jobs in April 2016 to work on EmailOctopus, we had no idea how our small product would grow. We knew there was a need for email marketing; the market leader Mailchimp had already been around for 15 years and we’d both used email marketing in our previous (unsuccessful) side-projects – it was a previous side-project of Jonathan’s, which led to the birth of EmailOctopus, a need to reach his customers at a low cost for a part-time hustle which was making no money.

6 years down the line EmailOctopus is now well-regarded in its own right; not quite a Mailchimp but an established business which sees 2,000 people sign-up every month, generates millions in revenue ($) every single year and has sent over 21 billion emails.

So how did we get here? We’re still not sure! But what we can look at are the things we think we’ve done well enough and which have helped us grow.

Our focus on “4 p’s” – pricing, product, positioning and promotion has been executed well enough for us to consistently grow, without too much stress or external pressure.

Over the course of a few months, and a few posts, I’ll share our thoughts on those, as well as some numbers, giving insight into what has helped grow EmailOctopus sustainably and profitably, with absolutely zero funding.

Pricing

Competing on price

If there’s one piece of advice you see parroted in business circles, it’s “Don’t compete on price”. Back in 2016, when pricing was first added to EmailOctopus back in 2016 we were cheap. Very cheap. For only $42 per month, our customers could send emails to up to 250,000 contacts. We had outlined price as our main competitive advantage and USP and our website proudly pitched that we were 100 times cheaper than the competition.

So why did we ignore the conventional startup wisdom and do so? When launching a product you want to have something different to the competition. Primarily businesses look to build a faster/quicker/simpler alternative which solves their market's problems better than before.

Having identified Mailchimp as the main competition, it was unclear how – as a 2-man side project - to quickly create a feature par product. With VC funding and a larger team, or with the benefit of time, we could have done so but we had neither luxury. We needed to begin making money. So with our basic email marketing product – one which didn’t offer automation, a drag-and-drop editor, analytics or any of the other features which make EmailOctopus who it is today – we competed aggressively on price.

We targeted businesses who simply wanted to send emails to their contacts, as cost-effectively as possible, and who didn’t mind a slight bit of extra effort to do so. Much like how Ryanair targets those who simply want to fly from A-to-B as cheaply as possible and who don’t mind wearing the majority of their holiday clothes for the journey.

Our product was so simple that we felt we couldn’t charge in the same ballpark of the industry giants, so we didn’t. And it worked. Within 12 months we had over 200 paying customers, enough for us both to take a (small) salary.

To this day, being affordable remains to be a key part of who EmailOctopus are. Our prices have of course increased, as the product has improved, but we continue to focus on being ‘accessible’ – which means being affordable and easy-to-use with expert support. It also means we don’t have all of the frills which make up other bloated email marketing products, there are no AI subject line builders or Facebook ad integrations. We simply focus on helping our customers contact their subscribers and make it as easy as possible for them to do so.

There are many other companies, outside of SaaS, who also take a similar approach – Kia, the car company, offer a market-leading warranty, and while their cars may not grab the attention when driven down the street, their service and product is incredibly strong while remaining much more affordable than the competition.

The supermarket, Aldi, and Airline JetBlue being other similar examples. Excellent service, excellent products and industry-leading pricing. We regularly look to these companies when building our product and business.

Despite the oft recited mantra, creating a more affordable alternative to established competition is absolutely something a business can do. It’s better to make $5 today than waiting a year to market a product which can charge $10.

The advantage of pricing structures that scale

When it came to our earliest pricing iterations they were simple to understand and simple to implement. We had a free plan, and 3 plans which a user would select based on the number of contacts stored. Those were at intervals of 10,000, 100,000 and 250,000.

This presented one major issue though. With tiers so wide, the majority of users felt like they were not getting full value for money, even though we were by far the cheapest in the market. If a customer had 105,000 contacts they felt they were overpaying, because they were paying double that of someone with 95,000 contacts. Your email marketing list increasing in size should be something to celebrate, it’s more customers or eyeballs on your newsletter, but instead of celebrating we’d see our customers actively avoiding the increase. They’d delete contacts, or request for a discount as they “were only just above their limit”.

As a business, too, the huge intervals meant that users rarely upgraded or downgraded. They’d remain within the same pricing tier for ages, and as mentioned if they got close they’d actively look to avoid an increase by removing some of their contacts.

That meant a pricing change was needed. We still wanted to charge based on the value delivered by the product, which we measure in the form of contacts. The more contacts you have, the larger your business, the more emails you send and therefore the more you pay. But what we did do was reduce the jump from tier to tier – smoothing out the increases – making expansion happen more often but the jump in price being much smaller.

Even though a customer in the long run may end up paying more, this solved their concerns as there wasn’t a huge jump. It made us appear more reasonable in price because customers’ were no longer anchored to a price point half of their new plan.

For the business, it also meant a lot more expansions, happening a lot more often.

And in the long run, that opened us up to the world of net negative revenue churn.

In August 2019 we launched our core EmailOctopus product, sunsetting the EmailOctopus Connect product which sent emails via your Amazon SES account. So we have ceased to promote EmailOctopus Connect since that date. We’ve signed up very few new customers to that product and through churn we’ve lost around 30% of all subscribers to that product since it was sunsetted. Despite that, our revenue from the EmailOctopus product is greater than ever and we’re making 20% more from the product. In short, simply through growth of our customers’ subscriber list and expansion revenue we have nearly doubled the average revenue per user.

Baking in a scalable pricing model allows you to go through poor months of acquisition, or in extreme cases completely shut down a product to new customers, yet be making more money than you did the previous month.

Pricing increases, and how to do them

If you’re wanting to stay awake all night, I highly recommend a price increase. Price increases, for founders in particular, are incredibly stressful and not something we’ve ever taken lightly.

With anything we feel uncomfortable doing though, we ask ourselves “If another company were to purchase us today, what would be the first thing they’d do?”. It’s a good way to tackle scary, yet important business decisions.

Since launching EmailOctopus we’ve run through 6 different pricing plans/structures, most of the time coinciding with a major product advancement such as segmentation. Linking our price increases to a major product advancement makes it a lot simpler to justify to new customers and also makes sense from a business perspective, as the advancements have usually meant greater server costs.

Perhaps the worst example of a price increase I’ve seen is with Baremetrics. In March 2022, they announced their price increase in a long-rambling email, where they didn’t even announce what the price change was. The details, and the fact that each user's bill was trebling, could only be found out on a phone call (arranged to suit their CEO) or when viewing the April 2022 bill, once it had already been paid. While it may have been possible to justify the increase, the long nature of it made it read like a filibustering politician attempting to distract us and not being able to see our new payment made it seem like they were hiding something from us. We canceled our subscription as a result – not because of the increase, but because of the way it was handled.

At EmailOctopus our approach instead has always been to be totally transparent. In our most recent pricing change – we were sure to notify every user of the change, each with at least 2 billing cycles notice. We shared what their old price was and what their new price was to be, and if their price increase was going to be more than 20% then we offered a time-limited (12-month) loyalty discount to soften the blow and allow them to weigh up their options over a longer period of time. This felt like the fair and reasonable thing to do, very much in line with our values.

With each price increase we’ve rolled out to existing customers, we’ve attempted to also offer them a carrot to the stick. Offering them an increase in value, even if their cost is increasing. That means not only looking to coincide the increase with a major feature announcement, but also ensuring that the pricing change added something positive for our users. One example is the auto-downgrade functionality if we detected they weren’t making use of their full quota. It’s a lot easier to share negative news, if you have an overwhelming amount of positive news to share too.

While no customer wants to see their prices increase, they are often necessary to allow your own business to thrive – roll them out with careful consideration over the impact on your business and your customers' business. Being fair, honest and understanding.

The inexact art of pricing

The truth is, pricing is hard. Since Day One we have had customers telling us our prices are too cheap, and we’ve had others saying our prices are too expensive. You cannot, and will not, please everybody. It’s also difficult to comfortably test pricing. As an independent, small-ish, SaaS business we see a few hundred people per month sign-up. It’s simply not enough traffic to comfortably run an A/B test on a pricing tweak and see a statistically significant result within a reasonable period of time.

So we have to be a little less scientific. Our pricing strategy comes down to doing it when it feels right. Which historically, for us, has been around every 18 months. That’s roughly what falls in line with our major product advancements as well as gives us enough time to see the previous changes take effect, as well as plan and consider our future changes.

One way to test changes is to roll them out just to new customers, maintaining the older plans for your existing loyal customers. This is something that we’ve tended to do, delaying any migration until we’re confident the price tiers work for our customers. There would be nothing worse than announcing a change to thousands of people and getting significant pushback if it doesn’t work for them.