State of SaaS Pricing with Alvaro Morales, CEO of Orb
PLUS: Pricing changes from Slack, Clearbit, and Squarespace.
💥 SaaS PricingWire 💥
⬛️ Squarespace raised prices across all plans.
🪟 Clearbit reformatted its pricing page and added a ‘Contact Volume’ field to align its value metric with Hubspot.
💬 Slack adjusted prices and removed a 3-month promotional discount.
📧 ActiveCampaign added Custom Mailserver Domains to the Enterprise plan.
🛠️ Wrike reduced the minimum number of users on its Team plan from 3 to 2.
PS. I spotted these updates using PricingSaaS. Try it for free to track competitors and stay ahead of the curve.
Happy Friday y’all —
Before the holidays, I had the chance to talk with Alvaro Morales, CEO of Orb. Alvaro has deep roots in the SaaS world, coming up as an engineer at Asana, and now leading the team at Orb, a developer-centric billing engine that helps SaaS companies implement modern pricing strategies.
We covered a lot of ground, including how he found his way into pricing, what macro factors have made pricing so timely, and the most innovative models he’s seeing across the Orb customer base.
Rob: Alvaro, one of the things I find most interesting about pricing is that it’s so cross-functional. Because of that, pretty much anyone can find their way into pricing if they catch the bug. How did you become interested in pricing?
Alvaro: To your point, pricing heavily influences revenue, and there’s nothing more cross-functional than revenue. My interest started at Asana, where I was working in engineering in the area of growth and monetization. I got visibility into a pricing and packaging project we were doing with one of the big consulting firms. As an engineer, I rolled my eyes a bit at first, but throughout the project, I learned that it’s a very customer-centric process. It’s all about meeting customers where they are.
The thing that made me catch the bug is the realization that there’s no silver bullet. It doesn’t matter what hot new trend is happening — pricing will always remain a nuanced exercise of trade-offs to provide the best value for a customer base. That’s the thing my brain loved about this.
I walked away from the project really motivated. Then it took 6 months to roll out the pricing change. The thing is, it was VERY successful. We started realizing there were all these other things we wanted to do on the pricing side that would benefit our customers and our business, but we couldn’t make changes because of our billing system. One too many of those issues inspired us to start Orb and take a more developer-focused lens to the problem.
Rob: One thing you touched on is that you fell in love with pricing after going through an exercise to correct it. I see this all the time. It often takes that experience of working on pricing, and realizing the impact it can have to fully grasp its importance.
Alvaro: The exciting thing about pricing is that you realize its this thing that can truly drive business growth, and in very different ways than just “does your revenue go up or down?” It’s much more about where you are pushing your customer base, and what kind of behaviors you are rewarding vs disincentivizing. That’s where I think it becomes a very interesting systems problem.
The thing I see a lot is that there’s a lot of fear, uncertainty, and doubt that holds back ideation or evolution of pricing in the world of SaaS. These are incredibly smart people across great software companies. There’s a good reason people aren’t rapidly testing pricing all over the place — its high-stakes, you don’t want to lose trust from your customer base, you don’t want to get it wrong. But it does seem like the industry as a whole has yet to understand the extent to which pricing can be a lever for efficient business growth.
Rob: One thing we were asked all the time at ProfitWell was to help with pricing implementation. During my time there, we really didn’t do any of that — we stopped at the recommendation phase. That said, it seemed, and still seems, like a massive opportunity. I’d imagine you get asked about implementation all the time.
Alvaro: If you are like me, and believe there’s no silver bullet for pricing, you realize the work firms like SKP and ProfitWell do is super valuable. However, the work typically ends with an insights-rich deliverable that gets handed off to an implementation team. At Asana, we had alignment and organizational buy-in to make changes to pricing, which is a challenge in its own right, but then found ourselves up against a legacy billing system that made the process of implementing the change really hard.
The reason its hard is because pricing and packaging logic isn’t usually neatly defined in one document or in a codebase. For example, if I wanted to gate a feature in a new plan, I might have to go back into a 10-year old code base, and figure out how these features worked in a lot of depth just to be able to make the change. It’s the sort of thing that sounds simple on the surface, but is actually a really challenging product development exercise, and that’s before you even tie in cross-functional workflows like finance and integrations.
The idea behind Orb is, how can we go from pricing as an afterthought, to pricing as a product. Meaning a thing you actively iterate on and have a roadmap for changing. Before, price changes used to happen every 5 years, or maybe every 2 years. At Orb, we’re seeing our customers make pricing updates every few months as they release new products.
Rob: I love this iterative approach to pricing, and it seems to be increasingly common among emerging SaaS companies. What kind of feature requests are you getting from these types of customers?
Alvaro: Lots of customers and prospects have asked for the ability to easily create new plan versions, and make bulk changes to existing pricing plans. This has traditionally been very difficult with legacy billing systems. We’ve been hard at work on a product help with this, and will be releasing it soon.
Rob: Traditionally, the trigger event for a pricing change was something really big — starting at the executive or the board level. Something like — if we don’t solve our retention problem, we aren’t going to survive. But in modern SaaS, there are all these new micro trigger events that warrant a fresh look at pricing. Not necessarily worthy of a full- on consulting engagement, but more like “how should I price this new AI feature?” There are so many opportunities to iterate on, which I think makes pricing a very exciting place to be building.
Alvaro: We see two things driving this faster rate of change. First, is opportunity. For instance, you’re Intercom and you’ve been charging for seats, but have this cool new AI feature and see an opportunity to monetize it in a new way. The other is necessity. If you are charging for seats and your customers are downsizing, you’re going to see downward pressure on your pricing. These two factors create a compounding effect that I think will continue to make pricing a board-level topic in 2024 and beyond.
Rob: It definitely seems like the topic of pricing has become a bigger focus over the last couple years. When I was at ProfitWell, it didn’t seem like there were many solutions out there solving challenges related to pricing, but these days I keep seeing new startups looking to tackle different challenges in the space.
Alvaro: One of our theses is that “Wave 1” of billing was built around — how do I get my pricing up and running, and not change it for a while? There isn’t really a billing system built for change and evolution, and that’s ultimately what we’re trying to do at Orb. We want to reduce the friction from idea to going live.
Rob: Let’s talk about that a bit. The combination of no-code tools and the rise of AI are changing how people build products, and also changing the dynamics of how companies charge. We’ve talked about opportunity and necessity being drivers for the focus on pricing, but what are other macro factors you’re seeing at Orb?
Alvaro: One theme we’re seeing is a shift from how many seats can I get in this account to how few seats can I get in this account, while still making an impact on the business?
Think about Zapier. Zapier is most successful when there’s one admin who manages workflows, but the product essentially runs itself, delivering automation value to teams throughout an organization.
We haven’t fully seen this yet, but I believe we’re going to see this technology be extremely disruptive to the CFO stack. You can imagine processes like bill pay and accounting, some of the tasks that feel ripe for automation. Instead of companies saying how deeply can we penetrate this finance team, the goal shifts to how can we shield them from a lot of that type of work.
Rob: The difference between seats and consumption is such a hot topic. What are some of the interesting models you’re seeing across your customer base?
Alvaro: The space between full seats and full consumption is where it gets really interesting. You’ve seen more pure consumption pricing recently than before with companies like Snowflake and Twilio. But at the end of the day, there has to be a CFO or procurement department that approves budget, and it is undeniable that a full, variable model creates more purchasing friction.
For the longest time, that’s been the objection to usage based pricing, but I think that’s where lot of companies are coming up with interesting hybrid pricing models or commitment-based structures to address that objection. A simple example would be supplementing a seat-based value metric with some usage based metrics in the form of API calls or data movement or workflows automated. From a monetization design perspective, this approach works because you have a line into seat expansion as customers are growing, but also have a hedge against contraction downside, by having a line into use case penetration.
Rob: I love this perspective. The combination of SaaS and usage can have a huge impact. For example, I was surprised to see Shopify raise their SaaS prices recently, because they hadn’t touched it in a decade. I just figured they had kind of moved on from looking at SaaS for monetization given the cut they take of GMV, add-on services, etc. But raising prices slightly across a userbase that big can be transformative.
Alvaro: A recent report from Goldman showed that NDR rates are plummeting for software companies, and the primary driver is seat-based contraction. So there’s actual data now pointing to some of this stuff that you and me are seeing anecdotally that’s forcing these companies to evolve overnight.
Rob: In my bubble on LinkedIn, I’ve definitely noticed a change in the tone of the pricing conversation. In early 2023, it felt like there were a lot of binary takes on PLG vs Sales, and seat-based vs consumption pricing. While that still happens, it feels like people generally agree that a hybrid approach is the most effective model. This raises a question I’d love to ask — what are some of the more creative pricing models you’ve seen among customers?
Alvaro: I’m a fan of looking for innovative pricing models in unexpected places. For example, we have a customer called Opus, that provides workforce training for frontline workers. They’ve structured their pricing to be based on credits. They realized there’s high turnover at these businesses and they need a model to account for that. They chose a usage-based model where credits are purchased up front. It’s a smart way to stand out in a competitive market.
Rob: It feels like the credit model is underutilized in general.
Alvaro: If you can combine smart packaging with a well thought out credit-based or commit-based model, there’s a lot of opportunity. Another example is a company like Databricks, which structures their contracts with a flexible commit that can be drawn down from any existing or future product. So as a customer, you don’t feel locked in to the products you use up front, and you have this shared wallet that you can pull from for any of their offerings.
Rob: Last question for you. One topic that’s been top of mind for many product folks is AI pricing. What are you seeing, and where do you think it’s going?
Alvaro: There’s a good chance whatever we talk about will be dated in a couple months, because this landscape is changing so quickly. While AI pricing is very top of mind, I’m seeing most companies kick the can down the road as far as monetization goes. For most companies, it seems learning is still the main goal.
Answering questions like: How will these products perform in the market? How will it impact the funnel from acquisition to retention? Is it going to drive long-term value? These are big questions, and you don’t want pricing to get in the way of those learnings. So for instance, you’ve got companies like Notion, going with a simple add-on model to see what happens.
On the other side of that, AI is expensive to operate. It has a meaningful impact on margins. So companies can’t underwrite it forever, and will have to grapple with the margins across their customer base. If they see big discrepancies there, they might realize a usage-based model makes more sense.
Rob: That’s super sharp, and hits home. The cost calculation is something we’ve had to navigate firsthand while building PricingSaaS, and the tradeoffs are very real. Thanks so much, for your time Alvaro.
A Word from our Sponsor
You could spend a lot of time and money on an internal billing build…that you’ll need to redo in 6 months. Or, you could trust Orb to do it for you - once. Need to experiment with pricing? Orb makes it simple. With Orb, high throughput teams build on core competencies and on the products we know and love rather than on billing.
Want to learn more? Get in touch with our team here. GBB readers get a free trial by mentioning “Good Better Best.”
Whenever you’re ready, there are a few ways I can help you:
PricingSaaS Software: AI-powered pricing alerts for PLG SaaS companies.
PricingSaaS Services: Rapid research and ongoing support for growing SaaS companies.
Free Pricing Consultation: Schedule a call with me to talk through your pricing challenges and determine the best course of action.