[ttul]

Your journey will be unique, so take everyone’s advice with a grain of salt. However, here is one thing I have learned about pricing after two decades of recurring revenue software and services: you can ALWAYS raise your price.

Many people will tell you that your price cannot be raised. That is utter BS. For the first enterprise customer, I suggest giving them a price they can’t refuse; something that will cover your bases providing a healthy gross margin (something like 70-80% after paying your hosting costs, support costs, and other direct selling expenses). But don’t make a “meal train” out of them yet.

Once you get their logo on your sales slide deck, it will be far easier to close enterprise deal #2. And once you reach perhaps ten enterprise customers, all of whom are extremely happy, then you can announce to the initial group that you intend to raise your price “a year from now”. For new customers, the price is already raised.

Keep doing this a batch at a time, but don’t let the price get too far behind. It is far more difficult to raise ancient customer prices by 50% all at once vs. a steady 5-10% per year all the way along. So long as you are continuing to provide good value, customers will stick with you.

[devjab]

Having been the enterprise customer for two decades I've never worked in a place where this wouldn't have been a sure way to lose our business. In fact, Microsoft is in the process of losing us right now because of their continual Azure increases.

The reason may not be what you expect. It's not that we're angry with Microsoft for raising their Azure prices. It's because they've raised them so high that the competition is getting to the point where the business case for spending the next 10 years on our own iron (renting space at facilities that sell that sort of thing) is turning green. The only way you can continue to increase prices 5-10% a year is if you have a monopoly on what you sell. Eventually it's going to cross into an area where not only the annual licensing but also the migration will be cheaper at your competition.

[snowwrestler]

The general form of this is “don’t let your pricing become uncompetitive.”

For basic server capacity, leasing or buying your own hardware is a competitor.

But for software higher in the stack, like collaboration or marketing platforms, there’s often no “on-prem” option. So a SaaS business just needs to stay close enough in price to competitors that the pain of staying is less than the pain of migrating.

If all your competitors are raising prices… well, so can you. (And vice versa.)

[victor106]

100% agree with this.

Azure price increases are ridiculous.

And Azure is not even the best cloud service provider compared with AWS and GCP. Azure documentation is horrendous and performance is subpar. Although I do think their storage is slightly cheaper than other the other two. But I think they might still win compared to GCP as they are pretty strong in enterprise sales. I keep hearing good things about Oracle cloud too but haven’t tried it yet.

[formercoder]

In your cost comparison are you including headcount to maintain all of that infrastructure? Security? And the equivalent of multi zone redundancy? Scale headroom?

[devjab]

Yes. Before Azure/AWS became the “obvious” choice for a lot of European non-tech enterprise many organisations had already moved to the cloud of sorts. Basically there are companies that house servers, and you rent a place to put your hardware. They’ll maintain it and do support on it and really it’s basically renting with more steps. They have zone redundancy, though not global, but that’s rarely needed. Or in short, they tend to handle all the physical parts of having hardware.

When Azure blew up it did so because it was cheaper, much cheaper, not so much because of the features it offered. They are nice, but for a lot of industries you sort of can’t use them because it’s a bureaucratic nightmare to upkeep the required exit plans if you do too much vendor lock-in. For some industries this isn’t an issue, but for many EU enterprise organisations it is. So anyway, the big cloud was cheaper, but since it’s been raising cost pretty steadily, and, because all those hardware houses lost customers and the survivors became cheaper, the scale has now tipped.

As far as operations go on the software side, I’m not sure the headcount is that different. We frankly tend to buy that from third party companies anyway, but the pricing difference isn’t too different between whatever you want to do. I’m personally a fan of doing it with your own staff, but it’s just such a challenge because your IT budget isn’t going to be big enough to do in a way that is resistant to people finding new jobs. The third party agencies don’t have this issue because they sell things like networking to a bunch of organisations, so it’s not just one or two guys for them like it would be if we did it ourselves.

But yeah. Big cloud operational costs are getting to where it makes absolutely no sense to use them, all costs included. When we draw up plans for hardware we have extra budget for when some net controller fails 5 years before it’s supposed to, that sort of detail. Otherwise you can’t make an informed decision. Judging by the local tech environment here in Denmark, we’re frankly even going to be late to the party of leaving big cloud because of costs. Likely because we weren’t using it too heavily in the first place.

I fully expect that the pendulum is eventually going up swing back. It’s not like we’re stopping our contracts on Office365 or Windows licenses anytime soon, and eventually we’re going to get offered the same sweet package deals that landed us in Azure and not in AWS to begin with. But for the next 5-10 years I think a lot of EU based non-tech orgs are going to leave big cloud over cost.

[scrapcode]

I am on the procurement side of the house. ~10% to even 20%+ increases were normal in the past couple of years, and it was considered acceptable for some products as the market was so wild. But it's obvious at this point through budgetary estimates for 5-year+ contracts that companies are going to expect to see this every year moving forward.

When we start seeing our license and support costs planning on almost doubling in the next 5 years, that have already skyrocketed in the past couple of years, it makes us start talking about shifting to a different solution.

[theptip]

I think you are missing the first half of the GP’s advice - they said “give them a price they can’t refuse”, ie price below market/competitive level. The 5-10% per year is getting you back up to the “market price”.

The reason this is useful advice is that, as the GP notes, many think they will be locked in to selling below-market forever if they give their first customer a good deal.

This really does not apply to MS. They do not price anything below market rate, in some sense they set the market rate. (Or get to charge a monopoly/lock-in premium above it).

[moneywoes]

Have they been increasing value along with that?

[devjab]

I can point to very few IT systems that are actually increasing our value. They are necessary because it’s hard to run a 300 employee investment bank using just excel and outlook, so they sort of are. If you look at the per employee performance, however, it is down compared to when the organisation was just using excel and outlook. This is despite getting a lot of neat systems that work well, but they obviously don’t work well enough. Which is probably combination of the implementation among employees, the lack of custom fits, the lack of integration between different systems and of course some of the systems themselves.

As far as where we run things, well, no. Things aren’t better in azure than they were 20 years ago when it was run on a server in the basement. It’s not even cheaper per usage. But a lot of this comes to how you buy these things in enterprise. Our biggest expense is never going to be anything but the windows licensing, the rest is sort of just added on. Right now Azure is getting too expensive to compete, so we’re likely going to leave, but it’s not like it really matters for the organisation beyond the budget. We could run things on raspberry pies tied to a racoon who’d power them from the movement it makes while it attacks random people in the IT department and the organisation wouldn’t care as long as it worked and was cheaper than it’s competition.

[themodelplumber]

> So long as you are continuing to provide good value, customers will stick with you.

Just to add: Provide value or provide context along with value.

For example, "our partners and providers continue to raise prices due to economic factors" is contextually a totally acceptable point to make.

For example, if an upstream infra provider goes "our electricity bill is nuts, welcome to your new pricing tier" but changing that provider would cost your customers even more.

A lot of people also don't understand their value proposition in a non-technical way, which is really important as well. Once you can understand it better on your client's side, the context is generally even more clear..."you've helped us identify and solidify plans to upgrade our platform to better suit your need to X and Y within your organization."