Monetization Playbook #46–Value-Based Pricing; ESP Napkin Math
How to Value-Based Price an Email Service Provider [ESP}
Value-based pricing is all the rage.
Every SaaS is getting in on the joys of customer-centric value alignment and expansion revenue upside.
Further, experts tell us to calculate the client value and capture anywhere between 1-10% of that value creation for ourselves.
But how do you calculate the value that you generate for your customer? They're unlikely to divulge the inner workings of their revenue!
An exercise in the shark-infested waters that is the email service provider [ESP] market [Mailchimp, Convertkit, email Octopus, Sendinblue, et al. provides enough information to backsolve the value capture mechanisms at play
Email Service Provider [ESP] — [for example: @$99/month]
No. of email subscribers = 10,000
Message Deliverability% = 90%
No. of times sent [2] = 2 x 10,000 = 20,000
Open Rate % [i.e. the % of views] = 20% [mid range industry average]
Sales Conversion % [the % of sales per views] = 5%
Sales Price = $29 [let us assume a standard e-book product]
Total $ Sales [sales price x net conversions] = $5,220
[Math: [20,000 x 90% x 20% x 5% x $29] = $5,220]
ESP Value Capture ~ $5,220/$99 = 1.9%
Value capture rates <2% fit into the model of a mature, hyper-competitive, product-led SaaS vertical. For more high-touch SaaS, 2-5% may be possible.