Go-to-market strategy for embedded payments

Embedded Payments Pricing Guide for Vertical SaaS Platforms (Part 6 of 6)

This post is part of a series on the optimal product, positioning, and pricing strategy for embedded payments.

SaaS companies can easily miss out on the full revenue potential of embedded payments because the payments implementation or go-to-market strategy is a little off.

This series will highlight the different factors in building a successful payments strategy and help you determine the best path to success for your particular platform.

Launching (or re-launching) embedded payments

Our team of vertical SaaS and consulting veterans has guided payments strategy for 100+ SaaS platforms.

These are their top go-to-market insights.

Start high and lower if needed

You can always decrease the price. It’s harder to increase it. Start higher and go from there. However, make sure your merchant contract gives you the flexibility to increase pricing, upon notice.

Use “test, measure, learn” processes

Promote an “early adopter” rate and see what questions you get. Use this information to adjust positioning, messaging, and, if needed, pricing. The “start higher” principle matters here.

Position payments as an obvious upgrade

If you’re launching or re-launching payments, you’re likely doing one of the following:

Replacing a mediocre merchant experience with a winning merchant experience
Replacing one or more partially integrated payment providers with a truly embedded solution
Adding embedded payments where previously merchants needed to accept payments off-platform

In all these situations, you are investing in your payments product to deliver a superior merchant experience for your customers. You’re providing in-context payment reports, easy reconciliation, and one-stop support – all to benefit the merchant. You are giving merchants a feature or improvement that they’ve been asking for, or at least secretly wanting.

This is your right-to-win. Of course merchants want to use the new embedded payments product! Infuse this energy into every piece of communication about the payments launch.

Behind the scenes

These details may not be front and center for your launch, but tackling them now prevents confusion later.

Merchant agreement terms

With fully embedded payments, you own the merchant relationship. Consider adding key contract terms to help manage the payment processing relationship.

Fee change: Ability for platform to change fees without notice, or with short notice by exception, if upstream vendors change costs
New services: Ability for platform to add services, where use of the new services constitutes acceptance of the sticker price
Updates to terms: Ability to update terms of service such that transaction processing serves as acceptance of the updated terms

Refunded payments

When a merchant refunds a credit card payment to an end customer, it might not make sense to apply the same pricing as when merchants get paid. Here are some recommendations:

Competitive market: charge only a per-item fee for the refund, not a volume fee.
Low-competition market or where the platform is providing significant value add services around payments (invoicing, collections, calling, etc): you can also charge a volume fee for the refund.
Enterprise merchants or IC+ pricing: you may need to return the passthrough fees associate with refunds.

Presenting the payments pricing

Keep the pricing as simple as possible

Complexity sounds expensive. For example, 2.65% + $0.45 + 0.50% Amex surcharge + 0.40% for subscription billing, etc. sounds more expensive than 3.5%. Complex pricing also creates more complicated reporting, more difficult reconciliation, and more support requests related to billing. Simple pricing creates a better merchant experience.

List payments pricing with core software pricing

Payments should be listed with your software pricing. Don’t make it a separate discussion or decision. Any time the payments product is separate from the rest of the SaaS product, the value of payments is being decoupled from the value of the core SaaS product. Embedded is the value-add, and that means that payments and the core SaaS product are most valuable together.

Limit pricing reviews to large merchants who are serious about the solution

When handling merchants requesting a pricing review, use a tiered approach to avoid doing a true cost comparison for smaller merchants. This type of analysis is labor-intensive and can be confusing. Allow your front line folks to offer a small discount without the statement review, and require volume thresholds before considering a statement review. Gate the review behind managers, and ensure that merchants are confident in the solution before committing to a pricing review.

Maximizing revenue

It’s easy to overcomplicate an embedded payments launch (or re-launch). But it’s not necessary. Instead of overanalyzing, do these three things. In order.

1. Pick a price and run with it

Don’t overthink it. Pick a price and promote it to potential early adopters. Start high and make adjustments if needed. The feedback you receive will help fine-tune your positioning, messaging, and pricing.

2. Focus on adoption over margin

Volume beats margin all day, because volume is only limited by the total available market. Once you’ve found a reasonable price point, shift your focus to driving adoption. You can always come back and optimize costs and pricing later.

3. Optimize interchange

The best way to manage margin is interchange optimization because the majority of card processing cost is interchange passthrough. If you’re paying 2.0% interchange passthrough and 20 basis points (all in) to your payment provider, a 5% decrease in interchange passthrough gets you the same margin improvement as a 50% decrease in payment provider fees. Read more about interchange optimization here.

Next steps

If you’ve been following along, you now have:

1. A range for your advertised price
2. An idea of where you’ll be within that range, based on the comprehensiveness of your core SaaS product and the quality of the merchant experience you’re providing

A bottom-up estimate of the minimum price you need to get your desired margin

Taken together, this tells you what price to advertise payments, as well as the range within which you can discount for high-volume or key customers.

Ready to drive revenue, retention, and enterprise value with embedded payments?

Click here to apply for a complimentary payment strategy consultation with our in-house experts