Value streams, Risk, Compliance, Security, Governance
Type of sell
Advanced Kubernetes management:
Routing to clusters
Stateful workloads / data
Type of sell
A feature sell means that people want to buy the extra features. This can be done self-serve.
A benefit sell means that people buy the business outcomes that come with fully utilizing GitLab. You need case studies, metrics like the conversational development index, and a quarterly check-in with a Technical Account Manager from Customer Success to review the status of the adoption plan. A competitive process can include a bake-off to show people are 10x faster in starting new projects with GitLab.
A transformation sell means that people want to transform as an organization. They want to reduce cycle time by 10x and want us to help them. We do workshops with transformation consultants and define a complete, shared project.
Hybrid sales model
There is a big price difference between the different tiers (0$, $4, $19, $99 per user per month, a price difference of infinite, 5x, 5x). For GitLab Inc., the majority of revenue comes from large enterprises buying the top two tiers.
Most companies in a similar situation would focus only on the highest tiers. There will be pressure to increase our lowest tier to $8, for example. But we want to make a our hybrid model work for the following reasons:
The lower two tiers are a scalable way to create future customers.
If organizations are already using Atlassian JIRA, we want to be competitive with Bitbucket on pricing. If they buy Bitbucket, it is hard for us to win them back. If they buy GitLab, they discover that it can replace JIRA, and over time they might buy a higher tier.
Raising the price of the lowest tier will prevent people from starting with GitLab. It will raise short-term revenue at the expense of our long-term market share. Instead of raising prices, we should focus on communicating the value of the higher tiers. This will get easier over time, as we introduce more features. In 2016, sales people focussed on free vs. starter; in 2018, on starter vs. premium. Hopefully, in 2020, on premium vs. ultimate.
Charging $8 for the lowest tier and discounting aggressively when we're up against Bitbucket doesn't work. It is unfair to customers who are not aware of this discount, and most customers are self-serve (we never talk to them).
You can also check the viability of the different tiers by the conversion from tier to tier. For example, if 5% of users upgrade from free to starter, starter to premium, and premium to ultimate, your prices are balanced. If many more people upgrade from free to starter than from starter to premium, then starter is underpriced. Please note that when a customer chooses starter over premium, that is much more visible to us than users not buying at all, and this might cause us to focus too much on the first case.
A conversion rate of 5% for installations / organizations should not be confused for 5% of the market revenue. There are organizations of different sizes, and larger ones are more likely to pay and purchase a higher tier.
A 5x higher price doesn't mean there is 5x more value, just like the Starter tier doesn't provide infinitely more value than the gratis Core tier. When deciding between tiers, organizations should look at the ratio between how much extra value they get divided by how much extra they pay. If this ratio is comfortably above 1, it makes sense to move to a higher tier. The value is in making people more effective, saving time on integrating tools, driving faster time to value, and retiring other tools. This should more than pay for the increased price of a tier. An analogy would be Apple's iPhone: it is twice as expensive as an average Android phone, and while it doesn't deliver twice as much value, the extra value is worth the extra cost.
As Stripe documented: hybrid is hard, because "The most common result of attempting both models simultaneously is that only one of the models receives any traction, and (because these models weave themselves into all operations of the company) it typically strangles the other."
Combining features in plans
We tried selling one feature at a time, but this was not feasible. An improved version of that would be selling 7 main features, instead of 3 plans. Examples of main features would be: High Availability, Security, Service Desk, etc.
With true-up pricing, the license/sale is never blocking user growth.
We currently charge 100% for people added during the year, because some organizations gave an intentionally too-low estimate when we charged 50%. If we technically can count "user days," we can make it fair for everyone, but we're not sure if the technical and sales complexity is worth it.
We're also doing quarterly true-up on request for larger customers.
Price difference between self-managed and SaaS
Arguments to charge more for SaaS:
The costs of SaaS are higher for GitLab.
It is more logical in revenue recognition.
Arguments to at least make them equal:
Self-managed pricing tends to be higher, in general.
There is more market demand for self-managed.
No incentive for sales to sell SaaS over self-managed.
Self-managed tends to be a better experience.
We want to incentivize customers to move to SaaS with us.
Not sure what is normal in the market. Adobe did a good job, but they moved from perpetual licensing to subcriptions, where it is hard to compare the two prices.
When is a dollar not a dollar?
This is the title of a great article of which we'll apply the 8 points to GitLab below:
Cost vs. revenue: we can help both to reduce costs and increase revenue, make sure you align to what the priorities of the prospect are.
Principle agent problem: for a VP of Engineering, you probably want to highlight our features that provide more visibility over features that save developers time.
Existing expense vs. new expense: we can make use of existing budgets, be aware that multiple can apply (dev tools, security, operations, DevOps transformation).
Above vs. below discretionary spending limits: one more reason to have multiple pricing tiers.
Selling services vs. customized products vs. off-the-shelf products: we're selling a high-margin product and augment with services when needed to make the customer more successful.
Selling to many stakeholders vs. one stakeholder: this is another reason for our multiple tiers—Starter is sold to the single stakeholder of development teams, Ultimate is sold to multiple stakeholders and will need the CIO to enforce the transformation.
Monthly vs. upfront payments: that is why we prioritize yearly upfront, sometimes even multi-year upfront. Also, yearly is the standard for enterprises (Salesforce sells it like this) and helps reduce support costs that are an order of magnitude greater for .com (most likely to be monthly) vs. self-managed.
Selling vs. upselling: this is why we have multiple tiers.
Annual pricing is prioritized over monthly pricing
Annual, up-front pricing is our priority and primary offering. We will enable monthly billing options for SaaS offerings, when packaged as part of a bundled monthly offering with partners.
Arguments supporting annual up-front pricing:
It helps to recover the costs of acquiring, onboarding, and supporting a customer.
It enables reinvestment to speed delivery of new product capabilities for customers.
It aids customer self-selection and commitment to drive to successful deployment and enough time to see successful outcomes with the product.
It can be offered at a discount relative to monthly pricing.
We offer a wide range of product tiers, including a free tier to appeal to many customer types and free trials of any tier.
Costs are lower for sales, billing, and customer support.
Better customer experience due to ongoing product availability and less frequent administration and and billing contact.
It is much easier to enforce license entitlement only once per year and yields lower product development cost.
It enables a more predictable business and more up-front investment in customer success to ensure great outcomes from use of the product.
Arguments supporting monthly pricing
Monthly billing gives customers another way to buy and thus reduces barriers to adoption of the product.
Monthly pricing can align with billing of combined or dependent products/services that are already billed monthly. (ex: if bundled with another monthly service)
Only sell a suite
Most companies evolve in the following way:
Sell one product
Sell multiple products
Sell multiple products and a suite of them
Only sell a suite
An example is Microsoft Office, where it is costly to buy components of Office365 separately, although higher tiers include more products. At GitLab, we decided to skip the intermediate steps and immediately only offer a suite that includes all our products. Having our complete scope included in our open source version is even part of our stewardship promises.
Selling only a suite has risks, after the => is how we mitigate those at GitLab:
Lose potential customers, if people want one product. => Offer a Starter tier that is priced competitively with single products from competitors.
Leave money on the table, if people want all products. => Offer an Ultimate tier that is great value, if you adopt everything of GitLab.
Discount because people don't want all the products. => Make a discount conditional on not using part of the product.
Tiers are harder to define than if you would have separate products. => Hard to mitigate, we have to work extra hard on communicating the differences.
No revenue feedback from customer about what products they value more. => The product function focuses on usage data as our best proxy for value.
Companies evolve to selling only a suite for the following reasons, after the => is how this applies to GitLab:
Makes it easier for organizations to adopt the other products. => This is essential; organizations have official solutions and GitLab grows with organic adoption from developers.
Show customers the benefit of a single application. => This is essential, since people are skeptical (showing beats telling).
Harder to displace the suite, once it is in place. => This will help if competitors offer a service based on our open source code.
We're going even further than selling a suite by integrating everything in a single application. We do that because of the advantages mentioned on our direction page section about us being single application. A secondary effect is that the user doesn't have to make a buying, or even an adoption, decision.
There are two factors that determine how much value Gitlab creates for an organization, in order of importance:
Scope: how many parts of GitLab you use, indicated by the DevOps score, how many components of GitLab are in use.
Size: how many people work in an organization and use GitLab.
When an organization is larger, the benefits of GitLab are larger because:
Coordination takes up a greater amount of the work. 80% is coordination costs; it is much more valuable to reduce that then when it is 20%.
Harder and more expensive to train people and enforce best practices.
More silos that benefit from innersourcing.
More cancellations, longer cycles, more time to win.
Higher requirements for governance.
Since GitLab is an open core project, we'll always create much more value then we (are able to) capture. Based on the value created, the straightforward way to capture value would be to:
Scope: charge a higher price per user the more of GitLab you use.
Size: Charge a higher price per seat the more users you have.
These straightforward ways are not possible for the following reasons:
Scope: charging more for adoption would hurt the adoption of GitLab for the whole lifecycle. In January 2018, version control is 10 times more popular than the next feature (CI). We need the features to spread organically, so people can create more value with GitLab. People are much more willing to pay when they are already using a part of the lifecycle.
Size: many other software companies limit the maximum amount of users in certain tiers. For GitLab, we can't do this because the open source version can't contain artificial restrictions. We can do it in our proprietary tiers, but this doesn't seem symmetrical. It also feels unfair, if you have to pay more simply by being a bit larger then the limit.
So we're left with charging for features. We can't charge for each feature separately, since that in unwieldy for the customer. So we charge for tiers that contain a bundle of features. We select features in the (more expensive) paid tiers that:
Scope: become more useful and valuable as your DevOps score increases
Size: become more useful and valuable as your organizational size increases
Adding features to a (more expensive) paid tier is not the only thing stopping users from adopting them, but it is a very important factor.
To simplify the above, we base our feature groupings on champion position (see below).
The likely type of buyer determines what features go in what tier Our plans are based on the buyer that buys GitLab, from individual contributor, to manager, to director, to executive. The feature is put in the plan based on what champion is most likely to care about it. Buyers make sense, since a higher-cost plan needs a higher-placed buyer.
Alternatives that don't work:
Pricing based on company size doesn't work; some small companies need the features of the most expensive plan.
Besides the tier framework, we also need to keep our stewardship promises. We owe it to our users to only move features from higher-paid tiers to lower ones, never the other way.
This means that, when in doubt, we will select the higher tier and move it down later, if data shows that this is better. It also means that all tier changes will involve moving things to lower-priced plans.
When moving features to lower priced plans, it is important that we take an overall view. If there is a knee-jerk reaction of 'why do we always move features down,' then the response will be to opt for lower tiers initially. The harder we make moving a feature down in tiers, the higher the risk of getting the initial assesment wrong.
So we should focus on building new features that buyers want and making sure that the initial assessment of new features is never too low. Please also note that the CEO is in charge of pricing and tiers; this is delegated to product for the day-to-day work. While other parts of the GitLab organization are consulted, the CEO is the directly responsible individual.
Moving a feature down
Create an issue for the proposed move in the relevant issue tracker with:
Specify what type of user (individual contributor, manager, director, or executive) cares most about this feature.
/cc the product, marketing, sales, and engineering leaders.
After post the issue in the #pricing Slack channel and at-mention the CEO, CRO, CMO and VPs of Product.
If there is an approved comment from the CEO on the proposal, update the description for delivery and schedule it for a milestone.
DevOps score is not maturity
What is interesting is that GitLab creates more value as you adopt more of it. This shouldn't be confused with DevOps maturity. DevOps maturity is how advanced your practices are and how fast your DevOps lifecycle is, shown in cycle analytics. With the best practices embedded in GitLab, you will mature faster than without it. GitLab enables a 200% faster DevOps lifecycle. But DevOps maturity is mostly about organizational change. GitLab the product is just an enabler of it. Even if an organization uses everything of GitLab (high DevOps score), they can still have a slow process (slow lifecycle). We know there is a correlation between a higher DevOps score and a faster lifecycle; but especially in organizations new to DevOps, it is a trend, not an absolute. Linking our tiers to maturity would mean we don't ask any money from the large organizations that currently have a slow lifecycle but that are making it faster by adopting all of GitLab. These large organizations with a slow lifecycle benefit the most from GitLab, since they can adopt it completely, because they are not held back by an existing toolchain.
Location based pricing
As suggested by a user on Twitter. This is a good suggestion to consider given the GitLab approach to adapting to local markets throughout the business. GitLab will assess viability of the idea in our overall pricing strategy planning. It is difficult to do and our assessment of this will consider:
This is a complex issue and requires that all parties are better off if a change is made to account for geography. We fully admit that this would be hard to pull off successfully.
If there is a way this could be good for customers and for GitLab, we will not treat this separately. We will treat it as part of a unified pricing strategy
In a global and digital marketplace it is difficult to positively identify where a customer is geographically located either because we rely on that customer to self-identify or because it is a large organization with users in several geographical locations.
We may be able to solve with a simpler discounting policy
Any overall reduction in cost per license must be more than made up by increased volume at the new pricing