The restaurant industry’s SaaS pricing paradox
Most restaurants run razor-thin margins. And for many, these margins seem to be getting thinner and thinner.
In terms of primary expenses associated with running a restaurant, prices are going up across the board. Food cost is rising, labor remains strained (and labor costs are rising), and rent and utilities are… you guessed it, rising. From a purely business perspective, mad props to anyone running a successful restaurant. In today’s day and age, I just don’t think I could do it.
Because every dollar counts, software-as-a-service (SaaS) solutions aiming to help streamline processes, boost efficiency, and cut costs still face a paradox tied to the industry’s unique pricing landscape.
Okay MarketMindedTM friends, let’s talk about it.
At the same time restaurateurs are battling with rising costs, nearly one thousand technology companies are ready and willing to “save the day.”
But for a price.
The restaurant tech space is flooded with companies wanting to help optimize operations and reduce expenses and, thus, competition is at an all time high. As more and more competitors enter the market and inevitably turn the blue waters red, it makes sense that both sides of the equation turn their eyes to pricing. All this, of course, in an industry that was already absolutely notorious for hammering on cost with no remorse.
The pricing predicament
Depending on your product, the restaurant industry will at a minimum influence, but more realistically dictate, your GTM pricing strategy. This means that existing market conditions, and tolerance for your price book, will directly impact your positioning.
Now, if you’re lucky enough to offer groundbreaking innovation with limited competition and demonstrable ROI… congratulations. You are a unicorn and can likely control pricing for at least your first 1k installs. But for the rest of us selling incremental improvements that ask prospects to migrate away from an incumbent solution, our pricing is tethered to our competitors. No one will willfully rip out a service for a few extra features that costs double.
This means all eyes are now on your rate card.
Back of the napkin math
Pricing for SaaS hasn’t changed much in the past 10 years, likely because the industry’s tolerance hasn’t budged an inch. The two most common ways SaaS companies position their offerings are either:
- Per transaction (variable cost) → credit card processing, per order or delivery, per reservation cover. Or,
- Flat-fee (fixed cost) → everything else.
Transaction fees are, in my opinion, the only way a handful of companies like OpenTable or Toast have been able to successfully implement pricing strategies that basically farm higher-than-average prices out of restaurants at scale. But this comes at a cost, most notably to your brand. The industry absolutely hates it. And with zero loyalty to your logo, as soon as someone else offers a fraction of a percentage point cheaper… POOF, they’re gone.
Enter flat-fee, which does away with, for example, a $2k/month/location invoice. This is GREAT, however when it comes to predictable monthly fees with ongoing commitment, for some reason anything above $200/month/location is basically off the table. Sure you might convince a few industry leaders that have deeper pockets, but the majority will ghost you.
As a rule of thumb, if your SaaS can sell (repeatedly) for $150/month/location I’d say you’re ahead of the pack, though you’ll need to show significant ROI and value at this price point. $100/month/location is the safest bet when forecasting growth, however depending on your product or service this could still be significantly above commoditized categories like online ordering or loyalty. If you’re incredibly unlucky, you could be up against bespoke software being peddled to the long-tail for absolutely free. This is why knowing and understanding your place in the market is a strategic imperative.
And herein lies the pricing paradox
Low unit economics in terms of SaaS pricing have a cascading effect on various aspects of the restaurant tech space.
First, it affects quotas and the path to attainment for sales reps. With lower price points, AEs must close a higher volume of deals to meet MRR quotas, leading to added pressure and potential burnout.
Second, Customer Acquisition Cost (CAC) also rises, as more customers are needed to sustain the business. To compensate for lower quotas and CAC, the industry often resorts to hiring underdeveloped sales reps at lower base salaries. This creates a vicious cycle where lower pricing influences the talent pool and overall sales efficiency of the revenue org. Smaller deals, slower deals, more customers to manage. Got it. And ouch.
Lastly, lower quotas and higher CAC are directly at odds with the way investors and boards want to grow tech companies. This is the crux of the problem for almost every company I’ve spoken to in the past 6 years.
Here’s what a founder or sales leader uncovering the restaurant industry’s SaaS pricing paradox sounds like:
“We need to double our revenue next year. But when we trickle down the growth targets into rep-level quotas we either need to use a price we know the market won’t bear, or we need to close a number of units we’ve never come close to hitting and therefore have no reason to believe is even possible. What do we do?”
Yeah, what do you do?
You probably can’t solve it with just headcount, which by the way kills CAC and therefore won’t be approved on its own. Doubling activity won’t double results, plus if you expect reps to just wake up one day and sell double please realize that if it were that easy they would have done it already. You can try to Ops your way there, but automation alone is risky without the right investment in the people, skill sets, and systems needed to target the industry in its entirety. If you’re a person of faith, I suppose you could pray, I just wouldn’t put that in a board deck as a primary or even secondary GTM strategy.
The truth is there’s no silver bullet here. Finding the right pricing balance between headcount, quotas, and RevOps systems to achieve aggressive growth targets is nuanced, and the right solution will manifest itself differently given the product and underlying market conditions. It’s something that literally every company is struggling with, some daily, which means at a minimum you’re not alone.
Striking the right balance between offering affordable solutions and maintaining profitability is obvious. It’s just not easy, particularly in this industry.
And while I cannot offer you a one-size-fits-all solution to the pricing paradox, I do have one ask, if you’ll let me.
Please be mindful of the impact your pricing will have on not just businesses, but real human beings. Sales reps hustling to hit big targets with strict pricing constraints are human beings. Restaurant owners who very likely need your services but simply cannot afford them today are also human beings.
Don’t get so wrapped up around revenue and growth that you forget who it is that you’re serving: those who serve others.