The SaaS Index
A mechanism to find global parity on SaaS pricing.
The SaaS index is a tool designed to help developers decide on optimal pricing in different nations on basis of regional purchasing power parity. It takes into account the notion that while the internet makes it possible to distribute digital goods with relative efficiency - pricing for subscription models are guesswork in most instances. Optimal pricing for SaaS should take into account (i) regional appetite in terms of dollar for the product's offering (ii) the TAM of the market in terms of the count of individuals and (iii) external costs associated (eg: variable data costs). Where the Big mac index looks at a single product (a burger), the SaaS index looks at a basket of goods a millennial would subscribe to get an estimate of how preferences change.
How is it calculated
The SaaS index currently takes an average of the lowest tier of premium subscription available on a basket of apps covering entertainment, mental health and productivity. For the purpose of this exercise, we limited ourselves to Apple Music, Apple Arcade, Spotify, Calm, Headspace, Google Drive, Tinder Gold, Netflix. The pricing in the regional currency is then converted to dollars to tabulate variations in regional pricing
In order to maintain a unified market, the SaaS index only takes a look at Apps currently available on the iPhone store as it has (i) shared payment processor (ii) similar OS offering and (iii) relative advances in hardware. We take an average of the total cost expenditure for individual apps, then compare it with the price one would pay in the United States. The final index figure, gives a multiple that indicates whether a developer can charge more or less for the application in a certain region.
Given the lack of availability of an API based data source - we had to restrict ourselves to USA, Japan, Germany. India, United Kingdom, Brazil, Canada and Singapore. These nations were selected on basis of their GDPs and distribution around the world. As the number of countries and apps we cover evolves, we hope to bring in an element that accounts for regional internet penetration & GDP per capita. Our ability to expand and iterate on this data is limited by access to pricing of SaaS apps across regions and the intent of putting out this body of work is to seek a source for the same.
What Did We Find
Given the limited number of countries we covered in the index, the variations in the index are not much. However, it does seem like developers may be leaving money on the table in some parts of the world. The UK for instance has a 5% premium on the index. For many other economies of similar scale, a 3-5% discount has been the norm. India and Brazil, with their limited TAM in terms of the number of urban individuals willing to pay international prices have an almost 50% discount in terms of the average price payed for a SaaS App. Another way to look at it is that if a region's index is at 0.41, you may need 2.5x as much volume to make a similar amount in revenue. This has implications in terms of how developers tend to deploy capital. Having twice as many customers in India may not mean much if your users are heavily discounted. Similarly, low CACs (cost of acquiring customers) don't necessarily translate to healthy businesses.
What we also found interesting as a result of the exercise is that there is also a sectorial variation that feeds into how SaaS apps are charged for. For instance, the cost of 100 GB space on google drive has more or less unified at around ~$2 (with the exception of Brazil). Part of the reason for this is that these are (i) enterprise or SME sales done to (ii) people with similar socio-economic backgrounds. On the flipside, if we take something like mental health (calm or headspace app) - there are massive variations in how much individuals pay in different regions. The pricing for Headspace varies from $2 to $14 depending on the region you are in. Large platform plays like Apple Music and Apple Arcade also show a similar variation in pricing with major discounting going on in India. This indicates the fact there needs to be more sectorial pricing indexes because the regional appetite for different themes is very different.
What's Next
The SaaS index in its current form is extremely limited as it takes only a handful of nations and a small basket of apps. The underlying index also does not account for internet penetration or GDP per capita in its current form. For an accurate figure, these data-sets need to be expanded. The purpose of releasing the index in its current (alpha) form is to crowd-source how developers are pricing their Apps. We intend to collect, curate and calculate the pricing of different indie apps from developers to get an idea of what would be the ideal pricing for a SaaS business. The end goal would be to give a simple index which when multiplied against for the sector and country gives the ideal base-layer initial pricing for an app. If you would like to contribute to this simply fill the pricing of your favourite SaaS offering, in your region in this form.
How to get in touch
We are open to speaking to economists, students, analysts & VCs that are curious about this topic. Drop in an email to joel@decentralised.co. if you have any thoughts on developing this index further. If you are a data-provider with an API for regional pricing of SaaS offerings or iOS premium subscriptions, please do reach out as we are open to a commercial collaboration.
Being developed by Joel John & Moses Sam Paul