Procore filed its S-1 to go public last Friday. Procore started as a collaborative project management platform and added additional functionality from there.  Already there are some very good S-1 “teardowns” available on this vertical SaaS platform.   See here and here.  As a result, there’s no need for me to re-hash the basics.  Suffice it to say, this is a great story of:

  • Patience and perseverance
  • Sequentially adding users, then an app marketplace, and then more functionality beyond project management (e.g., financial management, bid development, etc.)
  • Continued investment in sales and marketing and R&D, even as the company has reached almost $300 million in annual revenue

The S-1 is worth reading if you have an interest in vertical enterprise SaaS.

Procore Pricing Option

One of the most interesting aspects of Procore is its pricing model. Procore could have taken a very basic approach with its pricing and simply charged per:

  • Module,
  • Seat, and
  • Project

This pricing approach would have fit very well with the way customers think about their businesses.  This approach would also have fit well with how customers often buy software. But this approach would have had two major drawbacks:

  1. Pricing on a per-seat basis would not have scaled well with the value Procore provides to its customers.  Procore improves speed, reduces rework, and eliminates errors on construction projects.  Procore’s value to its customers scales better with project value than with the number of users. With a user-based model, Procore would have left money on the table.
  2. A project-based subscription model would lead to perfect cyclicality with the construction cycle.  It would also involve more on- and off-ramping of customers, driving up customer support costs. Finally, it would not conform to the way investors evaluate SaaS companies.  Investors want Annual Recurring Revenue, not Project-based Revenue!

Procore Pricing Wrinkles

To address these issues, and others, Procore took a more nuanced pricing approach.  Here’s the description from the S-1 (my highlighting added):

We generate substantially all of our revenue from subscriptions to access our products and have an unlimited user model that is designed to facilitate adoption and maximize usage of our platform by all project stakeholders. We sell our products on a subscription basis for a fixed fee with pricing generally based on the number and mix of products and the annual construction volume contracted to run on our platform. As our customers subscribe to additional products, or increase the annual construction volume contracted to run on our platform, we generate more revenue. We do not provide refunds for unused construction volume, or charge customers based on consumption or on a per project basis. Subscriptions to access our products include customer support and allow for unlimited users as we do not charge a per-seat or per-user fee. Customers can invite all project participants to engage with our platform as part of a project team. This includes the customer’s employees and its collaborators, who are other project participants who engage with our platform but do not pay us for such use. Further, multiple stakeholders can be customers on the same project and retain access to the project information for the duration of their subscription.

  1. Procore sells to the “Buyer” of the project primarily–the Owner, GC, or specialty contractor. Once this project owner pays for the services, all their intra- or inter-enterprise collaborators can use the platform for the duration of the project.  Procore believes this model leads to viral usage and growth.
  2. As you can see above, Procore’s subscription price scales with the annual construction volume the subscriber intends to manage on the platform.
  3. Finally, these are annual subscriptions, not project-based subscriptions.  (As an incentive to stay on the platform beyond the project, access to project data ends when the project ends– unless the user has an active, paid-for subscription.)

The Procore Pricing Page

Because a Procore customer’s subscription depends on the annual value of the projects being contemplated, Procore’s pricing page requires either a calculator or a discussion/chat session with a rep.  Procore has opted for the latter.  Here’s the current pricing page:

Note the little asterisk on the pricing.  The pricing shown is “for organizations running $3M or less in construction volume”.  The subscription costs more for larger organizations. To sign up, you need to talk to, or chat with, a company representative. That discussion, while it makes total sense, is not the easiest one in the world.  The buyer will ask:

  • Why do you care what the total value of my project will be, its none of your business?
  • What if I don’t know the value?
  • How do you calculate total value?
  • What happens if some of my projects get delayed or canceled?  Will you give me a refund?
  • Suppose next year I do fewer projects,  will my subscription decrease in price?
  • If my project lasts for 18 months, why do I have to pay for two years?

You can bet Procore had to develop satisfactory answers for all of these questions and more.  A per-project, per-user pricing model would have avoided all of this friction, but at great sacrifice.

Simplicity Versus Value Capture in Pricing

Procore’s pricing model reflects a common dilemma in enterprise pricing, especially inter-enterprise pricing.  A simple pricing model reduces friction, but it may misalign pricing with value.  A model that perfectly captures value (“price discriminates” in economists’ lingo) often introduces some friction, and in the extreme, requires individual negotiations with each client.  Of course, the goal of all great pricing models is to appear simple and “fair” to buyers, while scaling with value.  That is a true thing of beauty.

PS. A Side Note for “Take Rate” Nerds

Interestingly, if you are a “take rate” nerd like I am, Procore’s implied “take rate” for the project management module starts at 15 bps ($375×12/$3 million).  In the mixed bundle with project management, the financial management package costs another 7 bps.  On Reddit, I’ve seen pricing closer to 5-10 bps for larger annual construction volumes.  For more on take rates of B2B platforms, see here.

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