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LET'S MAKE $50MM ARR. I got a fun question today from another software investor. How should I price my software relative to REAL TAM vs Predicted Tam. Let's run a fun simulation. Let's pretend I own a veterinary SAAS for operating veterinary clinics. Let's assume the TAM is 25,000 clinics, and they are all 'green field' clinics with awful software / none at all. Let's also assume: -Our average ARR for each customer is $20,000 a year. -I'm at 10mm of ARR. -My Net Retention is 90% -My Annual Churn rate is 8%. -I have $10mm of pipeline today. -My win rate is 50%. -My CAC is 10,000 dollars. HOW DO I GET TO 50MM? Step 1: Analyze the Starting Point Current ARR: $10M (500 customers at $20K/year). Target ARR: $50M (2,500 customers at $20K/year, assuming no pricing changes). Net retention: 90%. Annual churn: 8% (implies ~40 customers churn annually at $20K each, losing $800K/year). Pipeline: Current size: $10M. Win rate: 50% (will convert $5M/year into ARR, i.e., 250 customers/year). CAC:$10,000/customer (reasonable for $20K ARR/customer, 0.5 payback period). Step 2: Key Levers to Evaluate I can adjust price, adjust my pipeline growth, lower my churn, or focus on retention Let's simulate some shit Scenario 1: Raise Prices by 25% New ARR/Customer: $25,000. Win Rate Impact: Drops to 40% (from 50%). Pipeline Impact: Remains $10M/year. Outcome: New annual ARR from sales: 10M×0.4=4M10M \times 0.4 = 4M. Retention-adjusted growth: Slower ARR growth but higher profitability. Scenario 2: Double the Pipeline Pipeline Growth: Increase to $20M/year via increased marketing spend. CAC Impact: Rises to $12,000/customer. Win Rate Impact: Remains 50%. Outcome: New annual ARR from sales: 20M×0.5=10M20M \times 0.5 = 10M. Faster ARR growth but higher CAC requires strong funding. Scenario 3: Lower Prices by 20% New ARR/Customer: $16,000. Win Rate Impact: Increases to 60%. Pipeline Impact: Grows 10% (to $11M) due to greater interest. Outcome: New annual ARR from sales: 11M×0.6=6.6M11M \times 0.6 = 6.6M. Faster customer acquisition, lower profitability per customer. Scenario 4: Focus on Retention Churn Reduction: Decrease from 8% to 5% via investments in customer success. Net Retention: Improves to 94%. Pipeline Impact: Stays at $10M/year. Outcome: ARR retention offsets churn losses (~$600K/year saved). Slower customer acquisition, stronger long-term LTV. So, what the fuck do we do? After analyzing the situation, raising prices (at least in the short term) isn't really the move. If there is truly a green field, do everything you can increase pipeline. Short-Term Growth: Focus on doubling the pipeline while maintaining current pricing. Allocate resources to marketing and sales to increase pipeline to $20M/year. Use competitive analysis to optimize win rates and position yourself well. Now, in my original post, I said 'all of this is relative to TAM'. Let's assume that the greenfield isn't as green as we thought it was? There is other competition after all. This typically manifests as win rate decreasing...and declining pipeline. When you run the numbers/simulation, you actually need to DOUBLE price over the next 5 years to hit your 50mm ARR target if you assume that win rate falls to 40% and your pipeline slows simultaneously This is what I was talking about when you think of TAM as it relates to pricing. If you read this far, bravo.