If you haven’t changed your prices in the past 12 months I guarantee you’re losing money. The companies we’ve seen with the most success with revenue and adoption are reviewing pricing at least once per quarter and making tweaks or changes every 6 to 9 months.
While that may seem like a lot, you need to reframe your thoughts on pricing to coincide with how you think about your product and company as a whole. After all, pricing is the center of your business, all roads – marketing, support, sales, product – lead to or reinforce that page, and if you’re improving everything else, you should be improving your pricing, as well. If not, you’re losing money and leaving value on the table.
We’ve written extensively on measuring price sensitivity and improving the most powerful lever in your arsenal, but we want to give you a better sense of how to actually make the changes. To do so, let’s dive in by first going through the steps to pulling the trigger before finally illuminating a few options you have on handling existing customers and prospects.
Five Steps to Change Your Prices
Changing your prices seems so hard and complicated, because it’s probably something you’ve put off until: 1. It was absolutely necessary – launching a product, drastic change in direction, etc. , or 2. Your board, investors, or customers are complaining so much, it’s finally jumped to the top of the priority list. In actuality, it takes some time, but it’s a fairly straightforward series of 5 steps.
1. Market and customer research (5 weeks)
This is where the bulk of your time is going to be spent, and we’re not going to go deep into how to conduct this research here, but check out these three articles for that process: A. A Complete Guide to Value Based Pricing, B. How to Measure Price Sensitivity, C. How to Conduct Feature Value Analysis. Overall, this is a lot easier if you’re in maintenance mode (meaning pricing’s been a core competency over time and you’re not doing this from scratch), but remember that your job isn’t to find the perfect pricing page. It doesn’t exist.
Your job is to hedge as much risk as you possibly can going into a live test. If you do things right, you’ll get pretty darn close to perfection though. In that vein, if you’re dealing with a larger team or organization, you’ll probably have a lot of opinions and “cooks in the kitchen”, so be sure to set a deadline or you’ll hit analysis paralysis, wasting time, money, and the opportunity to boost revenue and/or adoption.
2. Finalize the nuances of your pricing grid and tests (3 days)
Once you’ve hit your stride with the market and customer research, a few big findings will be staring you in the face, forming into a single or multiple option(s) for your new pricing grid. After storming through the team and research, pick an option or aspect for your initial test. This could be an entire pricing page or a slight modification. Either way, check out The Saddest SaaS Pricing Pages and The SaaS Pricing Page Blueprint for design considerations. Remember – this is the page that makes or breaks your sale/conversion.
3. Reviewing price options with a customer advisory panel (5 days)
At this point you should’ve collected a massive amount of research from your market research and internal data, but you’re still in a bit of a vacuum. As such, talk with 20 different customers individually or as a group to review your proposed new pricing. Remember that this is a sanity check, as customers individually will have an incentive to say prices are too high. In that light, don’t ask open ended questions like, “what do you think?” Ask questions that get to a point about your most worrisome issues (does this make sense, what questions do you have, etc.)
4. Run an impact analysis (5 days in tandem with #3)
In tandem with those customer conversation, run an analysis of how current customers would be affected (even if you’re going to grandfather everyone in). If the impact is marginal, then you know the move isn’t that drastic. Yet, if you notice that some or all customers are facing over a 35% price increase, then you need to make sure you reach out to these customers individually or give them a bit of a transition discount to soften the blow (more on why in the data below). This data will also help you and the powers that be determine if the increase is warranted.
5. Setting up a communication plan (5 days in tandem with #3 and #4)
Finally make sure you have a transition plan in place that is distributed and agreed upon by anyone who talks or interacts with a customer. We’ve found honesty is the best policy with price increases, meaning you should be transparent as to why the change is actually occurring.
Even then though, it’s easier to launch a price increase alongside new features, increased functionality, etc. You’re going to have someone complain, so be sure you have a script or response ready. If you’ve done your homework this shouldn’t be a large amount of people.
That’s definitely a lot to take in, but in actuality I’m sure you agree that it’s not that complicated. Remember, that when you launch pricing and it impacts current customers, you’re going to invite feedback and you may need to make some tweaks that you didn’t foresee being an issue. Yet, make sure you stand by your decision unless it turns out to be a complete disaster (which it shouldn’t if you did your homework). To see a pricing change disaster, check out the comments section on this Pingdom price increase post. Clearly they didn’t realize how many border customers existed between plans.
How to Handle Existing Customers
Alluded to above, but the other major issue to consider is how you’re going to handle existing customers. There are a few schools of thought and the below can be combined based on different segments, but here are the main ways to be successful successful:
Grandfathering: Most common with more “curmudgeonly” customers who are highly price sensitive or have low customer satisfaction.This is also extremely popular with companies who haven’t done their pricing homework over the years.
In this practice, you essentially guarantee to customers that the price will never increase for the same product for the lifetime of the account. If the product drastically improves or changes, you can offer to keep the account on the old product or offer a discounted rate for the upgrade.
Grandfather Discount: Similar to grandfathering, grandfather discounting provides a discount for a certain period of time that will expire. Typically, you make the discount exceptionally clear on their invoice or billing statement to condition customers that the discount will be taken away in 3, 6, or 12 months. Customers are much more accepting of a price increase/change when they feel like they’ve received a reward for being a loyal customer before the change. (this is our favorite, because it balances loyalty with company revenue/adoption goals).
Meet in the Middle Discount: Less of a good idea, because it conditions customers to life long discounts and can get organizationally difficult. Yet, in “meet in the middle discounts” you present the price increase globally, but tell customers that their price increase will be less.
Clockwork Price Increases: More common in the enterprise space, these are price increases that happen 1-3 times per year and condition customers to get in early or sign longer term contracts to take advantage of the current price. Keep in mind you need to consistently keep track of pricing and customer research with this method, as you’ll need to justify the changes.
Direct, but Justifiable Price Increases: In this method, pricing is something that’s done outright and without any of the above methodologies. It’s difficult to do if you don’t have great brand loyalty and good customer relationships. This is best handled with a very clear communication plan that is direct and honest, along with being completely justified. The best we’ve seen was by Expensify in their price increase blog post.
Which Method Works Best
In looking at hundreds of SaaS companies, we’ve seen the best bet for companies that are further along is the grandfather discount, because you’re not drastically impacting MRR for the life of the account, but you’re still softening the blow of a larger price increase. Keep in mind, the longer you wait to change your prices, the harder it will be to communicate why the change is happening with any of the methodologies.
This isn’t to say that you should change your prices every 3-6 months. If you’re an early stage company, you should be focused on reviewing your pricing quarterly and making some sort of a change every 6 months. Later stage companies should do the same, but extend the time to a price change (every 6 to 12 months). One positive externality you may not realize is that price increases when communicated effectively are amazing at clearing a lead funnel and spurring annual contracts, as prospects and current customers want to lock in the existing price.
In terms of some data on price increases, here’s a breakdown of 50 SaaS companies on how they handle price changes. You’ll notice a lot focus in on grandfathering, which isn’t the best option for the company as a whole, but needs to happen if you haven’t looked at your pricing in a good amount of time.
We also explored customer satisfaction as a product of a price increase. Below you’ll notice that as soon as you hit a price increase of 50% or more you start to see satisfaction drops off. You shouldn’t be looking at this as a reason not to increase prices, you should be looking at this as an opportunity to increase the frequency of attention to your pricing.
Make Pricing a Core Competency and This All Gets Easier
Changing your prices and your pricing in general doesn’t need to be a sordid painful affair. Just make sure you approach pricing as a process, not as a once every long while event. To learn more about stepping through the process check out our Developing Your Pricing Strategy ebook or drop us a line for a price optimization assessment.
In the early 1990s USI said, “let there be the ASP” and at that very moment the cloud was born, fulfilling the dream of IBM’s 1960s experiments with utility computing. For the first time, the small seeds of SaaS began to grow. Developer collaboration reached new heights and features could be delivered almost instantly, leading the charge for Salesforce, Oracle, and the ever ironic "No Software" movement.
There was a hitch in the steps of progress though - pricing. How should we price software that requires no physical delivery and deploys so quickly and cheaply that competitors and costs no longer matter?
Well, unfortunately, most companies punted and followed what they knew best - per license models, which translated to per user models, causing a flurry of per user pricing that plagues SaaS to this day. Per user pricing kills your growth and sets you up for long term failure, because it’s rarely where value is ascribed to your product and kills your Monthly Active User metric. Let’s walk through this and chat more about what you should be doing with your SaaS pricing.
Per User Pricing is a Value Metric Relic of the 1980s
To understand why per user pricing isn’t good for most SaaS products, we first need to review the concept of a SaaS pricing value metric. Remember, a "value metric" is what and how you’re charging for a product. If you’re selling a pair of shoes, then your value metric is “per pair of shoes” and as customers buy more pairs your business expands.
A great value metric passes three tests: 1. it’s easy for the customer to understand, 2. it’s aligned to where the customer receives value in the product, and 3. grows with your customer’s usage of that value.
In the case of our shoes, charging per pair fails to fulfill the latter two criteria, because value isn’t derived from the pair in and of itself; it’s derived from the number of days, miles, or smiles the pair of shoes brings. Of course, charging based on the number of miles you wear the shoes seems pretty preposterous, as was any method of charging for software other than per license 30 years ago. There wasn’t a way to easily monitor how much usage was occurring and even then it didn’t make sense in the cost structure of integration or delivery.
Essentially, early software companies were pricing based on similar models to hardware or even a pair of shoes. Doesn’t seem very sophisticated, does it?
When SaaS came along, we just kept going with the same model, even though our software became 10x more sophisticated and provided 10x the value. The barriers described above no longer existed, and for most products you’re building right now, it doesn’t really matter how many users are using the product. Rather, value comes from the number of tests completed, the number of files stored, or even the amount of bandwidth or visitors analyzed.
Number of Users is Rarely Where Value is Derived for Customers
If the logic of being able to throttle and tie your pricing to customer value isn’t working for you, then consider this - most customers don’t actually see value from your product in a “per user” fashion. Over the past year, we’ve tested this with 75 different SaaS companies and tens of thousands of their customer's survey responses.
When asked about which value metrics are most and least valuable to them (using our feature value algorithm), we've seen the below output time and time again (the other value metrics were redacted to protect the customer’s identity). Even our CRM and help desk customers have similar graphs, because value isn’t in the number of users - it’s in the additional sales, contacts, reports, etc.
This isn’t to say that users can’t or shouldn’t be a part of your model, but more often than not it shouldn’t be your first inclination or the primary metric, especially if you’re selling a marketing or analytics product where the natural max number of users for a product, marketing, or analytics organization is probably only 5 - 10 in most mid market companies and even some enterprise companies. Even then, you need to have product differentiation to push for customer pricing segmentation and to boost MRR and spur upgrades. Salesforce’s pricing is frustratingly brilliant at this, as all the fun features are in the higher plans.
You’re killing your most precious metric: Daily Active Users
What’s scarier with per user pricing though for most analytics, sales, marketing, and product SaaS companies is that pricing on a per user basis actually contributes to your churn rate considerably, because it greatly reduces daily active user numbers. Caring about active users isn’t just reserved for iOS games and social networks. After all, there’s a reason Business Intelligence and Analytics applications typically churn to the tune of 6-12%…per month.
When you naturally throttle the number of people who can access an account, you’re naturally killing the stickiness of the product within an organization. Look at GitHub’s Pricing vs. Preforce’s pricing below (both help development teams store, collaborate, and version code). I’m willing to bet a good sum of money that Github's SaaS metrics and health are much better than Preforce’s because Github is making the user throttles a no-brainer and only charging where customers are actually getting value - the number of repositories for code.
The funny thing here is that Github’s upgrade rate is probably much better than Preforce’s because more people means more repositories and more repositories means a higher plan, thereby boosting MRR and retention. As a SaaS company, retention and churn are all you should care about for the lifeblood of your product. Unfortunately though, the beauty of SaaS goes both ways - churning out is just as quick and seamless as deployment. More people using a product in an organization makes this considerably harder.
The Exceptions and Getting Past Per User Pricing
Yes, there are a number of products where per user pricing makes sense, but it should never be the end all be all of your SaaS pricing. Feature differentiation, additional value metrics (Storage, contacts, bandwidth, reports, etc.), and add-ons need to be an aspect of your overall SaaS Pricing Strategy. The important thing to keep in mind here is that you need to test and truly make your pricing customer and value based.
This is because we have worked with some companies where the graph from above is the complete opposite, with users coming back as the most important value metric. Although, this has only happened a handful of times; hence, why it’s important to test and talk with your customers.
To help you, we’ve written plenty on the steps to value based pricing, as well as how to define and identify your value metric(s). If it still doesn’t make sense though, feel free to reach out to me via email or phone - we’re more than happy to walk you through the concept at no charge.
Ultimately though, it’s time to move on from per user pricing. Not for me. Not for you. For your revenue; your customer; and your growth.
Recently I was interviewed about dynamic pricing by Tixboo, a dynamic ticket pricing company out of the UK. Interestingly enough, that same week I encountered an intoxicated gentleman on a Boston bus openly complaining about the New England Patriots’s new dynamic pricing ticketing policy.
Whenever pricing strategy becomes worthy of a drunken rant; you know it’s a big deal -- and a great opportunity to explore a concept that can boost revenue.
Yet, over the past few years companies utilizing dynamic pricing have come under fire from consumers. While the push for fatter margins through pricing is admirable, these implementations fell short of a few tests to ensure customers and the business were ready for such a dynamic and variable step.
To ensure you don’t make the same mistake(s), let’s take a dive into what exactly constitutes dynamic pricing, review some pros and cons, and then present some ways to make your pricing dynamic - without the backlash.
Dynamic Pricing 101
At it’s core, dynamic pricing is the concept of selling the same product at different prices to different groups of people. Technically, this is the same definition as “price discrimination”, an illegal practice with roots in the Robinson-Patman Act of 1936.
Yet, that Act has more holes than a wheel of swiss cheese, which makes any legal basis of a price discrimination lawsuit incredibly grey, especially when dealing with non-commodity goods online. In fact, US Courts and the Federal Trade Commission have repeatedly shot down dynamic price discrimination cases unless the discrimination took place on the bases of a suspect category (gender, race, sexual orientation, etc. and is incredibly difficult to prove) or was anti-competitive, which is highly unlikely to occur in an online market.
As a result, business have taken it upon themselves to institute dynamic pricing in two forms:
1. Dynamic pricing based on groups: In this scenario, companies are using algorithms or just statistical splicing to offer different prices to different groups. This can be as simple as a split A/B test or more sophisticated by predicting a higher willingness to pay based on machine type, location, demographic information, etc. and showing a different price to a particular group. Most lawsuits and consumer backlash involves this form of dynamic pricing (although, few of these lawsuits have been won by consumers).
2. Dynamic pricing based on time: My drunken subway friend was complaining about this form of dynamic pricing - having a price go up or down based on time. In it’s most basic form you’ll see this purely in a car lot - at the end of the month prices are lower as salespeople push for quotas. In a highly sophisticated method, individuals will use something like Tixboo to make these decisions on the fly to maximize revenue for events and meet different levels of demand.
Theoretically, consumers should be completely ok with dynamic pricing
In it’s purest form, we all should theoretically be perfectly ok with dynamic pricing, because we, the consumers, ultimately have a decision of whether we’re going to purchase the product or not. The onus is on the producer to make sure the price presented meets our willingness to pay to ensure a purchase -- aligning to our own personal equilibrium price in real time.
If you’re not willing to pay for the product, you’ll leave and maybe come back when there’s a sale or a cheaper version. If you’re willing to pay for the product, then your utility is met and you’re none the wiser about your friend getting a cheaper price. It’s perfect pricing and harmony in the free market.
In reality, of course they're not ok with dynamic pricing
Unfortunately, like most economic theories, reality is a bit more complicated. When blatant dynamic pricing is revealed to a consumer, it appears more like price discrimination than the fluffy world I illustrated above, because we feel like we were just lied to and that we didn’t get as good of a deal as someone else. Years of travel commercials have taught us that we can only hope that the person sitting next to us on the plane paid more than us. Ironically, some how we’re ok with this scenario, but assume everything is nefarious if it occurs with a book on Amazon.
This isn’t a huge deal if your customer never finds out or you’re in a “dynamic industry” - travel, tickets, etc. Yet, for most SaaS products (and I would argue most retail products, as well), we’re awful at tracking and measuring the different equilibrium prices for our customer groups. Most dynamic pricing engines out there don’t get enough data to truly differentiate. Even then, tracking technology hasn’t gotten to the point where we can ensure that an individual who received a price on Tuesday gets the same price on Friday or even shows the same price to their business or family member in a different time zone.
The result means that if you have a product where the sales cycle is more than 24 hours or involves multiple people, the risk that your secret gets out increases exponentially with each day and individual involved in the buying process.
So how can we make dynamic pricing work? I want those profits.
This doesn’t mean you can’t institute some aspects of dynamic pricing successfully. After all, not all of your customers are the same, therefore you should be able to extract more revenue from some than others. You just need to implement them in the proper manner:
1. Price Differentiation - Two prices are better than one
One of the bedrock concepts in pricing strategy is to quantify your customer personas and then align your packaging and pricing to those personas. Typically, you’ll find your personas aren’t all created equal, and if you do, then you probably aren’t thinking about your personas properly. You can then offer lower and higher end versions of your product to bring in dynamic revenue from customers of different sizes. For more on product and feature differentiation check out this post.
2. Ensure you’re using a proper value metric
Hand in hand with price differentiation is pricing along a value metric, which is what you’re physically charging for in terms of a product (per user, per GB, etc.). This is difficult for a retail product, because you’re charging for a physical item, but in the software world, you can split your pricing up based on number of users, amount of storage, number of views, etc. or a combination of multiple metrics. The impact here is every customer is paying you a different among - accounting for dynamism and less cash being left on the table. For more on value metrics, take a look at this break down of value metrics and how to properly use them.
3. Utilize Time in an auction type model
Similar to what many sports teams and concerts are doing, you can make sure your price goes up or down based on time. Airlines and travel booking sites do this all the time. There’s no reason someone launching a software beta or releasing a new widget can’t use dynamism in their pricing.
4. Couponing and Discounts
We’re not a huge fan of discounts, because of their negative impact on future sales and your brand, but they can be used effectively in discretely providing a dynamic price to a subset of prospects or customers. Keep in mind that with social products you’ll want to ensure the coupon doesn’t spread, but this is typically less likely compared to a public site having different prices and is more socially acceptable. For more on discounts and the right way to push for them, check out our discount pricing post.
Be upfront and transparent
Most proponents of dynamic pricing say you should just be transparent that you’re employing dynamic pricing on your site. This is great, but it still doesn’t solve for the cognitive dissonance of, “am I truly getting the right deal?”
You’ll notice that all of the above suggestions solve for both being transparent and eliminating the feeling of missing out. That being said, although you probably won’t get into legal trouble with dynamic pricing, you need to be careful about your brand, image, and any PR backlash that can leave a long lasting impact. We’ve found price transparency is key and will definitely continue to advocate for more, rather than less.
Unless you’re a rare breed, collections can be one of the most boring things for your business. Few want to sit around all day talking about billing and accounts receivables (for the most part)?
At least that’s what I thought when our ratio of receivables to cash in the bank crossed the 2:1 mark. I’m not sure what’s the appropriate ratio here and research on the interwebs doesn’t turn up much in terms of best practices, but when looking at those numbers, I knew there was a lot we could’ve done if that cash was in the bank right now, not when the folks who owed us decided to pay their bills.
It’s not that they didn’t want to pay us, there was just no expediency. To increase our cash velocity, here are a few things we did to flip that ratio on it’s head to get the cash necessary to keep things moving.
Some Cash Up Front and Stop Work If It’s Not Paid
We’ve had a few really bad experiences with folks not paying their bills. For one, we found ourselves in a situation where we did a bunch of work for a company, they then stalled and ran low on cash, and we weren’t paid for months. Not good for us and a rookie move on our parts. To turn this around though, we now charge 15-20% up front depending on the size of the contract with net-15 terms. If they don’t pay up, we send the following note to our point of contact:
I know it’s not your department, but our controller is a real stickler for making sure we’re not working if the initial invoice hasn’t been paid. Could you check in to the status of that invoice? Feel free to give us their contact information and we can follow up directly, too. We know you’re busy and we want to keep moving.
[Price Intelligently Contact]
Our controller isn’t that scary (well, maybe a little), but 100% of the time this has taken care of the issue, because folks just bump it up on their to-do list with a quick email. We also found citing a “bad guy” (or gal in our case) works well, because it takes the person working with the customer out of the mix. Their hands are tied by another member of the company, which means the relationship isn’t impacted. Plus, being nice here and offering to take the issue of their hands is a huge bonus that lots of folks really enjoy.
Fortunately with this tactic, we haven’t had to “stop work” yet, but be prepared to do so if needed. People should pay their bills and this also makes sure you’re not doing more work with the chance of not getting paid at all, which increases substantially after the first invoice.
Late fees, especially on the final contract
All contracts you sign for work should have a late fee clause. It doesn’t have to be big or scary, but just having it allows you to push for expediency if someone is lolly gagging with their payables department. We were being too nice in the beginning by constantly sending the “any word on that invoice” emails to our points of contact. Today, if someone is late on their invoice, we now have our controller send this email directly (this typically comes after a few "check in" emails):
I just wanted to check in again, as I haven't heard anything yet and we haven't received payment. I understand things can get muddled with everything going on.
Just to be clear though, per our Terms & Conditions of the contract, late invoices are charged X.X% per month late and this invoice was due on [DATE]. Hopefully, we can clear this up soon so there won't be a need to reissue the invoice to include the late fee.
Let us know, and thanks for your help with this!
This works wonders, because even though the late fee may not be much, if the invoice needs to be re-issued with the late fee, a lot of people get in trouble, including our point of contact. That’s not our intent of course, but inevitably we get an email from our POC with the payables person copied and we have the check within a few days.
Be Nice, but be firm
The big lesson here is not to assume they aren’t trying to pay. A lot of times it’s just a priority issue. If you’re nice, but firm, you will always have the upper hand. They signed a contract, after all. Fortunately, we haven’t had to go much beyond a few email reminders. We’ve re-issued a few invoices with late fees, but then immediately get a check overnighted or wired to us.
To learn more about revenue optimization and pricing strategy, check out our Developing Your Pricing Strategy ebook or our Study of the Top 270 SaaS Pricing Pages.
At this point we’ve more than likely bored you with communicating how important pricing is to your business. You know from our repeated conversations that a 1% improvement in your pricing (positioning, packaging, or the number on the page) equates to an 11% boost in profit and that your pricing page is the center of your business.
Even though we’ll keep telling you about the magics and impacts of pricing until the cows come home, we’re happy to see that more and more individuals are pushing for better pricing in their businesses. Yet, in the haste to get their pricing right, we’re still seeing some pricing blunders.
To help continue to shape and mold your pricing strategies in the right direction, let’s go through the five pricing blunders we’ve most commonly seen in the first quarter of the year while giving you some insight as to how to avoid them.
Pricing Blunder #1 - Keeping Your Prices Static
One of the most disconcerting themes we hear time and time again is, “We just ‘went with our gut’ by picking a price out of thin air and haven’t really updated it in X number of years.”
Two huge problems here. For starters, neglecting to use data in setting your price is incredibly risky (and downright bad for your bottom line). Equally troublesome is the mentality that pricing is something you simply “set and forget.” Refusing to modify your price over time implies that your product is worth the same today as it was several years ago - ignoring any product updates, improvements that have added significant value for customers along the way, or even changes in the market at large.
We get it. It’s easy to get comfortable lazy with pricing, but disregarding the fact that your pricing schema has remained untouched for some time completely ignores the fact that you may be undervaluing or overvaluing your product (more on each of these below).
The on-demand ridesharing service, Lyft, provides a timely example of an organization undeterred by the uncertainty of modifying its pricing. In a competitive nod to Uber’s surge pricing fiasco, Lyft recently announced “happy hour pricing” - effectively lowering the cost per ride when the service experiences lower demand. While few companies have the luxury of following a dynamic supply and demand model with their pricing, they do have an obligation to assess the effectiveness of their pricing periodically and having the courage to make adjustments when necessary.
Pricing Blunder #2 - Having One Price for Everyone
Simply put, “versioning” your product or service can be a great way to capture even more revenue. Asking prospective customers to pay a single price presupposes that all of your customers have identical needs, price sensitivities, and uses for your product.
Quite simply: Having only one price is a horrible idea.
Instead of lumping everyone into the pool of “customers,” consider how you might segment your customer base into different groups based on any number of demographic characteristics. Not everyone is the same, so you shouldn’t be pricing them the same.
Photo Credit: woodleywonderworks via Compfight cc
Pricing Blunder #3 - Complex Pricing Pages
As damaging as the “one price” mentality can be, overwhelming prospective customers with a laundry list of features, check boxes, drop down menus, and plan tiers can be duly problematic.
There are always ways to provide curious customers with more information about particular products and features without cluttering one of the most important conversion tools you have - your pricing page.
We chatted more about how to build a slick and effective pricing page in our Saddest Saas Pricing Pages of the Year post, but also check out our ebook outlining the SaaS pricing page blueprint:
Pricing Blunder #4 - Gimmicks, Tricks, and Downright Deceit
The beauty of using value-based pricing data to craft a pricing strategy is that you don’t need to rely on stupid pricing gimmicks to pad your bottom line. Unfortunately, unmet quarterly revenue goals press even the most well-intentioned marketing and sales folks to sometimes gamble with the black arts of pricing trickery. It’s a gamble that never pays off.
Photo Credit: stevendepolo via Compfight cc
For instance, JC Penney is facing claims that it dubiously raised prices on products, only to offer a “sale” at the original price. Regardless of the fact that this is a systematic practice within the retail industry, the fact that JC Penney got outed on the practice undermines the confidence and trust the retailer established with loyal customers (who will now be thinking of shopping at Kohl’s or Amazon for that 13-piece cookware set).
Make sure you keep the honesty and transparency throughout the entire sales cycle. Pricing gimmicks aren’t a strategy, they’re a recipe for disaster down the line.
Pricing Blunder #5 - Being Scared to Raise Prices
There are few ideas tougher to swallow than the fact that you are intentionally losing money in your business. Even more difficult to grasp are the steps needed to remedy your losses through underpricing, especially when communicating changes to your customers is an intimidating endeavor. Will you lose customers? How will conversion rates be impacted?
Yet, if the data supports the change, you need to move forward. Customers are much more understanding than you think, and if you communicate properly, the negative impact will be minimal (which is also evidence as to why you should look at your pricing regularly).
Photo Credit: alykat via Compfight cc
Amazon faced this dilemma with it’s Amazon Prime subscription service where Forrester estimated Amazon was losing anywhere from $1 billion to $2 billion on the service, as they hadn’t increased prices in nine years. Raising prices from $79/year to $99/year was a tough decision, but through great communication, Amazon made the change as smooth as possible.
Remember, any change to your pricing - even lowering - will cause customers to move on, but proper and regular communication ensures they stick around - especially if you’re pricing on value.
The Panacea for Your Pricing Woes
Pricing is huge. You can’t get away with using only your gut or intuition to measure you’re worth. That’s why collecting data about feature preferences and price sensitivity is key.
With data in hand and smooth communication skills, you’ll keep things moving and ultimately avoid the above blunders in exchange for a healthier bottom line. To dig deeper, check out our pricing strategy eBook or sign up for a free price optimization assessment.
Quick disclaimer: I’m not an avid skydiver. I also don’t go base jumping in a squirrel suit every weekend. Hell, I don’t even own a mountain bike. None of this stopped me, however, from purchasing a GoPro camera recently.
What started out as a straightforward trip to Best Buy to pick up the absolute cheapest GoPro Hero3+ camera possible ($199 White Edition), quickly turned into an acquisition that sucker punched my checking account and shook me down an extra $200 for the top-of-the-line model ($399 Black Edition). So how did GoPro convince a cheapskate like me to spend even more money for something I didn’t initially even want?
Compelling, effective pricing - that’s how. Let’s jump into action, taking a quick look at what GoPro knows about pricing to demonstrate how you can improve your own pricing strategy by following their lead.
photo credit: rawmeyn via Compfight
1. Product Versioning Widens The Appeal Of Your Offering
This seems pretty obvious, but it’s all too common for companies to offer only one “best version” of their product or service. The problem is, that leaves prospective customers with only one option - take it or leave it. Conversely, offering several versions of your product or service ensures that you attract a wider audience of prospective customers (with varying price sensitivities). If GoPro only sold the Hero3+ Black Edition for $399, I would have never considered making the trip to Best Buy in the first place. The price tag would have been way too hefty without an understanding of the product to lower the barrier to entry.
What GoPro Knows: Versioning Helps Customers Measure Value Incrementally
Giving prospective customers the choice between three versions of its popular camera (White, Silver, and Black Editions) not only extends GoPro’s reach - it gives would-be buyers the context for how much something should cost. Humans are notoriously bad at randomly assigning value to products we don’t know much about. This novel concept has propped up The Price Is Right game show franchise for almost half a century. Providing additional versions creates a framework for customers to compare and contrast the value of each version relative to the others (for more on product and price differentiation, take a look at this post).
2. Narrow The Gap In Price, Boost the Value
GoPro expertly manages concerns about price by closing the price gap between models in a simple but effective way. The premium Black Edition is the only package that includes a Wi-Fi remote (i.e, you don’t have to physically be holding the camera to hit “record”). Interested in purchasing the Wi-Fi remote for your cheaper, Silver Edition ($299) camera? That’s cool. It will cost you an additional $80.
Wait, what? The inclusion of the Wi-Fi remote essentially narrows the gap in price between the top two models to only $20. At this point, Black Edition appears to be a tremendous value as bonus features such as 4K resolution, SuperView mode, Auto Low Light Mode, and extra megapixels are included for only $20 more.
What GoPro Knows: Communicating Value is Crucial
It’s easy to opt for the cheapest version of a product when the difference in cost seems astronomical. It’s much more difficult, however, to make a decision when the perceived value exceeds the price difference. The Oracle of Omaha, Warren Buffet, articulated this intersection of price and value when he notoriously quipped, “Price is what you pay, value is what you get.” In short, even price sensitive customers might be willing to pay more if you can clearly demonstrate the value of your premium product.
3. Pricing Isn’t Arbitrary, It’s Strategic
Nothing about GoPro’s pricing tiers is arbitrary. Each scales logically along a prescribed set of value metrics and features. For GoPro, these are megapixels, fps burst rates, and video resolution - with each tier more advanced than the previous. Each of these distinctions helps paint a picture that the higher priced tiers are “worth it” for X, Y, and Z reasons.
GoPro also isn’t afraid to make its entry-level White Edition camera “lite” in some areas to add further contrast. As an example, the White Edition only offers 5 MP for photo - arguably weak by 2014 standards. In the mind of a customer, this feature distinction alone could be reason enough to purchase the more expensive Silver or Black Edition cameras (at 10 MP or 12 MP respectively).
What GoPro Knows: Proper Pricing Is Powerful
Actual feature differentiation between plans is essential if you expect customers to purchase the higher priced plans en masse or upgrade to them as their needs grow. Failing to create meaningful differences between products and plans will give customers very little incentive to buy your premium, high margin offerings.
Want to get a better grasp on value based pricing? Download our Pricing Strategy eBook or take a look at our No Bull, Straightforward Guide to Value Based Pricing.
If you'd rather dive into pricing page best practices, check out our latest eBook, The SaaS Pricing Page Blueprint, which offers in-depth data and analysis on building the perfect pricing page.
If you’ve read our blog before, you know we dreamboat about this company called Wistia a lot. Like… a lot, a lot. We think their pricing page is one of the best SaaS pricing pages in the world, but not for the reason you might think. Yeah, it’s beautiful (they hired an architect - the building kind - to design it), but we love it mainly because Wistia correctly utilizes one of the most important concepts in pricing: the value metric.
Identifying and pricing along your proper value metric is the difference between surviving and thriving.
There isn’t a billion dollar company out there that hasn’t properly designed their value metric, and although you may not aspire to cross the B threshold, it’s important to get right in any business. You’re probably not too familiar with this concept though, so let’s walk through what a value metric is and why it’s important before digging deeper on ways you can optimize your pricing strategy to properly align with your value metric.
What's a Value Metric?
In its basic form, your value metric is essentially what and how you’re charging. If you’re Help Scout help desk software, you’re charging for each seat per month. If you’re selling MacBook Airs, it’s each MacBook Air one time up front. If you’re Wistia, you’re charging for number of videos hosted and the amount of bandwidth those videos take up each month (a dual value metric).
Pretty simple, right? Well, coming up with the right value metric is where things get complicated. Looking back at Wistia, imagine if they had three tiers with different types of features (a bare bones one, an enterprise tier, and then something in the middle), but everyone got unlimited bandwidth and videos. The problem here would be that someone like us (not a lot of videos) and Disney (lots of videos and lots of views) could potentially be paying the same thing. Disney would value the service 100x more than we would and Wistia wouldn’t be able to take advantage of that delta on value. Therefore, charging on bandwidth makes sense, because you can tie value directly to the amount of bandwidth. Theoretically, the more bandwidth I use, the more interaction I’m getting with customers and prospects, and the more I’m willing and able to pay Wistia for that interaction.
photo credit: makelessnoise via Compfight
Great, so I’ll just charge for each granular value add? Well, not exactly. Performable (now a part of HubSpot) and companies like MixPanel ran/run into this problem. A lot of these analytical platforms were charging “per event”, which intuitively makes sense, because you can tie value directly to what you’re charging for, but they ran/run into problems because there’s no predictability in the costs per month. Their target (product and marketing decision makers) needed that predictability for procurement. A solution a lot of these folks use now is the banded approach, where they’ve figured out the distribution of their customers and essentially make tiers to align to that average usage.
Why Is a Value Metric Important?
Considering a value metric is what you’re charging for, it’s inherently important. Yet, picking the proper value metric has a phenomenal impact on your business. Imagine two SaaS companies that each have 100 customers. The first charges on a per seat per month schema, but there’s little need for more than one seat for each customer. The other sells the exact same product but charges along a metric of particular usage in the app with a bare minimum per month charge. The former has an artificial ceiling on the MRR potentially gained from their customers. The latter’s MRR will grow as their customers grow and/or use the product more. I’d much rather be in company number 2.
If you’re strictly charging per user, per month, or per hour, you’re probably losing out already. About 8 out of 10 companies using per user pricing should be using a different value metric, simply because their products probably don't provide more value with additional users, so charging for them doesn’t make perfect sense.
OK, I Get It. How Do I Evaluate a Value Metric Though?
Evaluating your or other value metrics is pretty simple, although there is some finesse required here. It comes down to fulfilling three basic principles:
1. Does your value metric align to your customer’s need?
We’ve belabored this point above, but you need to make sure the way you’re charging aligns with the value someone is actually getting from your product. If you’re a help desk, then charging on a per seat basis makes sense. If you’re application performance monitoring software though, it probably doesn’t make sense. Figure out what your customers value at the center of your product and then back out to a way that you can charge for that value. Wistia determined that the value came from the number of people their customers had viewing their videos. A good proxy for this was bandwidth.
2. Is the value metric easy to understand?
Where Wistia fails a little bit is in the ease of understanding department. The value metric needs to be intuitive to the user. Large video customers Wistia serves would completely understand bandwidth needs, but smaller customers wouldn’t. Even though they did a phenomenal job explaining the concept of bandwidth to their prospects, they fixed this problem even further by not making bandwidth an issue on the lower end of their pricing page and limiting the number of videos per month (something much easier for lower end customers to understand).
However you decide to charge, it needs to make sense to your prospects, and they should be able to “get it” without talking to someone at your company. HubSpot could have continued to charge for events, landing page submissions, visitors, etc., as those align to their customers’ needs pretty closely. Yet, they backed out from where their customers found value and used “contacts” as a proxy for that value, which is easier to understand and much more predictable (the more contacts I have, the more I’m probably converting them and making money from the product that allowed me to cull those contacts).
3. Does your value metric grow with the customer?
The first two principles were for your customer. This last one is for you. You need to make sure your value metric grows properly with your customer to ensure you’re increasing your MRR in a predictable manner. Phenomenal SaaS businesses are able to grow even if their acquisition stalls because their value metric is so aligned with their customers, they can simply wait for those customers to grow to ensure they also grow. It’s compound growth too, which is badass. Stripe, HubSpot, and even Salesforce are all examples of companies that have rapidly grown based on this growth, although acquisition definitely helped.
What’s a Good Process for Identifying My Value Metric?
This is worthy of its own post (especially since this beast is getting long), but identifying your value metric doesn’t have to be complicated. First, start by running a list of all the axes you could charge along (not feature differentiation, but actual axes). Next, send a survey or conduct some interviews to determine where your customer ascribes value in your product (it’s important to use a process that we outline in our feature value post to ensure validity). From there, make sure the options they’ve chosen align with the three principles above. Finally, test, implement, and iterate.
Your business is constantly evolving with new features, new types of customers, and the like; your pricing strategy should be, too. For more information, download our Pricing Strategy ebook or sign up for a free Price Optimization Assessment with one of our pricing experts.
If you'd rather dive deeper into pricing page best practices, check out our latest eBook, The SaaS Pricing Page Blueprint, which offers in-depth data and analysis on building the perfect pricing page.
We all know humanizing the customer experience can have a huge impact on the bottom line, but there’s more to creative engagement than putting the “personal touch” on emails or making colorful team member bios for your website. The devil is often in the details, and one method for improving customer interaction that’s easily overlooked is contextualizing your prices.
The actual numbers on your pricing page don’t tell the whole story, and they can often seem intangible without inspired copy and design to make them relatable. A big part of creating an awesome pricing page is purely psychological. In addition to demonstrating value with features and benefits, you can make your final gateway far more inviting by creating a frame of reference for your buyers.
Contextualizing? Frame of reference? This is all a little vague, so let’s dive into exactly what contextualization on your pricing page entails and why it works before we take a look at a few excellent examples from some great companies.
What is contextual pricing and why should I use it?
Simply put, it’s putting your prices in context and helping customers relate to the numbers. We’ve covered this before in a previous post about innumeracy, but mathematical ignorance is a big consumer weakness, and customers yearn for boosted value rather than attractive digits.
This can translate into some subtle strategies that have a huge impact on the overall effectiveness of your pricing page. Contextual pricing can be as simple as utilizing innovative plan names or appealing visual representations in each pricing tier, or it can get slightly more interesting, such as providing a caption that claims the monthly rate is equivalent to the cost of a few cups of coffee.
Tactics like these not only make your prices more tangible, they foster a connection between a customer coming through the door and a particular plan. Sure, labeling your pricing tiers “basic, plus, and enterprise” gets the point across, but generic plan names and barebones pages can also come off boring and cold. Your pricing page needs to be simple enough to understand, but you also want to inspire visitors to explore the page further in addition to quickly demonstrating which plan is best for them.
Great, but where have you seen contextual pricing done right?
Contextual pricing strategies come in all shapes and sizes, especially with regard to pricing page design. Let’s analyze some great examples of pages that demonstrate these methods to give you a better idea of how companies use price contextualization effectively (and how they’ve used it in the past).
OnePager, a company with a sweet solution for building small business websites, used to have one tier pricing for a mere $9/month, and used contextualization to make the price even more attractive. As you’ll see below, they included a short blurb underneath the price that states “costs the same as about two lattes a month” with a small picture of two cups of coffee. While that may seem like a small detail, it reinforces the value provided in the features and benefits on the right of the page by contextualizing what the price means for the customer.
OnePager has since expanded to four tier pricing, and consequently they’ve removed the contextual content to reduce clutter on the page. The plan names aren’t riveting by any means (agency, premium, plus, and starter), but we love the elegant design and the simple way they display monthly vs. annual billing.
SaneBox, who provide a service that filters and prioritizes emails, used to have a killer pricing page that we praised in our SaaS Pricing Page Pageant last summer. Each of the three tiers humanized the buying process. The lowest tier cost “less than a snack,” the middle tier stated “you pay more for a lunch,” etc. Each tier also had a corresponding illustration to go with the copy, as you’ll see below.
It’s a beautiful pricing page, but as you can see, it’s also a little busy. They’ve sinced simplified their pricing page significantly and taken out the extra text, but luckily they preserved the original concept by using the plan names “snack, lunch, and dinner.” The contextualization is still there but it’s not quite as distracting for potential customers.
Additional text and pictures can improve engagement and lower the barrier to entry for your prices, but as you can see from the evolution of the SaneBox page, sometimes you can get the point across with a lot less. Mailchimp uses visual representations without extra text, and it’s a very cute way to make you feel inadequate about choosing the lowest tier. As Stephanie Irvine pointed out in her recent post on pricing page design, “Do you really want to be the little lamb when you could be THE ELEPHANT!?”
However, I agree with her that the lack of upfront pricing is annoying. They make up for it with crystal clear pricing once you follow through, but having to click on “learn more” under each plan to see some real prices isn’t a huge plus.
Many SaaS companies keep the design of the page simple but go for gold when it comes to plan names. Grove.io, a company providing hosted IRC (Internet Relay Chat), is a perfect example. They have a simple, elegant page that uses a different species of tree for the title of each tier, which obviously matches up nicely with the company name. It’s not a huge detail, but plan names like “birch” and “spruce” correlate well with the brand while emphasizing the differences between the packages.
The ultimate combination of contextual pricing and clarity is demonstrated by PlanGrid’s page. PlanGrid provides a planning app for the construction industry, and they emphasize their ties to that market with every part of their pricing page design. As you’ll see below, the plan names are different sized tools and machines used in construction, from the hammer to the crane, and each of the tiers has a beautiful illustration as well.
PlanGrid does a superb job of using the design of the page to relate to their ideal buyers. Yes, pricing the product along one simple value metric (the number of storage sheets) gives them lots of space for pretty pictures, but even if they had other features to differentiate the tiers they’d have the real estate to make it happen. Avoiding an endless scroll of checkmarks and product features gives PlanGrid that capacity to contextualize prices with more than creative plan names.
Want to Learn More?
If you want to dive deeper into pricing page best practices, check out our latest eBook, The SaaS Pricing Page Blueprint, which offers in-depth data and analysis on building the perfect pricing page.
If you want a detailed analysis of your own pricing strategy, don’t hesitate to sign up for a free Price Optimization Assessment with an expert here on the team.
Nothing is loved or hated more in the world of marketing than the online survey. This tool’s intentions always start out admirably. After all, who’s going to argue with getting feedback from real customers and prospects. Yet inevitably, the medium devolves into a random, non-specific email with a link to a 45 question survey that may or may not be about the product you individually use. It’s ok though, because there’s a chance to win a free iPad (sarcasm intended).
Stop sending crappy surveys. Please.
We know a thing or two about surveys, because they’re central to how we collect the data necessary for our algorithms to do their magic. After sending a million now, let’s go through a couple of points we've learned in our journey to boost response rates and obtain the answers we need.
Keep It Short and You Can Send Them Often
One of the biggest reasons surveys have gotten such a bad rap over the past few years is because companies are trying to accomplish too much with one survey. What ends up happening is some part of the organization announces they’re going to send a survey and then every single department latches on to that campaign with “just a couple of questions.” Put it all together and you have a recipe for a 36 - 50 question monstrosity that doesn’t flow together at all.
Trust us. We’ve seen them. I looked through the past ten surveys I received via email and the median number of questions was 29. You can’t promise to “value my opinion” and “take my time seriously” if you’re asking me 29 questions that don’t intuitively go together.
To curb this, keep your surveys short and send them often. Keep them to five questions max, which is the point where we noticed a 22% drop off in responses. You’ll actually get lauded for respecting your customer’s time and your response rates will skyrocket.
What’s great about this too is that you’ll be able to send surveys more often after you’ve conditioned your prospect and customer base that your campaigns will be short and to the point. Some of our customers are even sending campaigns every two weeks. That seems a bit aggressive, but the response rates are holding. To circumvent this with our own campaigns at PriceIntel, we mark who in our database has received a survey in the past 21 days and avoid that group at all cost. If we send surveys to someone three times and they never respond, then we just take them out all together. They’re clearly not interested in offering feedback.
Clearly Give a Timeline in the Subject Line
Now that you have a short survey, don’t be afraid to tell your potential respondent the length of the survey in your email. When your respondents are in the middle of triaging your inbox, surveys are an exceptionally easy choice for the archive button. Most of the time this is because the perception around surveys is that they’re bloated and going to waste your time.
A great way to get over this hump is to be completely upfront with the amount of time the survey will take - right in the subject line. This sign posts the interaction for the end user and builds up a little bit of guilt, because who doesn’t have 30 seconds to answer a couple of questions.
The current subject line we use (and suggest to our customers) is:
Share in Shaping [Customer Name]’s Future - 30 Seconds
We change up the “30 Seconds” depending on the questions we’re asking, and even change it to “1 question” when we’re keeping it super short.
Ask the Right Questions and Don’t Be Lazy
The reason we’re able to keep things so short and still get the feedback we need is because we’re not lazy with the questions we choose. We already talked about how bad long and bloated surveys can be, but the other side of the spectrum can be just as frustrating. Asking “for any feedback you may have” just makes your respondent work so much harder when they’re doing you the favor. Additionally, asking your respondent for their email address, what account they have, how often they use X feature, or anything that you can find out in your database is a huge no-no. Don’t waste the precious space in your campaign.
Instead, do the legwork upfront or on the backend. Up front you should have a general idea of what you’re trying to figure out through qualitative client interviews and studying the data you already have access to in your database or research. With this work done you’ll be able to ask that which you have no other resource for then the customer/prospect herself. Additionally, make sure you’re capturing the email address of your respondent, which will then allow you to slice and dice the data on the backend to analyze cohorts, segments, etc.
From an actual question perspective, if you’re attempting to measure value or priority, which so many of these surveys are doing, then don’t ask me to rank things on a scale of 1 to 10 (or some other scale variation). It’s the worst way to figure this out, because your results will look like this:
Instead, force your respondent to make tradeoffs to decide what's most and least important:
The results actually show you what’s most and least important to that segment, getting to the answer you’re looking for:
Inciting a Collective Spirit Works Much Better Than Incentives
Incentives only work when you’re soliciting stay at home moms, college students, and the like unless the incentive is insanely generous. We’ve found in the B2B space that any incentive we offer (especially money) doesn’t move the needle at all. This makes sense though, because if you’re trying to get answers from a Director of Marketing, “the chance to win a $50 gift card” isn’t a huge incentive, nor is the gift card outright, because their time is worth so much already.
Instead, we found inciting a collectivist spirit works really well. We saw this a bit in the subject line example above, but individuals are more than happy to answer questions when you tie it back to how it’s going to help them. We have an advantage because we’re soliciting them about pricing, but if you can tighten up the copy to concern how it’s going to affect their day to day experience, your response rates will go up
Here’s an example email one of our customers sent out recently:
Surveys Are an Excellent Medium for Gaining Feedback, but Use Them Wisely
Don’t hate the game, hate the player. Too many folks have tarnished the reputation of surveys by not thinking enough about the customer when it comes to getting the right feedback. A lot of this goes into creating a culture of feedback within your customer and prospect base, which makes not only the survey experience much better, but your product, customer, and marketing development as well.
To learn more about the pricing process, take a look at our Pricing Strategy ebook or sign up for a free Price Optimization Assessment with an expert here on the team.
If you want to dive into pricing page best practices, check out our latest eBook, The SaaS Pricing Page Blueprint, which offers in-depth data and analysis on building the perfect pricing page.
Pricing is not sexy. Even in the wake of the nerd takeover the past few years, us pricing folks are still the eccentric statisticians and economists left to wallow in our algorithms and data. We’re one of the last resorts for desperate founders and marketers who’ve been tasked by frustrated investors, C-Levels, or board members who look to pricing as the last ditch effort to boost profits and revenue.
What’s funny is that if you had your pricing right up front, you wouldn’t be in that type of situation. After all, it’s never a churn or revenue problem; it’s a pricing problem, because if your price aligns with customer value the only reason someone would churn is if they’re going out of business or broke.
Pricing holds the key to not only knowing more about your customers than you’ve ever known before, but also to unlocking the revenue and profits for which you’re so desperately accountable. Still seem like a sales pitch? Well, let’s walk through the philosophical basis of pricing as the center of your business before digging deeper into the analytical justification for pricing as the most important lever in your business.
photo credit: Tax Credits via Compfight
Pricing: Quite Literally the Center of Your Business
Businesses aren’t complicated. No matter how much we hack this and viral that, the basic concept behind a business is that you’re providing an efficiency and value for a customer. The medium of that efficiency can vary wildly, but usually takes the form of time or cost savings, eliminating a hassle, or even giving me something to do to waste time in the form of fun and procrastination. Your job is then to align this value add with the right type of customer.
Once you’ve discovered this value-customer fit, the way you stay in business is you decide how much that value is worth to the customer and charge them accordingly. In this manner, your pricing is the exchange rate on the value you’re creating in the world.
Pretty simple concept, right? Well, where most businesses go wrong is in the determination of this exchange rate. On one end of the spectrum, some C-teams just guess (Did you know the average amount of time a SaaS company thinks about their pricing is only 6 hours?), and on the other end analysts come up with exceptionally complicated models that attempt to read the minds of their customers.
photo credit: El Bibliomata via Compfight
Unfortunately, both models have exceptionally dire consequences in terms of revenue impact (more on this below). Yet, those consequences can be avoided by just talking with your customers, who are the only ones who can truly tell you how much they value a product. More on collecting customer value and willingness to pay data can be found here, including the method for culling it correctly.
Pricing: A Lever That Will Make or Break Your Business
When speaking with folks at this point, most “get it”, but then wander off thinking about that A/B test they need to run on their landing page and that new partnership that can add a potential XXXX customers. Those hacks are important, but are ephemeral compared to the quantitative impact pricing can have on your business. After all, more customers don’t mean a damn thing if you’re not monetizing them properly.
In your business, at the end of the month, there’s only one cell on the spreadsheet that truly matters: profit. Revenue is important. Customer acquisition cost is important. Active user counts are important. All of the indicator metrics are important, but profit determines whether you have a business or a really sweet idea that’s heading to the deadpool. You know what has the highest impact on profit? You guessed it... pricing.
Pricing affects your business more than any other lever, including costs and volume. In fact, a 1% improvement in pricing equates to an 11% boost in profit, compared to only 2.3% and 3.3% boosts from 1% improvements in fixed costs and volume, respectively.
Let that sink in for a moment. Pricing is that huge, and you’re only spending six hours in the history of your business on it.
Why would you try to increase landing page conversions by 1% when figuring out your pricing can have almost a 4x return on a similar improvement? More often than not, you’re probably missing out on multiple 1% improvements, because your positioning (who you’re selling to), packaging (what you’re selling to those individuals), and your pricing (the actual number on the page) are all probably off.
Start Taking Pricing Seriously
Fortunately for you, pricing doesn’t have to be the big black box of difficulty. At it’s core, you simply need to quantify your customer personas (positioning), figure out what they want (packaging), and then how much they’re willing to pay for those packages (pricing). That still sounds like a lot, right? Well, check out the step by step guide to value based pricing, which goes through each step in more detail. The great part is that you don’t need to go overboard to start making gains. You just need to start thinking about pricing as a lever and not something that you can just set and forget. Your company and product are constantly evolving, which means your pricing strategy needs to, as well.
To learn more about the pricing process, take a look at our Pricing Strategy ebook or sign up for a free Price Optimization Assessment with an expert here on the team.
If you want to dive into pricing page best practices, check out our latest eBook, The SaaS Pricing Page Blueprint, which offers in-depth data and analysis on building the perfect pricing page.