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5 Revenue Losing Pricing Strategy Mistakes You're Making

 

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.

Pricing Strategy

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.

Pricing Strategy

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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:

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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.

Pricing Strategy

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).

Pricing Strategy

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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.

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Getting Suckered by GoPro Yields 3 Lessons in Value Based Pricing

 

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.

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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.

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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.

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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.  

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The Value Metric: Optimize Your Pricing Strategy for High Growth

 

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. 

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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. 

value based pricing

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.  

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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). 

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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). 

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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. 

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How to Personalize Your Pricing Strategy for the Price of a Latte

 

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.

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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.

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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).

1. OnePager

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.

contextual pricing

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.

2. SaneBox

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.

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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.

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3. Mailchimp

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!?”

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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.

4. Grove.io

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.

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5. PlanGrid

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.

pricing page

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.

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Lessons from Sending One Million Surveys

 

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. 

bad survey

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. 

feature value survey

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: 

feature value

Instead, force your respondent to make tradeoffs to decide what's most and least important: 

feature value

The results actually show you what’s most and least important to that segment, getting to the answer you’re looking for: 

feature value

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: 

feature value

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.

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You Don't Care About Pricing and That's a Problem

 

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. 

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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. 

pricing strategy

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

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.

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The Crucial Steps to Actually Quantifying Your Customer Personas

 

If you’ve read any content related to marketing, you’ve definitely heard of the “buyer persona” and how important intimately knowing the range of potential customers you can serve is to your business.

Yet, to be blunt, we’re awful at quantifying our buyer personas beyond a few pleasant faces and cute names in a slide deck - and sadly that means you’re leaving cold, hard cash on the table.

As such, let’s cut the superficial stuff and get down and dirty with the data that can make your buyer personas actually useful and actionable to your entire team. To do this, we’ll briefly review why your buyer personas are so critical to maximizing revenue before discussing the crucial steps to follow to quantitatively and unequivocally define them.

buyer personas

Brief Review: What Are Buyer Personas and Why Are They Important?

Simply put, buyer personas are research-based representations of who your buyers are, including their buying behaviors and preferences. Creating them requires a deep analysis of the pain points and goals that drive the customer’s decision to purchase.

The problem with developing your personas haphazardly is you can easily end up chasing the wrong customers, especially if your buyer persona definitions didn’t go beyond a few brainstorming sessions over danish (meaning you’re losing money). While it’s crucial to develop a great product, there’s more importance in ensuring you’re working to acquire high value buyers.

Digging deeper, proper buyer personas have an enormous impact on your pricing strategy. If you know your highest value customers (positioning), what those customers want (packaging), and how much they’re willing to pay, then your most important metrics will fall into place. Value will be aligned and churn will be minimized, because why would someone churn if they’re paying an optimal price for exactly what they want? Even better, if your value metric is aligned to your personas, you’ll ensure that your revenue expands right along with your customer’s value.  

buyer personas

Creating Your Buyer Personas

Now that we’ve covered why identifying your target customers and analyzing their buying behaviors is so crucial, let’s dive into the actual steps that define the road ahead.

1. Conceptualize Five to Ten Buyer Personas (even if you think you only have three)

I know we made fun of customer development meetings and presentations above, but you have to start somewhere. This initial brainstorming session can go a lot further than you think, and by no means does finishing this step constitute the completion of your buyer personas.

You need a rough outline of who these customers are - their job title, the size of the company they work in, and hypotheses around what they care about in your product. Give them names, faces, goals, etc., and push yourself to come up with five or ten different types. Don’t worry if you think some of the personas you create are barely a decent fit, you’ll be able to validate or invalidate them in the next steps.

2. Breakdown What Data You Need to Collect

Now that you have a rough idea of your potential buyers, you need to figure out what makes them tick and how they perceive value in your product. This isn’t a logical exercise that can be completed in a brainstorm session though. It requires collecting real data from your customers or potential customers.

The secret lies in structuring your questions along what your entire business could take action from. After all, the goal is to clone your highest value customers, and you can’t clone your customers if you don’t know your customers. We’ve found the highest value information to know concerns:

  • Feature Value: What features and aspects of the product do customers care most about? What do they care least about?

  • Quantified Value Propositions: What value messaging drives them through the sales and marketing funnel?

  • Price Sensitivity and Willingness to Pay: How much are they willing to pay for you to solve their problem?

This data remains essential to quantifying your customer personas, but you’ll also want to calculate metrics like your customer acquisition cost (CAC) for each persona (formula shown below). Granted you may not have this information if you don’t have those particular customer types in your pipeline, but back of the envelope calculations are exceptionally helpful when looking into which personas are truly the right fit for your business.

CAC formula

3. Collect the Data in a Methodical Manner

We’ve written extensively about the actual implementation in quantifying feature value, calculating price sensitivity, and ordering value propositions (all from the customer perspective), but the process boils down to simply asking them the right questions. The right questions provide the right data, limiting as much error and bias as possible.

Granted, you could use our software to smooth out the data collection process (shameless plug), but each of the above links talk about how you can do this on your own as well (if you have the time/bandwidth).

4. Segment and Analyze the Data

You’ve done the hard part with steps one through three, as step four simply involves taking the data, segmenting it by the personas you identified, and analyzing the differences and similarities. You’ll essentially have opened up an entire bevy of answers that were most likely just guessed and checked in the past.

A good representation of this is below in the graph comparing the value proposition preferences of three personas. Notice the differences that you can immediately make in your marketing if you simply sent three emails that accentuated the headlines that are most important to respective customer segments.  

value proposition

5. Target the High Value Customers

If you’ve done your calculations properly, particularly your willingness to pay/price sensitivity and customer acquisition cost metrics, you’ll be able to have an exceptionally healthy data driven dialogue around who you’re best set up to target for your product. You may discover a persona that you thought was useless is actually an ideal customer. Contrastly, you may find a persona you thought was your bread and butter is way too expensive to acquire for how much they’re willing to pay.

That’s why we’re doing this though, because you can’t develop your business in the dark by making the quantification of your customer's value an afterthought or “something we’ll figure out next quarter.” These numbers are central to your business, and if you aren’t inside your customers’ heads, you’re relying heavily on luck and wasting your most precious resource - time.

Remember, the name of the game here is cloning your customers, and the only way to clone them is to know them. Walk through this process. You don’t need to make it exceptionally complicated or even go as deep as some of the graphics above. Yet, you do need to take the act of getting this information in order seriously, because knowing or not knowing your customer will surely make or break your business.

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.

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Boosting MRR: Annual Vs. Monthly Subscriptions in Your SaaS Pricing Strategy

 

If you’ve taken a good look at our SaaS Pricing Page Blueprint eBook, you know that only 1 in 5 of the 270 SaaS companies we studied offer both monthly and annual pricing. When it comes to subscription models, most companies offer monthly plans exclusively; the lower prices appear friendlier, and the lack of a heavy commitment reduces friction for new customers.

Yet as long as the pricing structure isn’t too complex, a SaaS company can use both monthly and annual plans to boost revenue. Sure, monthly payments may be the lifeblood of your business, but annual subscriptions secure you more business upfront, increase cash flow, and reduce churn. Even a small percentage of larger contracts can have a huge impact on your bottom line.

Compromising between the two options doesn’t have to clog up your pricing page either, which is why we’re going to examine a couple company pages that keep it simple while ensuring buyers know they can sign up for bigger deals. First, let’s dive into why annual plans and cash upfront is so important to your SaaS business.

subscription length

Why Should I Offer Annual Subscriptions?

Customer retention is the key to profitability in SaaS, and customers who churn out can waste a considerable portion of the cash you spend to acquire them. The flexibility and lower barrier to entry of the monthly subscription is crucial for acquiring new users, but you can’t deny that if customers bail out on your service, you won’t see the cash you need to survive, let alone grow and prosper.

Simply put, an annual plan guarantees the customer will be around for at least 12 months. That’s a huge step up in customer lifetime value, and you’ll have more time to engage with the customer and ensure implementation of the product was successful. Annual contracts also provide an opportunity to get paid for months upfront, which will improve your cash flow and help you recover customer acquisition costs. Asking for payments in advance can be a major buzzkill for some prospects, but those who love your product might be persuaded to commit if you offer up a slight discount.

What’s essential to understand is that both plans benefit your business, and offering the customer a choice won’t necessarily hurt your bookings. As long as your transparent with your pricing strategy and you have a clear way to display monthly and annual options, the flexibility will ensure you can cater to different buyers at different stages in the customer life cycle.

Demonstrating the Power to Choose

As we mentioned above, providing more than one type of subscription doesn't have to turn your pricing page into a hot mess (as long as the pricing structure isn’t too complicated already). While the number of SaaS companies currently offering annual plans might be low, more businesses are beginning to see the advantage of using discounted annual billing alongside monthly plans at full price.

One such company is Wistia, who have a gorgeous pricing page we’ve championed countless times in previous posts. From the right hand side of the page, you can click on monthly or annual pricing, and the monthly prices within each of the five paid tiers change to display the 20% discount you’ll receive if you sign up for an annual contract. The pricing is still displayed monthly, but the prices change to reveal the discount (it also says “save 20% by paying annually” above the spot where you select annual or monthly plans).

Wistia: Monthly Billing

monthly pricing

Wistia: Annual Billing

annual pricing

What’s great about this design tactic is its simplicity – they aren’t adding much to the page, just a small switch to the right. Nothing on the page is affected except for the prices, and the customer can easily see the precise benefit of signing up for annual billing.

Another example is Onepager, a company that offers a professional website building solution for small businesses. They do something very similar to Wistia, although you’ll see the discount for an annual subscription is not consistent across the board.

Onepager: Monthly Billing

monthly pricing

On Onepager’s pricing page, there are two tabs for monthly and annual billing directly above the tiers. If you click on the annual billing tab, the prices within the tiers change in the same way as Wistia’s - to accommodate the discount. Nothing else on the page is altered. As mentioned above, the difference is in the discount, and while the annual subscriptions for the middle tiers are discounted 25%, the lowest and highest tiers are discounted less (20% and close to 17% respectively). The annual billing tab states you can “save up to 25%,” so it’s fairly clear that not all of the plans will be discounted equally.

Onepager: Annual Billing

annual pricing

For the record, we recommend discounting your annual subscriptions 15-20%, but it depends on your business and the price sensitivity of your customers. We’re not entirely sure how Onepager arrived at these numbers, or whether they used customer data to develop their pricing strategy, but their page definitely displays the difference in price between monthly and annual plans effectively. One click reveals the reward for loyalty and commitment, and that’s all it should take.

Be Careful: You’re Not Salesforce.com

Given the impact of providing annual plans on your recurring revenue and SaaS metrics, you may be tempted to only offer that option. After all, Salesforce, one of the most successful SaaS companies of all time, shows you monthly prices but forces you to pay annually.

Salesforce: Annual Billing (displayed monthly)

annual pricing

While this approach is ok in theory, it may aggravate potential buyers. Onboarding new customers with annual contracts is also expensive, and you’ll need a proper sales team to justify the value provided in the product if you want to lock in those bigger deals. That being said, no one wants their customers to bail out after a few months either. Do what’s best for you - just make sure your pricing structure aligns with the value your customers are looking for in your service. If you have a range of customers you can serve, providing both options can be a profitable, happy medium for your business. 

Want to Learn More?

Each company and pricing page is unique, so if you want a detailed analysis of your own pricing strategy, feel free to sign up for a free Price Optimization Assessment with an expert here on the team.

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.

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From Grass to SaaS: What Pot Pricing Can Teach You About Your Pricing Strategy

 

In case you haven’t read the news lately, 2014 is shaping up to be a controversial year; and we’re not referring to Justin Bieber’s antics either. Instead, a new contention is brewing in the annals of our newspaper’s business sections that is every mother’s worst nightmare: the legal recreational marijuana industry.

Yes, as of 2014, you or anyone older than 21 can purchase and consume marijuana in the State of Colorado; and guess what? Business is booming.

Demand is skyrocketing to such an extent that supply (currently consisting strictly of repurposed medical marijuana) is dwindling until the first crop grown for recreational use hits the market. As a result of the lowered supply, Colorado’s 37 dispensaries are jacking up the prices of legal weed and you, our readers, can’t stop forwarding articles about legal pot pricing.

With all of this reader interest and as devoted nerds of statistics and economics, we would be remiss if we missed the opportunity to explore the phenomenon of a newly opened and regulated market. As such, we collected some hard data to measure the price sensitivity of legal marijuana relative to the price sensitivity for illegal marijuana, while also comparing these figures to the average prices for each (we have real sources that don’t include talking to “that guy from college we knew”).

Yet, before you write this post off as some form of stoner smut, we assure you, there are quite a few implications here for your business. Let’s get to the corollaries between Colorado cannabis shops and your software business after digging through some fascinating data about how Ganja’s green goes well beyond the color of what Colorado is smoking.

Price Is King in the Mile High City

Prices for legal marijuana were expected to be high (no pun intended), because of a 15% excise tax and a 10% retail tax. However, what was unexpected was the latitude to which the legalized pot purveyors would increase their prices as a result of surging demand. NBC news highlighted that short supplies and long lines motivated one pot shop to push prices to $70 per eighth of an oz. - up from $25 the day before. Although these “cannabusinesses” face extremely tight regulations, there isn’t a required pricing structure all dispensaries must follow.

Translation: Despite being heavily taxed, distributors of legal weed are free to enjoy the benefits of a free market. Yay capitalism!

There are certainly a lot of variables in play here leading to high prices. As previously alluded to, supply is low, because dispensaries must use repurposed medical marijuana until the first crop of recreational pot is ready. Of course, novelty is also an issue here as pot is legal for the first time and out-of-state customers are flocking to Colorado to partake in an act of “green tourism”.

pricing strategy

photo credit: thefixer via Compfight

Yet, what’s interesting and what ultimately lead to this study is the fact that the legality of weed typically doesn’t impact the recreational use by a considerable amount of individuals (just look at our arrest statistics). Logic begs the question then, is the legality of weed actually a direct driver of value, and therefore price, in the eyes of the consumer? This is exactly what we tested.

Our Study: Testing Price Sensitivity for Legal and Illegal Weed

To determine the price sensitivity and willingness to pay in the market, we utilized our price sensitivity tool and used our panel partners to distribute surveys to respondents in two groups -

Regular Pot Smokers: Adults (age 21 or over) who engage in smoking marijuana at least twice per month (includes individuals with a medical marijuana license).

Non-Pot Smokers: Adults (age 21 or over) who do not regularly engage in smoking marijuana (i.e., have not smoked marijuana in the last 90 days).

The large disparity between the black market price of marijuana and the new, legal price of pot sold at dispensaries (differing by as much as $200-$300 per ounce according to some reports) is definitely striking. As such, we wanted to compare the willingness-to-pay for both types of bud amongst both types of respondents. To control for interpretations of quality, the marijuana in question was described across the board as “high quality.”

Reefer Pricing Madness

Guess what? The data backs up the long lines at dispensaries across Denver - the willingness-to-pay in the market for legal marijuana is dramatically more than illegal contraband of the very same quality. Non-smokers even appear to be two times more likely to purchase legal marijuana than illegal marijuana judging from their likelihood to buy values of 2.25 for illegal and 4.09 for legal.

The full output is below (along with some extra information to help you navigate through the analysis), but overall, recreational pot smokers were willing to pay more for marijuana than non smokers. Although, both were willing to pay much more for legal marijuana than illegal marijuana (52.21% and 85.54% more, respectively).

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Non-Pot Smokers - Legal Marijuana (Price Sensitivity Per Eighth of an Ounce)

price sensitivity

Non-Pot Smokers - Illegal Marijuana (Price Sensitivity Per Eighth of an Ounce)

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Couple of notes:

The Optimal Price Band can best be thought of as the “sweet spot” in the market. Pricing a product within this range optimizes for both revenue and sales volume given the respondent data.

IPP is an acronym for Indifference Price Point. It’s the median point where half of all respondents believe the product is expensive and half believe it’s inexpensive. This “middle” number is excellent, because it allows you to make comparisons at a single data point.

price sensitivity

Regular Pot Smokers - Legal Marijuana (Price Sensitivity Per Eighth of an Ounce)

price sensitivity

Regular Pot Smokers - Illegal Marijuana (Price Sensitivity Per Eighth of an Ounce)

price sensitivity

How Does This Affect Me?

So what if stoners are willing to pay significantly more for legal marijuana? Well, the high price of pot (and the willingness to pay for it) demonstrates a few fundamental concepts about pricing strategy.

1. Early Adopters Can Be Some of Your Most Profitable Customers

While this is certainly the case for recreational legal weed, this also applies to other industries. Think about the organized chaos Apple creates with every iPhone release. Rabid Apple aficionados happily line up to pay full freight for the newest iteration of the popular device. The folks first in line to buy your product are the first to grasp the value of it and often hold power to influence other prospective buyers (e.g., their friends). 

2. You Need to Be Mindful of What's Valuable to the Customer

The dispensaries who sell newly legalized cannabis undoubtedly understand the connection between the high price they are commanding and the quality associated with that price. Sales staff at dispensaries take the time to educate buyers on things like THC potency, origin of the plant, and its effects, creating a value proposition-focused buying process and increasing the willingness to pay.

Similarly, identifying the unique aspects of your software product that resonate with your customers and truly set it apart from your competition is the first step to charging more for the value you deliver.

pricing strategy

photo credit: prensa420 via Compfight

3. Pricing Should Be Dynamic, Not Static

All too often, companies approach pricing with a “set it and forget it” mindset. Pot shops in Colorado are astute to the fundamental idea many SaaS companies neglect - your prices should be dynamic - ebbing and flowing with market sentiment (i.e., the price sensitivity of your customers and prospective customers).

This doesn’t mean you change your price every day, but it does mean you need to focus on how your customers are moving and grooving with your offering(s). Plus, since supply of software isn’t limited, you have more discretion to differentiate your product on unique features and communicate those differences accordingly - raising or lowering prices in line with your production and marketing cycles.

4. Don't Feel Guilty About Raising Prices

In the context of Colorado, raising your prices in the midst of a rush on your product can actually be the fairest way to deal with market pressures. Economics 101 tells us that as supply decreases, prices should increase accordingly. Grocery stores have been criticized for jacking up the prices of bottled water in the days leading up to a hurricane, but there’s a very real difference between turning customers into victims via price gouging during natural disasters, and raising prices to simply accommodate demand.

Think of it this way - if a legal marijuana dispensary continued selling an eighth of an ounce of pot for $25 (the previous day’s price for medical marijuana patients), then the business would lose a huge chunk of potential revenue. Nevermind the fact that the store would run out in hours  and customers near the back of the line would lose the opportunity to purchase even a modest amount of pot.

Moral of the story - don’t feel guilty about raising your prices, especially if you have data to show that a large portion of customers will gladly pay a higher price for the value your product provides.

pricing process

photo credit: eggrole via Compfight

Roses are Red, Violets are Blue, Ganja is Green and Money is Too.

Whether you’re selling software or legal marijuana, one constant holds true - you need to be cognizant of the actual value your customers ascribe to your product and their unique willingness to pay for it. Failing to assess either of these quantifiable variables on a regular basis not only leaves money on the table, but puts your profit potential in a similar position to the marijuana being sold in Colorado - it could quickly go up in smoke.

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 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.

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You're Leaving Out the Customer: How to Quantify Your Value Propositions

 

Features don’t sell products. Value propositions do. Granted, the features are the means to value and keep me around, but no one ever bought a car because they wanted a giant hunk of crafted metal. They bought it because they wanted a faster way to get from point A to point B (or to compensate for something).

Yet, we suck at marketing value propositions to our prospects.

We do. Don’t believe me? Well, I’m sitting in a coffee shop right now that demonstrated 12 different value propositions on the path to this table - all for different products. Not software enough for you? Then go to GoodData.com and explain to me the product’s value. It’s almost like they have six different products, and it’s painful because the product is so wonderful.

value proposition

photo credit: JD Hancock via Compfight

Inundating me with messaging is not an effective way to market. Instead, the value propositions should be tight, focused, and ultimately customer based. To help you avoid these pitfalls, let’s look at some good examples before giving you a data driven method to getting your value props right.

It's Gotta Come from Your Customers

Take a look at BufferApp and HelpScout’s home pages below. What do you notice or rather what don’t you notice? You don’t see a ton of messaging in some version of a 1999 web 1.0 site. Instead, you see exceptionally simple messaging that tells you exactly the value you’ll receive in the product. Help Scout even goes as far as to let a prominent customer tell you what you’re getting into with their software.

value proposition

value proposition

This raises the most important point of this post: Customers and prospects are the only ones who will be able to tell you your product’s value to them. You can try to figure this out in a roundabout way or by looking at usage data. Yet, like most aspects of building a product, you’ll need to talk with your customers.  

The Method

That being said, you need a process you can implement ASAP to get the right customer data quickly and efficiently. We’ve found with our customers and ourselves the following steps work best: 1. qualitatively narrow the scope of value proposition possibilities, 2. collect data to see exactly what your customer’s are thinking, and 3. segment the results out to compare and contrast how you’ll need to shape your marketing funnel.

Narrow the Scope

Theoretically your value propositions could be anything from A to Z. In reality though, your value probably encompasses at max three to four concepts from the customer’s perspective. Even so, you could test everything quantitatively using some of the methods discussed above and below, but speed is paramount. Your product, marketing, and customer are all shifting rapidly, meaning this project can’t take months, as it will be time to test everything all over again.

To circumvent analysis paralysis, start qualitatively. We recommend talking qualitatively with ten different customers and active prospects (five each). Sit down with each of them for 20 to 30 minutes and ask them exceptionally open ended questions about why and how they found you, their actual use of the product, implementation, and most importantly, what was the impact of the product’s use on: 1. them personally, 2. their department/org, 3. the company as a whole, and 4. their end user/customer.

feature value

photo credit: andertoons via Compfight

I guarantee you will hear a number of themes emerge from these conversations. There may be three common themes. There may be twelve. Either way, write these themes out on a final sheet. You’ve just finished the hardest part of the process.

Ask in the Right Manner

Once you have the boiled down list of possible value propositions, it’s time to test things out. You could create twelve pages and A/B test, but you probably don’t have the traffic for statistical significance and you’ll take too much time. A/B testing on low traffic sites is best used when you’re testing drastically different things (and if you think you aren’t a low traffic site, take a look in the mirror, you probably are).

To get our answers quickly, we recommend utilizing surveys. Surveys?!? Yes, surveys. The reason you might be apprehensive is because 85% of surveys out there in the market are set up improperly and ask the wrong questions. For instance, imagine if I asked everyone to rate our list of eight value propositions on a scale from 1 to 10. Seems like a good idea, right? Wrong. You get results that look like the data below, where there’s no way to truly tell that proposition 1 is better than 8 because they’re so close together on the scale.

feature analysis

Instead, you absolutely must force respondents to make tradeoffs between options by asking them which choice(s) they value most and which choice(s) they value least. This is known as MaxDiff or Conjoint Analysis (which we’ve improved upon with one of the Price Intelligently tools included in our software). The results will look very different, and you can clearly see that proposition one is more important than proposition eight in the graph below.

feature analysis

Fire up a campaign and send this out to your customers and prospects with the value proposition choices from step one. You don’t need to use PriceIntel’s software or any software for that matter. Just make sure to force the respondents to make a decision and tradeoffs.

Segment the Responses

Once the responses start rolling in you’ll notice that the aggregate results are super helpful. Yet, you probably don’t have just one customer persona (if you think you do, you should read more on developing your customer personas). You need to properly segment these results, which involves simply breaking down the respondents on a number of axes.

We recommend comparing current plans, churned vs. active, prospect vs. current customer, age of customer, and any demographic characteristics you actively track (number of X, price point, etc.). You’ll notice some pretty scary and invigorating differences in how your customers think.

Repeat the Process

The only task left to do is act. You’ll now have pretty clear paths to what each of your personas care about and how to market to them more effectively. Enjoy the higher conversion rates, but remember that this data and analysis decays over time. You should be testing this out each time you make a significant product change or reach a new quarter, whichever comes first.

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 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.

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