At the beginning of the New Year, we exposed some critical mistakes that 5 SaaS companies were making on their pricing pages (see The Saddest SaaS Pricing Pages of the Year). It was a little scary to put the high beams on those pages, but we felt pointing out their faults in addition to suggesting a few minor tweaks could help many of our readers tune up their own page designs and pricing structures.
But what exactly makes an awesome pricing page? Our 1st Pricing Page Pageant revealed some sweet pointers, but to dive a little deeper, let’s start examining methods for optimizing your page using one great site at a time. This week, we’ll put Ginzametrics under the microscope, who have a simple, attractive pricing page for their SEO and content marketing platform.
Represent Your Buyer Personas
Your pricing tiers are a visual representation of where your buyers fit in your business model, and each tier should align to one type of customer. In the case of GinzaMetrics, it’s very clear who they’re targeting with each tier. The product caters to three different buyer personas, and the product descriptions displayed as well as the amount of product delivered in each tier align to one of those three personas (we’ll call them Startup Steve, Agency Anne, and Enterprise Eddie for the remainder of the post).
As a prospect viewing this pricing page for the first time, you can immediately understand where you fall within these tiers based on the stage of your business. The plan names are fairly bland, but the brief, concise statements below them tell potential customers exactly where to go. The Small plan is “perfect for small teams and startups,” the Medium plan is “for quickly growing businesses and agencies,” etc. The descriptions also ensure customers can easily see how the product grows with them as their own businesses grow.
The bottom line: The ultimate goal in your packaging and pricing strategy is to create an ideal customer profile for each of your plan tiers and clone them over and over in your signups. Being transparent about who your ideal buyers are helps ensure the right customer signs up for the right package.
Define the Value Metrics that Customers Care About
GinzaMetrics specializes in SEO and content marketing - keyword tracking, sites, and the number of competitors tracked per site are the main staples by which customers make their purchasing decisions. The company’s pricing page reflects this perfectly, as each tier communicates exactly how much of those features you’re getting for the price. No massive full feature list, no checkmarks, no worries.
While we can’t be totally sure how they arrived at these drivers (we’re betting on customer feedback and analysis), we can assume that these are the features Ginzametric customers value the most. It’s obvious you’re charged for each unit of value you’re receiving because you get more of those three essential facets of the product as you move up the plans.
In addition, any aspects of the product that all the plans include (unlimited users, for example) are kept below the brackets to reduce confusion. Because a feature like unlimited users isn’t a plan differentiator for Ginzametrics, I’m a big fan of how they place it below the fold.
Custom dashboards also act as a value metric that differentiates the tiers, but you’ll notice you don’t have access to that feature with the Small plan. This omission is probably for two reasons. First, it’s a way to differentiate the tiers and create a clear upgrade path for “super users” looking for additional value from GinzaMetrics (even if they don’t need more keywords, sites, etc.). Second, they may have discovered smaller companies don’t need custom dashboards as much as Agency Anne or Enterprise Eddie. Thus if the Small plan included them Startup Steve might feel like he’s paying for premium features he has no desire to use.
The bottom line: SaaS and software products are unique in that they have feature sets inherent to the product that can be used to scale services and justify prices from one plan to the next. The key to setting effective packaging is understanding what value metrics you have to work with and which are most relevant to each of your buyer personas.
Don’t be afraid to strip out features like GinzaMetrics has done though. You don’t have to give each customer cohort a piece of everything to align your packaging and plans to customer value perceptions. Quantify what each buyer persona actually needs before you decide what to include.
Charge Accordingly for Customer Support
Notice how customer support gets a whole lot better as you move up the tiers? For Agency Anne, it’s an extra $500 a month to have a dedicated account manager from GinzaMetrics take care of the issues that arise amongst her 30 clients, and it’s probably worth it. One of the largest costs in SaaS is support (dedicated employees, help desk software), and usually it’s the customers that pay you the least who need the most help (a highly sophisticated director of IT at a Fortune 500 company won’t need help fixing small bugs like a non-technical Startup Steve might).
Ginzametrics does a great job of using support to communicate and add value to the higher plans. Support has a permanent home in each tier below the value metrics, and the Medium and Large plans each offer something a little different to create additional value.
In particular, I’m a huge fan of the custom onboarding feature in the larger package. Successfully educating stakeholders and integrating the platform into large site portfolios is probably extremely important to Enterprise Eddie, and it’s a superb way to ensure client success and reduce churn amongst Ginzametrics’ highest paying customers.
The bottom line: Customer support adds value and eats up bandwidth like an elephant, so why not incorporate it into your pricing page? Using support as a value metric that helps determine your packaging and pricing, when done simply like Ginzametrics, effectively demonstrates the increased value of your upper tiers so customers see another reason to upgrade down the road.
Use a Free Trial!
GinzaMetrics is playing a long game here, giving away 14 days of product usage. However, this ensures potential customers know the value of the product before they pull out their credit card. While a freemium offer or free plan would demonstrate value too, that’s where the similarities end. The freemium model provides very little incentive to upgrade to paid, and if you strip many of the features from your free plan to create incentive, the right customers may never get an accurate picture of your product’s worth.
The bottom line: Giving your prospects a chance to test drive your product before they buy is a win-win for everybody. Potential customers get to utilize your features and see the immediate impact on their business/operations, and your sales team gets a list of hot prospects to hand hold through free trials, which will help them uncover pain points and ultimately close the deal after the trial period ends.
A Note on the Prices
The only closing thoughts I have for GinzaMetrics concern the actual pricing structure. A $12,000 annual spend for a startup business seems quite hefty. With that being said, GinzaMetrics is servicing a different segment of the market than their leading competitor Moz.com and their pricing tiers are aligned to some unique value drivers. I do think there is an opportunity to create a more limited version of the product at a lower price point to capture more customers downstream in the market. However, without looking at customer data and testing willingness to pay, this is purely speculation on my part.
All that being said, bravo GinzaMetrics on a beautifully constructed pricing page!
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.
Have you ever considered just how important your pricing page is?
All of your marketing and product efforts are geared towards encouraging people to purchase your product, which makes your pricing page - as the gateway between your customers and your revenue - the most critical page on your website. Given this paradigm, it would obviously make sense for your pricing page to be as compelling and frictionless as possible to make the buying process for your customers a no-brainer.
photo credit: katerha via Compfight
Reducing friction on your pricing page is often easier said than done, but if you’ve read our blog recently or checked out our latest ebook, you know we’ve collected market data and best practices from over 270 SaaS companies to find out what makes the best pricing pages so effective. Let’s dive into some top level findings concerning which page features actually smooth the pavement for potential customers and increase conversion rates.
1. Live Chat
Live chats can be a superb way to reduce friction on your pricing page by helping you overcome last minute objections and questions from customers. Buyers often have lingering questions before purchasing from your pricing page, and those lingering questions can often be the difference between a purchase and a prospect who churns and never returns.
Live chats solve this problem by allowing people to talk with you about your product without having to pick up the phone to engage with a salesperson. They’re not just for shy prospects though, as they can help you engage with any curious customer early on in the buying process.
However, live chat is a relatively new technology, which explains why its adoption rate in the SaaS market is currently very low. As time goes on, we expect the number of companies who utilize live chat to increase, so implementing it earlier may provide you with a slight competitive advantage that later adopters won’t have.
As a bonus, live chats can also help you identify areas where your pricing page needs improvement. If you implement a live chat system, customers who chat with you will already be on site to offer feedback on your pricing strategy as well as your pricing page layout and design. This will help you refine parts of the buying process that you may not have realized were causing issues with your potential customers.
3 out of 5 SaaS companies we studied maintain frequently asked questions (FAQs) on their pricing pages, which is another great method for reducing friction in your buying process. Like live chats, FAQs can increase conversion rates by answering common last-minute questions from customers before they purchase.
However, FAQs don’t require your customers to speak, even virtually, with anyone. While that makes them a surefire way to reduce friction and quell common customer concerns, the flipside is your FAQs cannot be tailored to every individual. Simply put, you won’t have an answer for everyone.
Given that FAQs require a comparatively small amount of effort to implement, a good idea may be to combine the powers of live chat and FAQs by offering both on your pricing page. This way, customers who are satisfied with the FAQs never have to expend the energy to reach out to your customer development team, and those who want more specialized answers have the ability to reach out through a low-commitment interaction.
3. References / High Profile Clients
Adding high profile clients and their testimonials to your pricing page can motivate customers to purchase by increasing your product’s social validation. If a company is looking at your pricing page and realizes that you’re working with some of their biggest competitors, your product and pricing page will be much more compelling to them simply because they’ll want to ensure they’re not falling behind.
This technique obviously assumes that you have high profile clients to list, but you shouldn’t be too concerned if you don’t; over 50% of the companies we analyzed chose not to display high-profile customers on their pricing page.
4. Word Counts
The word count of your pricing page doesn't have anything to do with adding value, but too much text can definitely increase friction. Try to summarize your product's unique benefits versus overwhelming customers with a laundry list of available features. You can always include a link to the full feature list, so boil down your product descriptions to the features your customers value most to ensure they’re not paralyzed by the sheer amount of information they need to consume (check out our post on feature value analysis if you want to dig a bit deeper on this).
Customers who are confused and/or overwhelmed are much more likely to churn off of your site than those who can quickly grasp how much value your product provides, so it’s important to efficiently show how your service delivers value to justify the prices of your plans. Most companies keep their word count to between 200 - 600 words, though the word count can vary depending on the complexity of your product.
Fight the Friction
While there is no silver bullet for magically improving conversion rates on your pricing page, you can definitely make incremental changes to the design and layout of your page to make it much easier for people to purchase your product. The goal is to create a compelling gateway that pushes back on resistance and customer objections, which is what the tips we listed above should help you do.
Of course, each company and pricing page is unique, so if you’re looking for more individualized advice, feel free to sign up for a free Price Optimization Assessment with an expert here on the team.
If you want to learn more 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.
More than two years after Netflix’s infamous price hike debacle, when CEO Reed Hastings created a PR disaster by unbundling streaming video and DVD rentals, Netflix is trying their hand at a new pricing strategy. The streaming service was essentially “one-size-fits-all” up until recently, but now Netflix is testing out a pricing scheme that utilizes access to simultaneous video streams on a single account as the primary value metric.
In addition to the original plan that allowed unlimited streaming on two devices at once for $7.99, Netflix has added a one-stream plan for $6.99 and a three-stream for $9.99 (a four-stream tier aimed at families with tons of bandwidth was added back in April for $11.99).
photo credit: pkingDesign via Compfight
The company is only testing the pricing scheme for now, and it may never be available to everyone. Still, it’s obvious Netflix is trying to attract some new subscribers. They’ve had a great year, but factors like competition from AmazonPrime (the shipping service includes streaming video for less than 7 bucks a month) and the heavy cost of killer content spurred a need for further price differentiation.
A Simple, Solitary Value Metric. Well Played, Netflix.
So what? Netflix is testing out a couple new pricing plans; I know, this isn’t big news. Yet the fact that the new pricing structure uses the number of devices the customer is allowed to stream on concurrently to determine the price is intriguing. While it’s uncertain if these pricing packages will attract new customers, they do reveal that Netflix is trying much harder to appeal to multiple buyer personas as well as uncover the best way to charge customers who desire more from the product.
Those are things almost any SaaS business should be doing. While branching out with a tiered structure might not be for everybody (a POS company like Square comes to mind), it is a superb way to upsell different customers who need different amounts of your product. However, that’s only if you can tap into the value metrics that defend the prices.
There’s absolutely no way Netflix could avoid pissing people off if they charged more for great content like House of Cards. The last thing Netflix needs is another 80% stock freefall like the one it endured in 2011, so charging more for certain shows is off limits. The obvious choice is access to simultaneous streams, and as mentioned above the company already rolled out a four-stream tier back in 2013. The main focus for Netflix is still growth, but the revenue model update might help them recover production costs while fending off those pesky account moochers too.
More importantly, it’s a unique value metric that’s easy to understand and communicate. Most confusing pricing schemes stem from the failure to use a product's distinctive or essential features to justify changes in price from one plan to the next. As such, let’s discuss the importance of demonstrating your ability to grow with the customer before looking at three ways to uncover the features that should dictate how you tier your prices.
The Catch-All Tier Won’t Help You Upsell or Maximize Profits
Recently we discussed how having too few pricing tiers can leave cash on the table in our Saddest SaaS Pricing Pages of the Year post, but I have to take a moment to point out a design element that has the same effect. While subtly magnifying your ideal product or making it stand out with a different color are sweet pricing page design tactics, there’s a fine line between shining a warm light on a particular plan and forcing customers into a box.
Some of the “catch-all” tiers we’re seeing out there in the SaaS realm are getting a little ridiculous, and the amount of companies with three plans but only one bracket with an actual price (and bells and whistles all around it) is even a little terrifying. You may have a fairly simple product and only one type of buyer, but why have the other plans at all if your ideal package dwarfs everything else on the page?
If your product doesn’t require differentiation to be successful, then it’s fair to say that you probably shouldn’t advertise it. However, for many SaaS businesses the key to increasing recurring revenue is having the ability to grow with the customer. For a service like Dropbox, charging more when the customer uses more of the product is a cinch; the obvious value metric is storage. Yet sometimes charging for plain features like users and storage isn’t the best bet, and for your business the value metrics could be totally unique.
Whether it’s a catch-all tier or simply a lack of plans, cash will be left on the table if a company doesn’t use an analysis of which features actually drive customers to buy the service to shape its pricing, and adopting the typical value metrics of your competitors isn’t a shortcut to success either. There’s nothing wrong with having an ideal product or simple pricing, but if you have multiple features that can diversify your offerings, then it might be time to up the plan count.
What’s the Right Way to Expand My Pricing?
Netflix’s latest pricing experiment may not turn out to be a win, but at least they’re implementing a pricing process based on value to see what sticks. There’s no golden brick road to the perfect pricing structure, after all. However, here are three crucial steps that will ensure your pricing focuses on the customer and has the ability to capitalize on each buyer’s perception of value.
photo credit: © Salim Photography/ www.salimphoto.com via Compfight
1. Quantify Your Customer Personas
We talk about this almost every week on our blog, but at any stage of your business it’s extremely important to know who you’re selling to and who you could sell to. Netflix knows offering more than one plan based on simultaneous streams can help them appeal to multiple customer segments. I myself have Netflix and still pay $7.99 per month for access, but I only need it on one device. If the $6.99 comes my way I’ll be all over it. Perhaps there is a significant number of frugal Netflix prospects out there - deterred by the price with zero need for streaming on multiple gadgets.
Knowing each type of customer, especially on a quantitative level, is essential to expanding your pricing. Even as early as your initial development process, you need to uncover the range of potential customers you can serve and what matters to each of them. Talk to them and find out which features they value the most, what motivates them to buy, and how much they’re willing to pay. The data collected will unveil important patterns you’ll need for the development of an effective pricing structure.
2. Match Each Pricing Tier to Each Persona
Once you’ve identified which customer personas to target, you’ll know how many plans you need. This is because each tier for your product should align to a specific persona. Every customer segment should line up with the pricing and value provided in a particular plan so they receive the amount of product or service that suits their needs.
This critical alignment is vital, so get down and dirty with your customer data and figure out exactly what your customers are looking for. You may discover that you have no need for an enterprise plan, or that an entry level tier would really appeal to a price sensitive persona that needs a smaller package. Whether your pricing is too simple or you have a boatload of tiers and nowhere to put them, you won’t know what needs changing until you incorporate what you can learn from the customer into your pricing strategy.
3. Align Your Pricing Along Proper Value Metrics
As I mentioned in the above rant about catch-all tiers, part of a killer pricing strategy that maximizes revenue is demonstrating how you can provide value as your customer’s needs grow. The right value metric (or metrics) will make it much easier for your business to charge customers more for each unit of value they’re receiving, and justify doing so.
With the Netflix pricing scheme, it’s easy to understand that the price rises incrementally with the number of devices allowed. The potential for customers to become loyal buyers is far greater if they know exactly what they’re paying for and how much value they’re receiving at a particular price. For some businesses, this means having one simple value metric like users. For a video hosting company like Wistia, it means pricing based on the number of videos and bandwidth. Find out which features are the most important to the customer and how they’re using them, then incorporate that knowledge into your pricing so you can charge accordingly.
Interested in learning more about SaaS pricing? Subscribe to the blog by downloading our SaaS Pricing Page Blueprint ebook, an awesome resource that offers in-depth data and analysis on building the optimal pricing page.
Discuss on Hacker News here.
Your pricing page is the center of your universe. Everything you do, from your marketing and sales to your product development and support, works to drive people to that page, convert them, and keep them coming back.
Yea. It’s that important.
We’ve documented some amazing SaaS pricing pages in the past, chiefly in our annual SaaS pricing page pageant, but we decided to point out some pages that need a good New Year’s resolution. Many of the following pages have a lot going for them and come from phenomenally great companies (they’re clearly doing something right). Yet, they’ve fallen short in two key areas: design clarity and simplification. Let’s look at these two big points, apply them to some examples, and get you on your way to creating a better page.
Overcoming the “Too Many Check Marks” Problem
If you’re a product person, I reckon you’re pretty proud of every single feature that you put out to the world (at least in theory). If you weren’t, then why the heck would you build them, right? You’re a maestro of the command line and the right customer will appreciate every subtle detail you’ve pushed live. As a result, you need your page to look something like Qualaroo's pricing. Look at all those beautiful checkmarks. Over 50% of the features displayed are included in every plan.
You’re making the purchasing decision 10x more difficult
Here’s the thing though: most customers don’t care about every detail; they only care about what’s important to them. Including every single checkmark on the page limits your prospect’s ability to make a quick decision between your tiers. You want them to place themselves in a bucket without having to wade through rows and rows of features trying to figure out what’s core to the product and what’s included in each plan. You’re also allowing doubt to slip into their mind with questions of, “wait, is that feature I was marketed included in this plan or not?”
This is why pricing pages like UserVoice's pricing are so effective. Customers come in, see exactly what’s differentiated between the plans, and can make a quick decision. UserVoice even gives them an option to see the floodgate of features, but only if they want to click through.
You’re not allowing yourself to market these core features effectively
Calling something “Deeper Analytics” and putting a small description below the tag or in a hover over question mark isn’t effective product marketing. It’s deeper analytics; it’s value goes well beyond a tiny blurb. Buffer falls prey to this crevasse with their Buffer for business product by having a beautifully built site and page, but taking up 70% of their pricing matrix with features that are included in each plan. How slick would it be if they eliminated this block of checkmarks and created a section that said, “All business plans include:” and then had a product marketing rich overview of each of the features.
A phenomenal example of this style of marketing is Wistia’s pricing page. They keep it so simple by including all features with all plans (and marketing accordingly), displaying their differentiation only along their value metrics of videos and bandwidth.
Buffer for Business Pricing
You’re making it harder to upsell me
On the eighth day when the powers that be created pricing pages they realized the beauty that the tiered structure had on anchoring and upselling customers. Suddenly, customers who were typically basic customers saw four plans and thought, “well, I’m not basic, but I’m not enterprise, so I guess I land in the second plan.” Boom. MRR boosted.
Here’s the problem though: confusing pricing pages not only hurt the decision making process, they destroy this upgrade potential. Look at DocuSign’s page. Great company, but there are more checkmarks here than I know what to do with, leading me to just pick the cheapest option out of frustration, rather than choice.
The “We only have one customer” or “We have so many types of really specific customers” problem
Products start out as problems that real individuals have in their lives. The beauty of developing a SaaS product remains in your ability to quickly and nimbly respond to those individuals’ needs. This malleability in feature prioritization is a blessing and a curse though, as you could theoretically build something for every group of people on the planet (or build something for no one on the planet). Your product and your business need to therefore start with identifying and quantifying your customer personas.
Your business then becomes a game of cloning your customers, focusing all of your efforts like a laser set out on world domination. Yet, far too often we see companies both successful and struggling who haven’t honed in on this key step in the process.
This is easy to spot in pricing pages that are either too simple with minimal tiers or too complicated with convoluted or too many tiers. Both ends of the spectrum result in cash being left on the table and even more confusion for customers coming through the door.
Too few tiers leaves cash on the table
Take Hootsuite's pricing for example, a killer company with over 8 million users. The problem is they only have one main tier along with a simpler freemium plan and a “contact us” enterprise plan. You mean to tell me that in eight million users there’s only one main person? We’d buy this if the product were much simpler, but this page alone has sixteen points of differentiation and I’m sure there are more features not even mentioned that could be helpful. What’s worse is that this page suffers from some of the simplification elements discussed above, as well. It’s sad to see so much potential cash being left on the table.
You need to make sure you quantify your customer personas and ensure your pricing tiers align to those personas. One tier for each persona and each tier should be mutually exclusive.
Too much differentiation is just as bad
A lot of companies miss out on sales opportunities by utilizing too much differentiation or too many plans, as well. The result is mainly the dissonance in the mind of the customer we discussed above, but look at Onelogin and their pricing page for example. There’s so much going on with this page that, as a customer, I’m not really sure where I fit in initially. The plan labels do help, but as I dig into the features I get more confused. They’ve over optimized the differentiation between their plans.
Dyn has a similar problem with their transactional email pricing where the email send thresholds and the feature differentiation leads to a lot of confusion (although some of this could be cleared up by stylistically getting rid of those “X”s).
Dyn's Transactional Email Pricing
Keep Your Pricing Page Simple and Focused on the Customer
We say it all the time, but it bears repeating: your pricing, just like your product, marketing, sales, and the like, all starts with your customer. Check out some of our other posts on SaaS pricing pages (including our SaaS pricing page pageant), as well as the big study we did on the top 270 SaaS pricing pages to learn more about constructing your page and your pricing strategy as a whole.
Discuss on Hacker News here.
I’d never really thought about pricing anything until I joined an online labor auctioning website called TaskRabbit. Essentially, it’s a marketplace for people to post all types of odd jobs and errands they'd like to get done. Tasks vary significantly in terms of skill, ranging anywhere from laundry, leaf raking, and walking dogs, to furniture assembly, babysitting, cooking...you get the picture. Some people take it to the extreme, enlisting taskrabbits to write their thank you notes or exchange belongings following a breakup. There really is no such thing as a bad ‘task’ as long as someone is willing to do it.
photo credit: spike55151 via Compfight
In a way though, TaskRabbit seems like the ideal entrepreneurial setup for those doing the tasks; you set your own schedule, explicitly state what you’re good at, and pick your own prices. Having never set prices for anything before, I was excited to challenge myself to think in terms of how much I valued my time and skillset. However, you’ll soon find out I had a rough time pricing my services in the beginning.
Pricing in a Blind Auction:
At first I approached bidding from a competitor based pricing angle - I researched how much others in the industry were charging for similar services, and priced a bit lower to compensate for my lack of insurance or expertise. Since the tasks ranged significantly across the board, I tried to align my pricing with the amount of effort each errand called for. Time spent cleaning a home could not be priced the same as time spent moving a one bedroom apartment from Cambridge to Brookline, for example. However, I found myself having a difficult time sticking to the prices I set for myself, and in an effort to secure more work, would continually accept bids to do tasks for less money.
Interestingly, as I continued to accept offers to work for less, my valuation of my own time and labor began to get skewed. It also became increasingly difficult to rationalize raising the price back up to a reasonable rate, and I began to get discouraged with what was originally a fun way to do new things, meet people, and make some extra money.
I even experimented with an option that allowed me to simply confirm the fixed price posted by the website, which just made matters worse. By completely taking myself out of the pricing process, I was allowing a stranger to assign value to my skillset and time without having ever experienced it. I started to lose sight of the value of my service, and it left me feeling taken advantage of.
photo credit: austinevan via Compfight
My Pricing Strategy Needed a Tune-Up
I decided to take a step back and see what I could do differently to make more money. First of all, without having a physical product to sell, such as in retail, it didn’t make sense to base my strategy solely on those of my competitors or internal costs of production. In fact, I needed to choose a proper exchange rate for my time, skill, and labor, which meant I had to factor intangible assets into my pricing consideration or risk allowing the market to commodify my unique contribution.
So what is an intangible asset? Intangible assets are assets that have no physical representation, but add significant product value. Generally, this includes intellectual property, brand recognition, copyrights, forecasts, etc., but the skills and abilities an individual brings to a company (or a TaskRabbit auction) are also intangible assets. They’re often the reason one business has a competitive advantage over another. Competitor and cost plus pricing strategies are easier to comprehend and apply because they’re fairly straightforward, but by not attempting to harness the value of the intangible aspects, you’re missing out on an opportunity for profit.
Uncovering the Willingness to Pay of the Taskposters
If I could determine the customers’ willingness to pay for my service, I’d be able to translate the abstract concept of value into a quantifiable price band. Fortunately, the nice folks at Price Intelligently used their value-based pricing tools to query 50 respondents regarding how much they would pay for an hour of housekeeping. At the time, I was only charging $15/hour for housekeeping tasks (most other taskrabbits were charging as much as $30/hour), but perhaps some hard data would prove my fear of losing bids due to higher prices was relatively baseless.
We ran two studies - one to measure price sensitivity, and the other to determine feature value preference. The latter was designed to help assess which aspects of a housekeeping errand customers valued the most, such as efficiency, punctuality, ability to refrain from breaking stuff, etc. All of the participants in the study had a home or apartment that required cleaning, were looking to hire someone to clean, and were familiar with TaskRabbit. The results can be seen below:
The outcome was pretty eye-opening. The price sensitivity campaign revealed the optimal price band for an hour of cleaning was $20.62-24.50, which clearly indicated people were willing to pay a lot more than what I was charging. The indifference price point, or the point at which an equal number of respondents believe a product/service is expensive as believe it is inexpensive, was $23.15. I could easily see how low I was pricing my housekeeping services, as this median price point was 8 bucks more than my hourly fee (check out this post for a deeper look at the mechanics of a pricing study).
The feature value campaign ensured I knew which facets of a housekeeping job, tangible or intangible, were most important to task posters. The features we studied ranked from most important to least important as follows: 1) efficiency, 2) task thoroughness, 3) respecting privacy, 4) arriving on time, 5) not breaking any property, 6) attentiveness to needs, and 7) flexibility. The results of this campaign weren’t quite as surprising, but by looking at the visual output below I was able to confirm that task posters who wanted some cleaning done overwhelmingly preferred a housekeeper that did a quick and meticulous job (although I’m sure nobody wants a taskrabbit to break their valuables).
Lessons from my first experience pricing, well, anything.
I already had a hunch that I was devaluing my own labor and allowing people to tell me what my time was worth, but the pricing study proved I wasn’t being fair to myself. Ironically, it was my own flexibility with pricing that was devaluing my labor, and setting unreasonably low prices may have even unintentionally communicated a lower quality. As you probably already guessed, I decided to raise my TaskRabbit rates, but here are three lessons anyone can take away from this experience:
1. Communicate your value and don’t be afraid to implement profitable prices.
If you believe in your skills and services, then it’s crucial to become your strongest advocate and learn to communicate your value with a fair price. Although it can be tempting to lower prices to gain market share, you risk unintentionally communicating lower quality by pricing you services well below market value. Neither the buyer nor the seller wins, and the market enters a downward spiral, with buyers paying and receiving less and sellers earning and giving less.
2. Using price as a competitive weapon won’t necessarily get you more business.
Undercutting your competitors on price may program customers to focus only on your price and disregard the value you bring to them. Whether it comes to skilled services or software, the additional value of assets like time, labor, and customer service are true profit drivers, and a more creative pricing strategy is called for. There is no silver bullet or perfect price, but approaching the pricing process with an agile, multi-priced mindset driven by data and value is a great start. This brings me to my last point.
photo credit: Tambako the Jaguar via Compfight
3. Different strokes for different folks
My introduction to the optimal price band showed me different customers will pay different prices for the exact same product or service, and some may be willing to pay more based on their perceived valuations. While that may seem obvious, it’s critical to understand each type of potential buyer if you want to capitalize on different valuations with your pricing strategy. The more you know about your customers’ preferences, interests, and quirks, the easier it will be to align each of them with the right service at a price that works for both of you, whether you offer a software product or you’re cleaning out someone’s garage.
To learn more about pricing specifics, check out our Pricing Strategy ebook, our Pricing Page Bootcamp, or learn more about our price optimization software. We're here to help!
How did your business decide on your product’s current prices? Hopefully it wasn’t like most SaaS companies, where the founder simply plucks price points out of thin air, guided by nothing more than his or her gut feeling.
Think that’s too crazy to be true? Well it isn’t. We surveyed over 270 SaaS businesses and found that nearly half of them priced solely based on their founder’s intuition. Contrast that with the embarrassingly low 17% of companies that defined their pricing strategy as a team, and you quickly realize that there is a major problem.
Your pricing strategy, which includes your positioning, packaging, and price points, represents the total value your product delivers and encompasses all aspects of your business, from engineering and marketing to sales and customer support. Therefore, your pricing decisions should be made collectively by all of the key stakeholders in each of the different areas of your business, not just by your founder or marketing department. Here’s the case for why all the different parts of your company should get involved in developing your pricing strategy.
Sales and your pricing strategy are inherently linked, yet only 3% of SaaS companies we studied involved the sales team in pricing decisions. Your sales reps are on the frontlines interacting with your customers and prospects on a daily basis, so their insight into customer value perceptions is essential to a comprehensive pricing strategy. Turning it around, they’re also responsible for communicating your product’s value and justifying your prices to potential customers, which means that they need to understand the logic behind the pricing decisions to be more effective at their jobs (click here for more on the intrinsic relationship between your sales team and proper pricing).
Your sales team should also be familiar with your pricing strategy to create accurate sales forecasts, which in turn drives the rest of your business’ financial forecasts because most companies project their expenses as a percentage of sales. From a broader company perspective, this means excluding your sales team from your pricing strategy discussions could derail the rest of your company’s finances for the year. Pricing is then clearly an integral part of the sales process, which means that sales should be an integral part of your pricing process.
photo credit: Robby Ryke via Compfight
Only 1 out of 10 SaaS companies determine their prices with help from the marketing squad, which is an alarmingly low ratio. An essential part of marketing is understanding your customers, which makes this department an incredibly valuable asset to your pricing process. Your pricing strategy should rely heavily on the features and price points that are most attractive to your customers, which obviously requires your marketing team’s thorough understanding of your buyer persona profiles.
On the flipside, your marketing team is also responsible for communicating and demonstrating the value in your product to your target market. They need to participate in pricing strategy discussions so they can establish a strong awareness of where the true value lies in your product and use that understanding to strengthen your positioning and packaging strategy.
Your product team built your product from the ground up, which means that they probably possess the deepest understanding of your product’s features and limitations. Engineering needs to be included in your pricing process so that your team doesn’t position your product in a way that overpromises on it’s capabilities or undersells its features. Their input is also critical when deciding whether or not to offer a custom plan as their bandwidth is the most important factor in that decision.
From a broader perspective, your product team has poured their blood, sweat, and tears into building your product, so including them in your pricing discussions will ensure the rest of your team puts forth their best effort in the process. This is especially critical when you consider that most teams only spend 6 hours pricing a product that your engineering team spent hundreds of hours building.
photo credit: carterse via Compfight
Management’s ultimate responsibility in a company is to serve the various stakeholders involved with the business, which means it would be irresponsible for management to divorce themselves from the pricing decisions that are so critical to a company’s ultimate success. This is especially important because Harvard Business School studies have demonstrated a 1% improvement in pricing can generate up to an 11% increase in profits. Not to sound like a broken record, but pricing is the culmination of all the individual facets of your business, so the top executives responsible for coordinating the different branches of your company should also be involved in the pricing process.
Include more people in the pricing process!
You should be collecting input from all of the departments in your business, as well as your customers, to determine your optimal price points, packaging, and positioning. With something as important as pricing, you really can’t afford to delegate the responsibility to just one person, especially a founder who, without a background in pricing strategy or market research, prices based on a gut feeling or a haphazard guess at value.
As we mentioned in the beginning of this post, barely 1 out of 5 companies use teams to price their product, which means you’ll have a leg up over 80% of your competition if you take the simple step of expanding your pricing team.
If you enjoyed the data we presented in this post and are interested in seeing more, be sure to check out our latest eBook, the SaaS Pricing Page Blueprint, which offers in depth data and analysis on building the optimal pricing page.
Since CEO Jeff Bezos’s 60 minutes showcase of Amazon’s unmanned drone delivery service, many have written the interview off as just another PR stunt to boost holiday sales. Considering the technology is estimated to be over a decade away, the doubters are most likely correct. When digging deeper though, Bezos’s latest octocopter obsession illuminates Amazon’s purpose perfectly, becoming the largest retailer on the planet (and not just online).
Unfortunately, these droning delivery men also reveal what Amazon believes to be their core hurdle in achieving this goal: competing with local brick and mortar retailers who also sell 95% of Amazon’s products. To combat this, Amazon has spent billions of dollars building Amazon Prime (guaranteed 2-Day delivery), purchased numerous urban locker shipping companies to circumvent the “I wasn’t home for my package” problem, and even brokered a deal with the US Postal Service to begin delivery on Sundays.
This intense focus and spending begs the question though: Do Amazon shoppers truly value and care about receiving their items almost immediately?
To shed some light on this question, we at Price Intelligently decided to test if drastically decreasing the time of delivery impacted willingness to pay, a true proxy for how customers value different levels of delivery times. Let’s quickly look at the methodology and resulting data before analyzing how those fancy octocopters go well beyond a simple PR stunt.
The Methodology to Determine Willingness to Pay
For this test we utilized our value-based pricing software that works by pinpointing willingness to pay through asking potential or current customers a number of key pricing questions. Here’s an example campaign for you to check out, along with a link to an article that explains the algorithm more in depth. To summarize though, rather than asking respondents point blank how much they’d pay for diapers delivered in 30 minutes, we ask in ranges - at what point is this too expensive, at what point is this so cheap you question the quality, etc. This data is then sanitized and crunched on the backend to get the output you see below. The big number to focus on is the Indifference Price Point, which is essentially the median point or where half the respondents believe the item is getting expensive and half believe it’s a great deal.
In addition, we decided to differentiate between products that customers potentially need right away and products that typically don’t instill such a sense of urgency. In this vein, we tested two very different items that an unmanned drone could still deliver: a Macbook Air and a box of diapers. We felt most consumers could live without a new computer for a few days, but running out of diapers would most likely create a dire emergency that could warrant the need for instant home delivery.
For Diapers: Delivery Time Dramatically Affects Willingness to Pay
Some of us might be hesitant to assume parents would prefer paying significantly more for emergency air shipments of fresh diapers over stocking up at Wal Mart, but the data below proves otherwise.
The results are pretty fascinating. When respondents were asked how much they would pay for a diaper pack delivered between 7-10 days (standard ground delivery), their willingness to pay centered around $22.67. When that delivery window shrank to 30 minutes though, the willingness to pay jumped to $32.50, an increase of 43.4%.
So as a whole, our beautiful diaper data shows that Bezos might not be so nuts for pursuing such radical ways to save time. Quick delivery has always been a powerful value proposition, but as technology like these drones moves forward, it could become the ultimate differentiator between an e-commerce specialist like Amazon and a giant retail bodybuilder like Wal Mart.
For a Macbook Air: Delivery Time Impacts Willingness to Pay (Slightly)
Even more surprising though, the results for the Macbook Air study showed a similar increase in willingness to pay as delivery time decreased. Even though most of us could wait a hot minute for a new laptop, the responses for the 30 minute delivery generated an indifference price point of $1000 (retails for $999), $75.19 more than that of the 7-10 day delivery (IPP of $924.81).
Granted, that 8% difference isn’t anything to write home about, but the trend seems to hold even for premium products that aren’t required in bulk to stem a newborn baby.
Time Is of the Essence
As the results indicate, the old adage that time is money appears to still hold true. In the online retail space, Amazon’s bet of closing out the hurdles in the last mile of the purchase cycle clearly will continue to pay dividends. Interestingly enough though, in his interview, Bezos explained that all the data suggests that Amazon should raise prices as they continue to improve service, but in his belief doing so would erode the trust of his customers. This notion continues to sharpen Amazon’s edge against their brick and mortar brethren, increasing value in an already low price product.
Clearly Bezos and Amazon are in it for the long haul, which is great because we’ll probably have a long time before we see our first drone. The FAA has already come out against commercial drones until safety and logistics are hammered out in detail. We suppose that’s ok, because the last thing we need is a sky raining diapers, Macbook Airs, and whatever else Bezos’s octocopter obsession brings our way.
To learn more about pricing specifics, check out our Pricing Strategy ebook, our Pricing Page Bootcamp, or learn more about our price optimization software. We're here to help!
Your pricing page is the most important page your company will ever build. Don’t believe me? Well, consider this: every other page and almost every other activity in your company works to lead people to that page and convert them to healthy, paying customers.
To a greater extent, pricing can be thought of as the center of your business. After all, you exist to provide some nugget of value in exchange for cold, hard cash to keep your business surviving and thriving. Pricing is the exchange rate on that value, and your pricing page is the final gateway that ideally works to justify that exchange rate.
After looking at over three thousand SaaS pricing pages and writing about the best ones in our SaaS Pricing Page Pageant, we decided to double down and bring you a resource to make your pricing pages fantastic. Let’s dig into two top level findings that can help everyone before giving you access to all of the study’s insights. Don’t want to wait? Well, go ahead and download the SaaS pricing page study here:
1. Only 1 in 5 Companies Set Prices Based on Customer Value
That’s worth repeating. Only 1 in 5 companies use customer development and perceived value to set their prices, while the rest settle for prices based on a combination of guesswork, competitors’ pricing, and their costs of production.
Guess what? Your customers don’t care about your internal development costs or how much your competitors charge. Be empathetic and realize that your customers are purchasing based on their own value perceptions, which means you need to price by quantifying the value you’re providing them.
Bottom Line: Go out and talk with your customers about how much they’re willing to pay for your product. You’d be surprised how open people are when it comes to chatting about prices.
2. Two out of Three Companies DO NOT Have a Freemium Plan
This was surprising, because any Google search for “Freemium” results in hundreds of articles discussing the pros and cons of such an illusive strategy. We’ve been pretty open about our bias towards a free trial instead of a free plan (86% of companies utilized at least a free trial), mainly because a freemium offering can be a pretty hefty marketing expense .
The Bottom Line: Don’t assume you absolutely need a free plan. If you do choose to provide one (or are already providing one) be cognizant of the fact that freemium is a customer acquisition strategy, not a revenue model (click here for more on freemium vs. the free trial).
Focus on Your Pricing From a Value Based Perspective
While these findings may not be earth shattering to you, much of the other information we found concerned the actual mechanics of the pricing page. For instance, 55% of companies utilize three to four distinct pricing plans. Only 18% of companies offer an annual pricing option. 6 out of 10 companies include FAQs. The list goes on in the ebook.
While these mechanics, facts, and figures are important from a design and setup perspective, the most important factor to continually keep in mind concerns value. You need to continually measure, optimize, and boost the value your customers see in your product. They’re the ones paying you and no amount of backdoor cost analysis, revenue number crunching, or competitor research will reveal what they’re thinking, so talk to them.
To find out more, check out the whole study in the ebook below.
The most important part of running a SaaS business, besides engineering the product of course, is creating a strong revenue model that allows you to efficiently pull in cash and keep the lights on. Developing your revenue model, like pricing, should be a continual process for SaaS companies because of the often unpredictable and dynamic nature of SaaS business. We often find refreshing a stale revenue model to be the key to unlocking additional profits for companies, especially as your product improves, your customers’ needs change, and your company expands.
There can be a lot to consider when developing or revamping a revenue model, including the number of plans you will support, subscription length, and whether or not to offer custom plans or free trials. These considerations can make it challenging to determine an optimal structure, but like we always say with pricing, your decisions will be stronger when grounded in hard data. Therefore, we’ve collected data on the revenue models of over 270 different SaaS companies for you to use as a foundation for your own revenue model. Of course, keep in mind that every business and company is unique so you should treat these more as general guidelines rather than hard and fast rules.
Number of Plans to Offer
Offering multiple plans is a great way to cater to different customer perceptions of value and take advantage of a price differentiation strategy, but too many choices can appear daunting and turn potential customers away. A good rule of thumb is to have as many tiers as you do buyer personas, so that the features and price point of each tier can be tailored to one particular persona. (For more on how to do that, check out this guide to value based pricing). Our research in the SaaS market shows most companies find that offering 3-4 tiers provides the right number of options.
For subscription models, most SaaS companies offer monthly pricing plans, which are popular because the smaller numbers appear friendlier and the lack of long-term commitment reduces the pressure on potential buyers. However, providing annual subscriptions may secure you more business upfront and reduce churn, the mortal enemy of SaaS. You can compromise between the two options by offering both a monthly and annual plan, with the price of the annual plan positioned at a slight discount to the price of the monthly plan. This allows you to cater to two different types of buyers: those who are willing to pay extra for the flexibility of a monthly plan and those who love your product and would appreciate a slight discount for their loyalty in choosing the annual plan.
Your decision to offer custom plans will rely heavily on the flexibility of your software and the bandwidth of your development team. If your team has the capacity to tailor plans to specific customers, then promoting your product’s customizability can be a fantastic way to encourage high-profile clients to contact you directly if they require special feature packages to accommodate their needs. If your team doesn’t have the bandwidth to develop custom plans, don’t worry. Over 75% of the SaaS companies we analyzed choose to avoid advertising custom plans, so it’s not the end of the world if your team doesn’t have the time to retool and adapt your offerings.
86% of SaaS companies offer a free trial of their product, which makes sense given that they are one of the best ways to increase your paid user base. Free trials allow you to effectively demonstrate the value of your product, increase your customers’ willingness to pay, and force your customers to make a purchasing decision at the end of the trial. Therefore, if you’re able to demonstrate strong value in your product throughout the free trial period, customers will want to subscribe simply to avoid the feelings of loss associated with giving up your product. Free trials are also especially relevant to SaaS companies because the marginal cost of an additional software license is negligible, which makes them a fantastic and inexpensive marketing strategy with the potential for massive ROI.
As we mentioned at the beginning of this post, every company is unique and will require a different revenue model to be successful. However, the data we’ve collected provides insight into current SaaS industry trends and should provide a solid foundation for the model that best suits your business.
If you’re interested in a more personalized consultation for your company, feel free to reach out to us for a free Price Optimization Assessment. Otherwise, check out our latest eBook, the SaaS Pricing Page Blueprint, for additional data and analysis on building an optimal pricing page and revenue model.
I’m a huge fan of Will Ferrell. Go ahead and judge away, but I think he’s hilarious. In a recent Dodge Durango commercial, Ferrell plays his Anchorman character, Ron Burgundy - the leisure suit-wearing news anchor brimming with machismo and a sudden interest in hawking sport utility vehicles. Rather than taking the easy route and listing the Durango’s most popular features, Burgundy is “the only one with the guts” to highlight one of the vehicle’s overlooked features - the glove box.
photo credit: tr.robinson via Compfight
While the absurdity of showcasing the 2014 Durango’s glove box provides a golden opportunity for humor, boasting about features customers expect (or could care less about) is unfortunately all too common. From a value-based pricing perspective, missing the mark on features can have a devastating effect on your bottom line. So let’s explore the importance of having a handle on feature preferences before learning how you can actually quantify something that has traditionally been thought of as qualitative info. Yay data!
What Is “Feature/Value Preference” And Why Is It Important?
At its core, a “Feature/Value Preference” is simply a determination made by a customer about which feature is most important to her/him. The idea also applies to value propositions (high-level benefits that prompt purchasing decisions) as well. We've dished out a fair amount of criticism regarding JC Penney’s folly of eliminating percentage discounts. Their blunder is a case study in the importance of understanding the value propositions that influence your customers. In the mind of the C-level execs at JCP, the value proposition of “fair and square prices” would trump “25% off” easily. Unfortunately for JCP’s execs (and their 2012 sales projections), the value proposition of “getting a great deal at 25% off” was actually more important to their customers.
If you’re a SaaS company, it’s critical to understand the features that customers are willing to pay for since your pricing page is likely tiered based on a sliding scale running from basic attributes to premium components. Analyzing the features that motivate your customers to buy helps you establish how you package and bundle each pricing tier accordingly. You also don’t have to be a pricing nerd to know that listing out every feature on your pricing page isn’t very practical. For one thing, the “shotgun approach” can intimidate and overwhelm prospective customers in the sales process. Highlighting your most popular features, however, can alleviate this frustration and give you the opportunity to display the very best aspects of your product (for more on pricing page best practices, have a look at our SaaS Pricing Page Pageant).
photo credit: winnifredxoxo via Compfight
Additionally, asking customers for their input can do more than just help you identify important features and display them effectively. Current customers often remark that being a part of the process helps them feel included and important. In short, their opinion matters and taking the time to communicate this idea not only helps you create a better pricing page, but also strengthens the tie between you and your customers.
Which Features and Value Propositions Should Take the Spotlight?
There are several ways to measure customer preferences about existing features with some being exponentially more effective than others:
1. Ask Yourself (AKA Guessing)
Bad idea. Gut feelings are important, but staking the success of a new product or service simply on intuition is reckless at best, and plain stupid at worst. We get it, there may not be a lot of market research out there, especially if you’re a first mover in the industry, but there are better ways to gauge consumer sentiments (don’t worry, we’ll be sure to cover a really effective one at the end of this section).
2. Ask the Developer
This makes sense, but be careful. Although it seems logical to rely on the person or team who created the product for their input, the feature preferences of the developer can either be too broad or too narrow. For one thing, they likely spent a lot of time (as well as blood, sweat, and tears) creating the product, so it could be difficult to detach themselves and objectively pick a handful of the most important features. Moreover, features that are paramount to the developer might not be important at all to the end user.
3. Ask the Customer
Getting warmer. The beauty of going “straight to the horses mouth” for feature/value preferences is that it ensures the feedback is at least coming from the correct perspective. Unfortunately, the methods used to collect this data can dramatically influence the results. Asking respondents to “check all the features that are important to you” can generate bias since respondents can easily be swayed by the concept that “more is better.” So, it’s not only about who you ask the question, but how you ask it. The graph below shows what happens when you present customers with the opportunity to have it all.
4. Ask the Customer 2.0 - The Price Intelligently Method
Bingo. Rather than a “rank order” or “check a bunch of boxes” approach, forcing respondents to simply choose a favorite feature and least favorite feature gives you a better opportunity to hone in on the aspects of your offering that are most attractive to customers. Take a look at the next graph below. From here, you can see what customers actually care about because they've been allowed to make tradeoffs.
SHAMELESS PLUG ALERT: Lucky for you, we have already done the legwork with experimental survey design and coding to create an app that allows you to test Feature Value Preference effortlessly. The app’s algorithm even generates a beautiful display of the data so you can impress your boss with your value-based pricing prowess. Click here to learn more and start a 30-day free trial!
A Few Final Thoughts
Collecting data surrounding your product’s features and analyzing it thoroughly does take work, but it’s necessary labor if you hope to craft an effective pricing strategy for your business. Before you even think about the numbers you put on your pricing page, taking the time to explore the language that surrounds those numbers guarantees that you are communicating the value of your product in the clearest way possible.
If you want to learn more about the tenets of value-based pricing, take a look at this post on the importance of price sensitivity and how you can measure your customers’ willingness-to-pay with a scientifically-proven methodology.
Ready to put your newfound knowledge to work? Check out the 30-day free trial of our software that will help you determine the features and value propositions your customers care about most. Also, check out our pricing strategy ebook.