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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).

price sensitivity

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)

price sensitivity

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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4 Tips That Take Your SaaS Pricing Page From Complete Dud to Total Stud

 

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).

pricing page

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.

Ginzametrics 4

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.

pricing page

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

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.

free trial

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.

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4 Pricing Page Details that Increase Value and Reduce Friction

 

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.

pricing page

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.

live chat

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.

2. FAQs

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.

FAQs

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.

high profile clients4. 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.

word count

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.

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Netflix Experiment Stirs Up 3 Steps to Develop Your Pricing Plans

 

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).

Pricing Strategy

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.

Pricing Plans

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?

catch all tier 2

Catch all tier 1

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.

pricing process

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.

pricing page

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. 

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The Saddest SaaS Pricing Pages of the Year

 

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.

Qualaroo's Pricing 

Qualaroo Pricing
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.

UserVoice's Pricing

Uservoice pricing
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 

bufferapp pricing

Wistia's Pricing

wistia 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. 

Docusign's Pricing

docusign pricing

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. 

Hootsuite's Pricing

hootsuite pricing
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. 

OneLogin's Pricing

onelogin pricing

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

dyn 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. 

We'll be following up with more content to walk through how to solve each and every one of these problems, so subscribe to the blog by downloading our SaaS Pricing Page Bluepring ebook below. You'll also get a heads start on how to fix these problem now, by seeing what the top folks in SaaS are doing with their pages. 

Discuss on Hacker News here. 

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Lessons Learned from Creating My TaskRabbit Pricing Strategy

 

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.  

pricing strategy

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.

pricing process

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:

price sensitivity

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).

feature value

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.

pricing process

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!

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Why Your Pricing Strategy Should Be a Team Effort

 

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.

pricing strategy

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

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.

pricing strategy

photo credit: Robby Ryke via Compfight

Marketing

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.

Engineering

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.

pricing process

photo credit: carterse via Compfight

Executive Management

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.

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Beyond the PR: Amazon Takes to the Skies to Boost Customer Value

 

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).

customer value

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.

indifference price point

price sensitivity

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.

indifference price point

price sensitivity

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!

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