Pricing may be simple. Your customer is not.

Sameer Gulati
by Sameer Gulati LinkedIn
Aug 8, 2018 8:44:00 AM

Price simplicity was once considered paramount to a successful SaaS pricing strategy. The advice was formulaic—establish a value metric, assemble a “good, better, best” tiered plan structure, provide people monthly and annual billing options, and you were off to the races.

“The pain point that every single B2B company shares is pricing.” – https://frontapp.com/blog/2017/02/13/how-we-de-risked-our-saas-pricing-strategy/

Things have changed. Oversimplification of your pricing model may cause your company to leave money on the table. This is because fast-growing businesses, regardless of size, often find they must serve different user types, each with their own willingness to pay, in order to grow.

Customers differ significantly in terms of:

  • Number and role of people within in the company using your service
  • Features valued by various people within the organization
  • Variations in how people use your service with the organization
  • How your service evolves as your customer evolves

Clearly communicating pricing during the initial sale and through a renewal process remains vital, and so does making sure different customers can see themselves and their unique pain points within the pricing structures you communicate. As McKinsey notes, allowing for customization can contribute to top-line revenue by making room for more customers to consider you:

"Satisfying latent demand for flexible subscription pricing not only allows companies to capture significant additional lifetime value from existing customers but also unlocks previously untapped customer segments, which can include business units that prefer operating rather than capital expenses or companies whose cash constraints prevent them from making big advance investments." – https://www.mckinsey.com/industries/high-tech/our-insights/subscription-myth-busters

Considering the data points now available to B2B companies, it is worth considering taking a page from retail’s dynamic pricing book, where “...businesses who have flexible pricing were able to increase profits by an average of 25 percent." – https://econsultancy.com/blog/65327-why-dynamic-pricing-is-a-must-for-ecommerce-retailers/

Price Customization: The Sky Is Not The Limit

Flexible pricing is certainly one strategy to keep your business competitive:

“Customers not only want convenience these days — they also want customization. Individuals and businesses alike prefer the ability to pick and choose the features of a particular product that best meets their needs. To accommodate this desire, SaaS vendors package and price their products in a variety of ways — from bundles designed to attract users of different tiers (individual, small business and enterprise, for example) to letting consumers build their own customized bundles. Additionally, sales teams often use varying promotions and discounts to secure a transaction.” – https://blog.vindicia.com/flexible-monetization-strategies-keep-saas-businesses-competitive/

At the same time, there are some rules of thumb to follow. You should consider how to leverage custom pricing as part of your growth strategy.

  1. Draw some boundaries. Understand the basic variations on your core offering, and establish parameters that steer customers towards the variation that is right for them.
  2. Make it frictionless. Make sure “custom configuration is made as easy-to-use as possible and enables self-service amongst end users.”https://saascribe.com/is-customization-the-enemy-of-saas/

Moving this from theory to practice, a billing and revenue automation platform allowed, ListReports to reduce the number of their pricing and product plans  in Stripe from 2,000 to 10. This collaboration with Ordway allowed ListReports to support a flexible offering, while creating order and predictability in billing.

Not Everything is Google Maps: Choose Billing and Revenue Systems that Get You Where You Want to Go

Finally, successful pricing strategies do not exist in a vacuum. Whatever plans, add-ons, and billing options you make available must be supported by internal systems, in order to create an exceptional customer experience and efficient operations.

Systems should not dictate or create rigidity in your customer journey or for your sales team. There must be controls, but you should source systems that breathe and adapt with your team to meet the needs of your diverse customer base, Embrace tools that enable you to represent and operationalize the full relationship with your customers, in all its complexity.

Look for tools that support modern software subscriptions, taking into account:

  • What customers bought
  • Complexity in their implementations
  • When they bought
  • How they need to pay for it

With a subscription based model, optimizing the money you make lies the nuance of the longer term relationship—renewals, add-ons, modules, and referrals.

Upsells and upgrades offer tremendous potential for an “increase in revenue per customer.” – http://blog.higherlogic.com/2016/05/03/master-the-art-of-upselling-upgrades-and-add-ons

Focus your sales team not just on the initial sale but on expanding the relationship and choosing tools that support and enable that mindset. Train and arm them with systems that support growing those relationships.

Experiment Continuously. Learning Is Key

Few shifts spark as much fear in a high-growth business as pricing experiments, yet few have the power to have such immediate impact. Aim to test continuously, and minimize the repercussions of any single change.

Front shared this piece of advice:

"Because we test on small cohorts, there are fewer repercussions for totally screwing up. So instead of making big, infrequent jumps in our pricing, we evolve our pricing little by little at a steady cadence." – https://frontapp.com/blog/2017/02/13/how-we-de-risked-our-saas-pricing-strategy/

Key to keeping your current customers happy, as you test variations in pricing, is staying true to your personas. If customers understand clearly what you’re offering, and where they fit, you are delivering value, and deepening their relationship with you comes without friction, you are well on your way to a longstanding relationship.

Topics: SaaS, Pricing, operations, billing

 

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