SaaS: How increasing the price of our cheaper plan improved sales of our more expensive, target plan by ~100%
Circuit is a Techstars ’19 SaaS company building route optimization software that improves the efficiency of last-mile delivery.
Circuit’s B2C product has 2 pricing options:
- A $20 plan, allowing drivers to optimize an unlimited amount of stops.
- A $10 plan, limiting drivers to 200 stops per month.
The idea behind the $10 plan is that it provides value for money for those who have a need for Circuit, but don’t use it all day every day (think Florists, bakeries, etc), without cannibalizing sales to our target customers, who require many more than 200 stops per month.
The mix for these plans has been relatively steady, with the cheaper $10 plan making up roughly 3/5 of sales, some of whom would eventually upgrade to the $20 plan.
1st experiment (Decoy)
Pol Kuijken and I were considering the role of psychology when making a buying decision. Pol suggested that by adding a third “unlimited” plan for $30, and reducing the current $20 plan to ~5000 stops, we’d make our target plan look better value for money, resulting in an improved product mix.
(Providing 5000 stops is more than enough for our average user)
I argued that by adding this third plan, we’d actually see a decrease in the overall conversion rate, as the decision on which plan to buy would suddenly become significantly more complicated.
Upon confirming that 5000 stops/mo was indeed enough for 95% of our customers, we applied the change to see what would actually happen.
30 days later, it was clear there was:
- A minor improvement in our product mix.
- The overall conversion rate had remained steady.
Overall, applying that change would have been a small win!
Despite the minor win, we remained confused by how the conversion rate could possibly remain steady, despite the significantly harder decision for users. We dove into the data to figure out what we were missing.
In doing so, we suddenly had a realization. What if the friction that comes with having to decide which plan you needed, was effectively just canceled out by making the $20 look better value for money? If that was the case, could we achieve the same improvement in perceived value for money, but without the friction?
During our time at Techstars, Hugo Augusto (Our MD) had previously spoken to us about focusing more on our target customers (those on the $20 plan), and worrying less about those on the cheaper, $10 plan.
That conversion sparked an idea. What if the $10 plan was making the $20 look bad value for money? And if that was the case, how could we fix it?
We decided to increase the price of the $10 plan to $15.
The expectation being that whilst fewer people would buy the cheap plan, more people would now buy the $20 plan, as it now looked much better value for money.
It took less than 2 hours to see the effect of this change - There was an immediate improvement in the product mix.
Once the dust had settled, the final results suggested a ~100% increase in the sales of our $20 plan, and a ~50% reduction in sales of our cheaper plan.
Accounting for all changes (including changes to retention), this change increased our average revenue per install by ~45%.
We thought our cheaper plan was just capturing an additional market segment for free, but it turns out we were cannibalizing the sales of the segment we actually cared about in the process.
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