Why our SaaS pricing model sucked and how we fixed it?

We launched JustCall for everyone about 6 weeks back. For any new product, coming up with right SaaS pricing model is a very tricky yet an important process but most of the startups spend less than 6 hours on it. Thankfully, in our case we have a good number of businesses in the market catering to a similar market segment. Hence, we studied a lot of our competitors to come up with our first set of pricing plans.

Our Old Pricing Model

While deciding our pricing plans, we considered 4 key variables:

1. Phone numbers
2. Team members or collaborators
3. Number of integrations allowed
4. Final Price

So, we started with a small plan that allowed a user to get one phone number for free and no collaborators. He/she had to upgrade to a bigger plan to get collaborates or integrations. Next came the popular plan and enterprise plan.

We were pretty confident about our pricing as in comparison to our competitors, we were offering more features for less amount. And, it gave our users a lot of flexibility and control on what he/she is paying for using our phone system.

In last 6 weeks, we got over 1000+ sign ups and of them, 250+ opted for our $1 trial. And, 102 went on to use JustCall beyond the trial period.

Apart from asking the paying customers, we talked to users who didn’t take our trial plan or those who dropped out after trying our product. So, like a true lean startup, we took back all the feedback into the system, did a lot of brainstorming and learned that our PER USER PER MONTH pricing was flawed.

Why was our pricing model flawed?

We assumed that our users are going to love the kind of flexibility & control we are giving them. For example, they had complete control over how much they want to pay for their phone system depending upon the number of phone numbers or members they can add. But, in reality, we opened doors for confusion and fear to slip in. Having an open-ended and user-based pricing model kept our user always thinking & worrying about the ACTUAL COST of using JustCall to his/her business. Yes, it was an easy maths problem but your brain is one complex machine that keeps running, processing information, optimizing situations & worrying about things. Your brain loves full stops, definite values and safety nets.

So, if you make your customer to think a lot or to decide by computing many variables in his/her brain, you have pretty much lost that customer.

Don’t make your customer to think a lot or to decide by computing many variables in his/her brain. #SaaSTips

And, we committed exactly the same mistake. One of our customers told us that they love JustCall & it is a cool product BUT your pricing keep us worried & we can’t assign a specific budget to JustCall because of it. Another one said that if you were charging me a higher price but a fixed amount, I wouldn’t have canceled my account. And, another one said that why can’t I have a single bundle for my company. I would like to pay for it one time and use it for a year or so without worrying about anything.

So, it was pretty clear that we have totally messed up big time as far as our pricing is concerned. And, we learned that anxiety of your customer is a bigger deal breaker than a buggy product or slightly higher pricing.

Our Customer Segmentation

Learning from our mistakes and useful user feedback, we decided to get rid of PER USER pricing for good. While working on the new pricing model, we started with 3 goals:

1. Make it easier for user to pick a plan
2. Provide a range bound amount that fits customer’s budget
3. Remain affordable

To being with, we started researching about companies that are using JustCall and that our sales team is reaching out to. We noted down different metrics like company size, locations, sales & support team sizes, financials or funding history. We used Linkedin, Pitchbook, Angellist and Crunchbase for this exercise.

After some basic analysis, we divided our current customers & potential customers into 3 segments:

• Starting Up 🚲 - Individuals or a small team of 3–5 people. We compare this plan with a cycle driven by two founders, where cycle is your MVP
• Scaling Up 🚌 - Growing company from 15 to 50 employees with up to 10 team members in sales and customer success teams. We compare this segment to a Bus. A Bus is reliable, big enough to handle up to 50 people and travels at a good speed.
• Killing it 🚀 - Company is already a mini-brand or a brand, we up to 50 team members in outbound sales, inside sales and customer success teams. We compare a company at this level with space rocket for obvious reasons.

You should always go for data-driven customer segmentation instead of doing it by gut-feeling. Once, you have done segmentation correctly, the chances of messing up with pricing or even, features pipeline go down significantly.

You should always go for data-driven customer segmentation instead of doing it by gut-feeling #saas

Our New Pricing Model

Once are bundles were ready, we worked with our teams to understand our sales pipeline and our average CAC (customer acquisition cost). We create a model for next 12 months to estimate the number of users we can onboard considering both organic and inorganic growth.

Post this exercise, we got an idea about how many users we will have in 12 months. Every business must have some sort of predictability in form of a model (excel sheet model I mean

) to have some idea about where they are going & what are their goals. We used this metric to evaluate our possible pricing (rather unit economics) using a simple formula:

(Price X Scale) — Expenses= Cash Flow

So, if we are playing a game on Scale, then we can have lower prices. But, if we can’t achieve scale, to achieve cash flow positive stage — we must have higher prices. Thanks to early traction, we are more in favor of the former. Hence, we decided to keep our prices on the lower side.

For Small Plan comes with 2 phone numbers and 2 team members. Pricing: $29/month only.

For Medium Plan comes with 10 phone numbers and up to 10 team members can use it. Pricing: $149/month only.

For Large Plan comes with 50 phone numbers and up to 50 team members can use it. Pricing: $599/month only (i.e. $12 per team member only)

To make it easier for our customer to make a decision, we made all the features available on every plan. So, now a customer has to think about only one variable i.e. size of the business.

So, here we are with our updated pricing page

We hope our customers will find this new pricing easier to understand. We will be tracking our conversion rates and MRR growth very closely and share our findings on this blog.

Hope you liked this post and will share with your friends and fans on social networks. We would love to hear your thoughts on this post in our comments section.

By the way, if you are still using desk phone in your office, try JustCall.io.

Tweet: Learn how @justcall_io fixed its pricing plans after their customers told them that their pricing model sucks #SaaS

I would love to hear your thoughts and inputs on SaaS Pricing. If you found this post useful, please like it & recommend it to your friends and followers. I am reachable at gaurav@justcall.io or @sharmag88