People make psychological judgments quickly. So, how products are priced matters.
Pricing is one of the most important strategies that can determine how (and if) a SaaS business grows.
Over the last 3 years, ProfitWell, Chargebee, ChartMogul and a number of other businesses who focus on finance platforms for the SaaS industry, released several studies, reports, and plain fashion advice on how SaaS businesses should think and do in regards to their SaaS pricing.
Since then, I’ve analyzed hundreds of articles on the topic and thought: “Why not bringing the most relevant discussions, all under one roof?”.
That’s what the following story is about.
PS: If you end up liking what I’ve done here, give me at least a dozen claps for good luck :)
Table of Contents
- Monetization versus Acquisition
- The importance of a Pricing Strategy
- What does a Pricing strategy entail?
- Centering your Pricing around your Value Metric
- Expanding Revenue strategies you can use
- Considering Scaled Pricing
- Should I be using Pricing Tiers?
- Being adapted to a local reality
- Freemium or not?
- Realizing what a Trial means
- Choosing Monthly versus Annual, or both
- Pricing Page: What to do with the Headline
- Being smart about discounting
- To demo or not to demo?
- Detailing the different features
- Qualifying and removing barriers to purchase
- Using black-box “Enterprise” plans
- Doing Pricing experiments
- A different perspective: Behavioral Psychology
- The ultimate challenge: Rising prices
Monetization versus Acquisition
There’s an expression I’ve read in an article from Patrick Campbell and loved it ever since:
“The beauty of the subscription model is that relationships are built right into the revenue model. You provide consistent value to your customers, and in turn, they continue to pay you for that value. No other business model in history gives us, entrepreneurs, such alignment with their customers.”
This, for me, shows the evolution of a traditional sales model that would charge high for a product, pour their resources on marketing for the selling stage and forget about the rest of the customer journey. Saas doesn’t work this way. If you want your customer to pay up, you’ll need to continuously drive your product forward, engage with your customer base and ensure satisfaction with the service.
Curiously enough, as reported by PriceIntelligently, working with your current customer base, to increase the value they get from your product and consequently better monetize it — is still a topic rather undervalued, when compared with content about Acquisition for instance.
The same report shows that while Acquisition topics account for over 3/4 of publications from 2014–2016, Monetization actually 4x’s the impact of Acquisition on a product’s growth.
There is no way to build a sustainable SaaS business on new customer acquisition alone. — Paymotion
The beauty of SaaS brings the beauty of Unit Economics with it.
As Brian Balfour mentions on his “Why Product Market Fit Isn’t Enough” article, finding your Market-Product-Channel-Model fit begins with your Market. That’s exactly where your strategy for monetization should begin with. Understanding your audience and quantifying your buyer personas
The Importance of a Pricing Strategy
Once you understand who your audience is and what should it be, once you figure out which can be your channels and finally how can you shape your product around them, it’s time to define your model. Here’s where Pricing comes in.
PriceIntelligently also mentions that:
The average amount of time spent on pricing amongst companies is a mere 8 hours total over the life of the business.
The same way the beauty of SaaS comes with a continuous market and product evolution, the balance which Balfour talks about, needs to be nurtured and therefore its components reviewed on a regular basis.
So, along with having a clear process in place, and a workgroup which involves the several teams at your company, it is crucial for this working group to meet regularly (every 2 months) to analyze current performance, (every 3 months) to suggest improvements and (every 6 months) to review the pricing strategy in place and apply changes.
What does a ricing strategy entail?
Deciding on which direction should your business take in terms of pricing, involves:
- Knowing who your audience is, which channels will you use to reach them and how your product is built around this fit — understanding your customer LTV, determining your CAC and consequently how to position your price point according to your unit economics.
- Finding out the value your product brings to its audience. Understanding this allows you to structure your product and pricing to grow as your customer grows. More on this below.
- Creating your product Pricing Page.
Designing a Pricing page has a lot to it
The whole process of spending time thinking about your market-product-channel fit leads you to design the most important page on your website.
Your pricing page is where everything that matters to your business lives. All of the underlying unit economics of your business, the understanding of the value your audience sees in your product and the scaling mindset of pricing evolving with your customer growth, lives (or it should!) under the pricing strategy you set.
Therefore, designing it goes way beyond cosmetics and conversion optimization techniques. What follows are considerations to follow when defining your strategy and creating your Pricing Page.
Centering Your Pricing Around Your Value Metric
Value metric. What is that?
After finding out the value your product brings, you need to find a usage metric within your product which you can tie to your customer’s business growth. Creating your pricing strategy around it will ensure customers get a much higher perceived value for upgrading to the next plan/tier.
Picking the proper value metric has a phenomenal impact on your business. Imagine two SaaS companies that each have 100 customers. The first charges on a per seat per month schema, but there’s little need for more than one seat for each customer. The other sells the exact same product but charges along a metric of particular usage in the app with a bare minimum per month charge. The former has an artificial ceiling on the MRR potentially gained from their customers. The latter’s MRR will grow as their customers grow and/or use the product more. I’d much rather be in company number 2. — PriceIntelligently
Your value metric, as we’ve seen above, is the quantifiable way your product provides value to your customers’ business. You provide a certain amount of functionality tied to value (like some number of emails, keyword searches, or users) and they pay you in return.
Going for a pricing strategy that revolves around this metric, ensures you’re driving expansion revenue, being able to increment the value you’re getting from your existing customers in the future.
If you don’t tie in your different pricing options to a scalable pricing model, it means you’ll have to work even harder on retention and acquisition initiatives to ensure business growth. While you can expand revenue in different ways (we’ll see that below), value-based pricing helps you scale the value you get from each contract at a similar rate as your customers scale their business, maintaining a consistent perceived value from what they’re getting from you.
A good example often quoted is Wistia’s.
Once you have come up with a pricing scheme, test it against this simple question: How comfortable will you feel when talking to your customer about your price versus the value you generate?
Expanding Revenue strategies you can use
As a SaaS company grows its user base, a constant churn rate becomes an increasingly significant problem for continued growth.
The Growth in churn is geometric, while new customer acquisition is linear. As a result, it becomes impossible to offset churn purely by expanding your customer base and the revenue they generate.
Expanding revenue is basically pushing existent customers into spending more with your product.
The additional revenue you can generate from existing customers beyond initial fees is known as expansion revenue. — Paymotion
Likewise, while designing your pricing strategy with scaling in mind, you should consider opportunities to expand the revenue coming from that customer. If designed correctly, the pricing should scale down to allow you to capture the smallest/cheapest customers that are still profitable, up to the largest customers that are willing to pay a great deal.
Let’s take a look at some common axes for scaling pricing:
- Product features that fit different evolution stages of your customer’s business
- Number of users (sell the product to more people within the company and charge by the seat (ex. Salesforce, Expensify))
- The depth of usage (entice the customer to store more data or use more of your service (ex. New Relic, Twilio, Heroku))
- Cross-selling axes (sell adjacent products that increases the value of the core product (ex. AWS S3, EMR, etc))
For a SaaS business, there are a few interesting ways one can do this:
- Buy or build additional products that are closely related to existing products;
- Sell add-on modules that integrate nicely with the existing product;
- Create an AppStore, and sell third-party products, taking a cut of the profits;
- Create a services marketplace where you connect partners that provide services offerings around your products and take a cut of the transaction fees;
- Look for other fees that are created around the usage of your product (e.g. payment transaction fees in eCommerce, advertising revenue, etc.), and ask yourself if it is possible for you to extract a portion of that revenue.
The ideal scenario for any SaaS is to have its expanding revenues at higher levels than their churn. This is called Negative Churn and it basically means that you are expanding your customer base at a higher rate than what it is contracting — translating into exponential growth.
Considering Scaled Pricing
According to For Entrepreneurs, scaling your product pricing helps to attain a fit between your product packaging and the value your audience may get from it depending on which growth stage they find themselves at a specific moment in time.
Here are some examples of how different customers can get differing levels of value from your product:
- They are a larger company, and many more employees are using the product
- They are using fewer, or more, of the features in the product
They have a greater number of items that are being processed by your software. e.g. if it is email marketing software, they may have a very large mailing list or if it is a backup service, they may have a very large dataset that they are backing up
Emotional Willingness to Pay, which plays a crucial role here, is also a topic much debated for already quite some time — it basically tells you that willingness-to-pay is actually based on perceived value and that by changing the perceived value, or simply by communicating your value more effectively, you can change willingness-to-pay.
Should I use be using Pricing Tiers?
Creating different pricing tiers comes as a result of understanding your customer base, by creating quantified buyer personas, how your customer base business evolves and what they value at each stage of their evolution, and then packaging it with a scalable price point.
All decisions about the pricing page are optimizations to approximate the value creation curve and charge for it. — Stripe Atlas
The “expected” design works for a reason. It’s often advisable to stick to Good, Better, Best — unless you’re targeting a large number of different personas.
Be creative when emphasizing your “preferred” plan. Either by using a different color, size, positioning or by smoothly animating its elements.
Understanding who your different customers are enables you to state who each plan is for, so do it. There’s no reason not to do this. This can also be aspirational — visitors will buy the plan that corresponds to what they want to be. Don’t call your plans Silver, Gold, Platinum — give them a name to which each of your customers can relate to (Freelancer, Small Studio, Large Studio).
Example of a job well done: Appcues
- The demographics are condensed into a single word that best describes that persona: For instance, a bootstrapper, a startup, a growing company, or a large unicorn.
- The willingness to pay is shown in the actual pricing, which grows with the growing demographics and features.
- The packaging of the valued features show the relative preferences of each buyer persona. For instance, The Bootstrap persona only wants quick and easy access to the product, while Growth wants custom analytics and support.
“Quantifying your buyer personas gives you concrete starting points for your pricing and packaging, showing you exactly what your customers value, and what they are willing to pay. As long as you price within that range and tier out your packages correctly, you will have customers.” — PriceIntelligently
- If you know what features your customers really value then that should be the first thing they see when they hit your Pricing page.
Examples of pricing pages
ChartMogul brings a great annual review on Top SaaS Pricing pages on Pinterest. Worth checking out.
What you should not be doing
Read Profitwell’s “The Saddest SaaS Pricing Pages” to get a glimpse into what you should avoid.
Being adapted to a local reality
With today’s global markets and easy access to economic reports, it shouldn’t be hard for businesses to price their products differently according to the top regions where they operate. This, according to Chargebee findings with ProfitWell, can be done in many different ways, from simple to more complex approaches:
- Cosmetic localization (Early-to-Late stage growth stages)— simply making sure that when someone visits your pricing page, the currency is localized to their region.
- Market localization (Late stage growth stage)— Making sure each region has a different relative price (eg. $100 in the US, £150 in the UK, etc.) based on market saturation and demand. For that, you’ll need to:
— — — — a) Determine Each Region’s Willingness to Pay: Running price sensitivity campaigns is the easiest way to measure differing willingness to pay in each region.
— — — — b) Understand Your Buyer Personas: This takes a bit of extra work, but by understanding the different aspects of your product that resonate in different places, you’ll be able to figure out your market’s preferences and position your product differently for each region.
— — — — c) Cosmetic Localization: You’ll still need to ensure your landing page and currency symbols are appropriately set up for each region.
Freemium or not?
Freemium is a trend with SaaS businesses. It provides a no-friction way for users to signup with your product in the hope to make them move towards higher plans in the future.
There is however the growing conscience that products that offer products slightly above zero, will have a hard time growing and with the exception of some big names, today will never achieve major growth. Why? Because low ARPU products need to be distributed through low CAC channels in order to be profitable. Low CAC channels are typically virality and a bit higher up paid. Unless you’re able to get massive distribution through an incredible viral effect built into your product, you’re betting on a customer who is not willing to spend anything, to move through your pricing tiers towards a higher ARPU product tier.
Typical issues with Freemium model:
- Free users eat up support — Easy to grasp, but very often forgotten by more inexperienced marketers. More users usually mean more support, which means you either start taking a slash on your turnaround times, or you decide to recruit more reps or begin limiting to whom you offer support to.
- Free users use resources — By resources I mean server storage, speed and likely quota on any third party app you may be using (Segment, Hotjar, Mixpanel, etc). Read about what happened to Baremetrics when their Freemium model started to implode.
- Paid products carry more value — Very often, there are types of free users that don’t value your product to the point where they’d be happy to pay for its use if such would be required from them overnight.
- Free users bring more free users — While Free is usually great to generate word of mouth, Free users usually bring other Free users, so the above costs may start to escalate pretty quickly.
- People take advantage of free accounts by opening multiple accounts per user, to be able to go around limits.
How-to Avoid SaaS Free Trial Abuse
At the Black Hat conference in Las Vegas, a security research duo showed how they built a cryptocurrency-mining botnet…
Types of Freemium models:
- Hard limits — think about MailChimp, where you are limited to sending X number of emails, or Zapier where you are limited to the number of Zaps you can send per month. The limits don’t take features away but limit your continued use of the platform — forcing you to upgrade in order to continue using it.
- Soft limits — think about Zapier not allowing you to use multi-path Zaps on its Free plan. Soft limits limit the usability of the service by removing some of its features.
Considerations for choosing a Freemium model:
- Think about whether you want your free plan to be discoverable. Many businesses choose to de-emphasize their free offering, or even hide it.
- Try to visually differentiate your free plan, if it’s a radically-different (or limited) set of features.
- Be upfront about the limits of the free plan — this will help visitors make the decision.
- Consider mixing Hard and Soft limits.
- Time can be a limitation for Free plans, however, I like to address these more as Trials.
Chargebee lists the following scenarios for when a Freemium model makes sense:
- A DIY product/service, where the cost of servicing a new customer is close to nil. These are the businesses that are designed for the freemium model by default.
- When you’re having your freemium plan as a differentiator in the market.
- When you’re employing your freemium plan as a free branding tool.
- When you’re having your freemium product to market your paid product
Ultimately, it all comes down to how well you understand the value that you’re bringing forth to the market, and how well it aligns with the freemium model.
Dan Martell sums it up in four crisp points, and says that you’ll have to get 3 of them right, to evaluate if the freemium model will work for you:
- The number of potential users in your market: The more, the better — remember, only around 5% of the free users will eventually end up paying you
- The specific market advantage required to win: What do you want the freemium model to win for your business? Is it a competitive advantage? Is it free distribution? Is it getting more referrals? And how realistic is this goal?
- The max complexity of your product and how it works: How simple and straightforward is your product? Does your offering set itself apart from the din around? Is it lucrative enough for your customers to ascend the pricing tiers?
- The specific cost each additional user can have: Is the marginal cost of serving an additional customer negligible? Can you ramp up your operations without shooting up your cost? Do you have the capacity to handle the exponential escalation in scale?
An interesting alternative to Freemium is Cheapium. Check the “Freemium is a Money Burning Business Model, Cheapium is Better” to learn more about it.
Cheapium works by offering basic features for a nominal cost, usually a dollar or less, while charging a premium for advanced features. This can be in the form of a one-time or recurring fee. Cheapium creates a low, but not trivial, barrier to entry. All users in the system are paying. It might sound like a small difference but this has several advantages over freemium.
Finally, several B2B businesses such as Hubspot, have realized that pure Freemium (no touch before the sale happens) has proved not to be great for increasing deal size. So instead, they are using Inside Sales to qualify their Freemium leads when they hit things such as hard-limits or make small initial purchases. This has really helped them to scale deals size whereas otherwise, they wouldn’t have been able to do so. You can read more about it on OpenView article “Why Product Qualified Leads are the Answer to a Failing Freemium Model”
Want to read more on Freemium?
Realizing what a Trial means
Considering whether you should offer a trial version of your product? That depends on your audience, product and can influence the level of touch you have on your sales process.
If you decide to go for a trial, consider those 7–15–30 days as a chance to convert the user to stick with your product and ideally moving into a paid subscription.
The free trial is a staple of most B2B SaaS solutions — many visitors will look for the trial signup button — a cry of “just let me see the thing” rather than digging around in marketing pages. This is fine, provided you can give a great self-service trial experience to customers.
You’ll need a great onboarding plan, whether it is automated or manual has to do with how easy it is to explain, and how much of the basics your audience already has.
Some of the learnings regarding Trials, from ChartMogul:
- Offering a free trial usually makes sense UNLESS you’re primarily targeting Enterprise businesses, or it’s just not possible to give a smooth self-service onboarding experience.
- The lines between a free trial and Freemium are becoming blurred. There are benefits and drawbacks to both.
- The term “No credit card required” is used by almost every business offering a trial. Users will look for this and expect it.
Most B2B SaaS companies find that removing the credit card requirement increases the number of free trial signups they get but decreases the activation rate (the number of users who make material use of the software) and conversion rate to paying use. It is generally not worth it early in the lifecycle of your company. (Your business needs to be capable operationally of doing fairly sophisticated work to nurture customers to activation and then convince them to part with their credit card details later in the trials for it to win net here.) — Stripe Atlas
- For more Enterprise-focused platforms, the demo route can be beneficial. Complex products are best demonstrated by real people (rather than self-service trials). Enterprise customers are more comfortable with this method of buying, where their questions can be answered and custom pricing can be discussed.
“[The goal of a free trial is to] quickly get the prospect to a point where becoming a paying customer is the most logical next step… [which is] immediately after your customer achieves (or sees that they could actually achieve) their desired outcome by actually using the product.” — Lincoln Murphy
Lincoln Murphy touches the aha-moment concept with his observation. Designing your trial onboarding process to make sure your trial customer achieves the aha-moment as quick as possible — and for this, you need to be able to measure how long they are taking to do it on your normal plans, “trim the fat” by simplifying processes and shortcutting steps, asking for feedback when the user becomes stuck, welcome email from the founder and exit feedback survey to continuously iterate on the process.
By not offering the free trial, PopSurvey founder Josh Pigford believes that PopSurvey forced prospective customers to do more research before they signed up. Ultimately, that’s allowed the business to attract a higher quality batch of educated customers whose expectations better align with what PopSurvey’s product delivers.
“In my mind,” Pigford explains, “that’s not some sort of rogue idea that will only work for our company. It’s a very reasonable, quality-driven customer acquisition strategy that I think many SaaS businesses could benefit from.”
Alternative to Trials
By offering time-based money back guarantee to your customers, you’re not only sending the message that you trust your product’s value, but you’re also qualifying your users by adding a minimal entry barrier as well as giving yourself the chance to speak to your customer if and once they ask for their money back.
What you don’t want to be doing
- Sending too many emails
- Clickbait subject lines
- Leaving your customers to it by themselves
Choosing Monthly versus Annual, or both
Also a great debate around the industry. 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.
While it is obvious that an annual plan gives your company extra cashflow upfront and takes churning out of the customer’s mind, it also means you’ll have less information about how effective your product is in providing enough value to your customers.
- Requires less up-front commitment from customers (lower friction to buy)
- Allows you to effectively analyze metrics like churn rate
- Suits a self-service signup flow
- Increases cash flow
- Can make revenue metrics more difficult
- Can reduce churn
- May need a higher-touch Sales and Support approach
- Logistically, annual billing is less of a hassle (insofar as it occurs eleven fewer times per year).
What about having both? This is definitely something trending, which leads you to ask: “Ok, but which should I default to on page open?”.
- Showing full annual prices can push your customers away due to the nature of a higher number.
- Showing annual subscription price on a monthly rate is a great alternative to the above, as usually these are discounted from the month-on-month price and therefore once compared to, are more attractive. Be careful, however, not to be perceived as misleading.
All in all, what is important is that you are transparent in the price you are charging your customers. Take into consideration the cash flow an annual subscription can bring, and think how can you tackle the lack of feedback which usually derives from not having to put a product’s value to consideration every 30 days.
Pricing Page: What to do with the Headline
Don’t call the pricing page “The Pricing Page” on the pricing page.
The job of the headline is to translate emotion and the right tone to the user, once he lands into the pricing page. Keep it short (<7 words). No real information should go here, but whatever you write should relate to your business’s values.
Being smart about discounting
Are short-term gains worth long-term failures?
Discount wars are what keeps retail companies afloat a lot of the time. Once one sale ends, another begins. So much so, that rarely does anybody have to pay full price for anything these days.
The reason retail discounting works so well for customer acquisition and the bottom line is that a department store or supermarket isn’t looking for a recurring purchase
SaaS businesses do.
A study by Price Intelligently found that SaaS discounting lowers long-term value (LTV) by 30 percent, as well as producing a higher churn rate and lower willingness to pay higher prices. All stats that add weight to the argument that discounting as SaaS isn’t a great idea.
Typically customers joining through heavy-discount initiatives have some common traits:
- A lower willingness to pay and higher price sensitivity
- Churn at a much higher rate than the core group
- Have dramatically lower lifetime value than the core group
This basically translates into hammering your Unit Economics. Talk about lowering CAC for specific customers and you immediately have a longer time needed to recover CAC. If you lower CAC by 20%, each month you get 20% less on a monthly basis. If a normal core group takes 12 months to pay back the CAC, this means 3 months more. Right?
Nope. Let’s not forget these are customers which are much more prone to churn as they don’t put value over price.
As a result, you may lower your CAC by getting better signup velocity through the discount, but for a lot of these customers, you’ll never recover those costs anyway. This causes a scary implication for your cash flow (heavily influenced by your time to recover CAC), especially if you’re a cash strapped company on the funding train.
Rules for discounts
- Discounts need to be discrete. Don’t flash them on your product’s landing page. You’ll just upset your current customers. Consider dedicated channels such as email marketing or landing pages as a destination for any discount campaigns you do.
- Discounts should be segmented to the specific audience segment to who it makes sense.
- Discounts should be time-boxed, otherwise, just lower your prices.
What discounts can you do then?
- Packaging discount. Offering bundles with a lower price point, after the user selects their choice of price point or does their initial purchase, leads the user to spend more than they’d be willing to in first place. Avoid package discounting on your pricing page — this leads to customers who’d be willing to spend more, to actually spend less by going for your bundle at such earlier stage.
- Offer discounts to audience segments that are more price sensitive (students, for instance) — where you can offer a discount on another product if the student buys the first one. (e.g 200€ off the MacBook + 20€ off an iPad).
- Turning the table around and discount by putting a value to certain extra features (e.g different types of customer service).
- Yearly discounts. Great for cash flow, for churn and not perceived wrongly by other customers. A piece of advice here: Frame it as a tangible benefit instead of a percentage — “2 months free” instead of a 20% discount.
To demo or not to demo?
Contrary to popular opinion, the primary goal of a demo is not to demo your product! Let me say that again: the goal of the demo is not to demo your product. — Rob Gonzalez
Demos are therefore a chance for you to learn about your customer, their pain points and sell your product to them, taking the benefit-solution approach.
Ok, so I should always do it, right?
I would say it all ties in with the cost of opportunity.
- If you’re a one-man show and you have a $10 ARPU with a very low LTV product, your time is probably more valuable elsewhere. In this scenario, I would likely focus on implementing a kick-ass onboarding experience.
- If your product has a low ARPU and is too complicated to explain through self-service onboarding, then you should think about qualifying your users better with content for instance and have demos on request only, after the user went through this content (which should clear basic doubts in the first place, saving you time).
- Going up the ladder in terms of LTV, you can start to offer chat time during the onboarding stage for instance.
- If your product has justifiable Unit Economics (mainly LTV), you should definitely demo it. And in the eventual case you’re seeing users flocking your way, maybe it’s time to consider a helping hand.
Nevertheless, as mentioned in previous sections of this story, you should tie value to your pricing strategy, meaning that you should always consider having an “enterprise-style” black-box pricing option for larger customers. For these ones you can likely justify the cost of giving a demo, with the benefits you may reap.
So what is your goal when demonstrating SaaS? Like in copywriting and perhaps in all things marketing and sales, your goal in demonstrating is first to identify your prospect’s pain. From there, you further qualify if your product is a good fit to solve the pain.
Instead, the goals of the demo are:
- Identify the prospect’s pain that they’re hoping to solve (QUALIFY!)
- Identify if your product is a good fit to solve the pain (QUALIFY!)
- Leave the prospect believing that (1) your product is a great solution to the pain and (2) your employees really know their stuff
There are some good reads on how to effectively demo your SaaS product. I’ll leave you with my favorite “How to demo your SaaS product”.
Detailing the different features
Generally, you should always think about your pricing tiers as a value-packed solution to users. It should never focus on having or not having this or that feature. This because feature-based pricing usually tends to not promote growth as it is not linked to a value-based metric.
My advice is to focus your different price tiers on the value you’re getting to the customer, the value-based metric, and add a link for the users to deep dive on what features each entails if they want.
Though you can have multiple feature differentiators per tier, it is the value metric that is critical for price differentiation across tiers. It is also critical for expansion revenue.
Will an extensive feature list cause someone to choose to buy the software? Probably not. Instead, continue the sales message: how specifically does this reduce the amount of X? Put that on the page; supplement with details about features where appropriate.
Having said that, no matter how you present the value of your product on your website, there comes a point where certain visitors just want to see a list of features.
This is especially valid for Enterprise customers and larger businesses who have a feature set in mind before they even land on your site. Listing out the features of your platform allows them to check all the boxes when evaluating your solution.
- There’s nothing wrong with a table, which is usually the clearest way to convey this information. Try adding it below your main pricing section to avoid distractions.
- Add tooltips to the feature names, for a detailed description of features that may not be obvious.
- Consider displaying “coming soon” features here, if they’re significant and may affect visitor’s decisions.
Qualifying and removing barriers to purchase
Adding an FAQ
Adding the most common questions you got from past customers who were on their decision stage is good practice. Make sure to keep a record of your early stage customer interviews and constantly update it with new questions you get on your day to day customer support activity.
Benefiting from Social Proof
Decision making is a social exercise. This may seem counterintuitive for those that identify with independent rationality, but our brains are hardwired to seek cues and indicators from our environment. We look to the actions of other people as a way of evaluating the most appropriate behavior for ourselves. This is known as social proof and can be impactful on growing a successful startup.
Social proof on SaaS websites takes many forms:
- Human faces
- Customer logos
- Testimonial quotes
- Social media posts
Having a Social Proof section in your Pricing Page is usually beneficial in terms of giving that extra positive message to users who are considering your product. Especially if you are able to link it to a Case Study for instance.
Using black-box “Enterprise” plans
So you’ve got all figured out and your pricing strategy came out with 3 solid pricing tiers which are intimately tied into the value your audience takes from the product at different stages of their own growth. Great stuff. You just have to place those 3 packages side by side and off you go.
Wait wait wait.
What if your product starts attracting big corporations, rather than just the Startup target audience you had first identified?
This means you’ll be charging the same to businesses in a different stage of their growth. A team of 20 in a big corporation sees things differently than a Startup with 10 individuals — there is more margin for you to expand your revenue with such businesses other than just the revenue you get from seat price.
That ‘s why it is important to have a black-boxed tier on your pricing plan. One which is not tied to upper hard or soft limits. Following the example above, you can limit your Startup Plan to 10 individuals and limit the bottom of your Enterprise plan to that, without capping it with upper limits.
Doing Pricing experiments
I am personally against experimenting with prices in a CRO way, as it defeats the whole purpose of having a price strategy in the first place.
A/B testing page elements is something different. Here are a couple of things you can test within your price page:
- Different headlines
- Different plan order (if you have more than one plan, which you should…)
- Different highlighting options
- Element positioning
- Adding Social proof (see below for more on this)
- Show more or less features
Again, I don’t suggest playing around with A/B testing on your price points:
- As PriceIntelligently mentions: There is statistical insignificance. Let’s say your pricing page is doing decently well already — you’re getting 10,000 hits per month and converting 5% of that traffic. If you wanted to test for a 10% lift in your conversion rate — from 5% to 5.5% — you would need a sample size of 30,244. The math is even worse if you’re converting at closer to 2%. If you wanted to test for a 10% lift on your 2% conversion rate, you’d need a sample size of 78,039. You could run an eight-month A/B test to get those 78,000 hits, but you’d only be aiming for an increase from 2% to 2.2% on your conversion rate. You could spend those eight months much better. Let’s not even go for the fact that having different personas would require you to effectively A/B test for each one of them…
- It will upset your users to know someone got a lower price than them. If you’re testing a few cents, it won’t really be worth your time. If you’re testing between $10 and $60, then your customers will likely get mad.
- You’re better off doing customer interviews than testing small price increments to determine the right plateau.
A different perspective: Behaviour Psychology
As you know, there is always more than one theory on a topic. Value-based pricing has been widely accepted in SaaS and several sources have shown proved value compared with cost or competitor based pricing strategies.
Florian Bauer, principal at the management consulting firm Vocatus, has a theory around behavior psychology that explains why is so important to take into consideration for pricing and how lessons from psychology can be applied to early-stage startups.
(…) For example, Behavioral Pricing has empirically proven that the notion of people having a predefined “willingness to pay” is wrong. Rather than having a willingness to pay, people tend to develop a price acceptance throughout their decision making process. This in turn implies that companies pricing strategies should not only react to a predefined and quantified willingness to pay but should focus on actively enlarging price acceptance. (…)
Price acceptance is not driven by value as is assumed in value-based pricing. This would imply that people only pay for the product features (as measured by conjoint analysis). In fact, people pay for much more than product features. Context and decision dynamics very much define price acceptance.
(…) there are five different types of behavioral decision making strategies: bargain hunting, risk aversion, price accepting, loyal and indifferent. We call them the GRIPS types. The different types react differently to the result of an independent price comparison. Understanding and predicting this, is the core of Behavioral Pricing.
As long as humans make decisions they will have predictable biases. This is probably even truer in B2B as in B2B decisions there are often more people involved.
The ultimate challenge: Raising prices
Raising prices is often the ultimate challenge for anyone who cares about pricing. It’s often a taboo topic around the company. Your sales team won’t love it and you’re afraid to scare your customers away.
However, raising prices will also be something you’ll need to do, at a specific point in time, in order to achieve growth in the long term, as there’s only so much audience you can capture in any market.
Signs that you should consider raising prices
- Customers tell you how cheap you are.
- You create a very high ROI.
- Prospects don’t push back on pricing.
- You added new features without monetizing them.
- You have not touched pricing for years.
Expanding your revenue should be something that comes naturally, and there are certain things you’ll need to take into consideration.
Do not grandfather all your existing customers
If you have to, only grandfather the first batch of customers that had to deal with all the code issues and downtime period.
Tie it to value
When communicating a price increase, directly connect it to extra value to your customer, not to you
Give your customers a choice
Give them the new added value for the same price they were paying for extra X months. Offer them to add more seats to that package at the old rate.
Be prepared for churn
Churn will definitely exist. This doesn’t mean your customer will be pissed off at you, especially if you do the above when communicating. Simply they can’t afford the new market fit you’re looking into.
Some practical advice? Check How Close.io raised their prices
Pricing should be on top of mind of all SaaS founders and still, it seems that a Pricing Page usually at the bottom of the list of things to be created before launching.
Creating a Pricing strategy for your business should not be something done with a gut move. It should be a data-driven process involving your customers, with the goal of understanding the value they take from your product, determine their different growth stages and find a proper value metric to drive the evolution of how your product is priced.
Talking and acting on pricing should not be a taboo. In early-stage SaaS businesses, pricing should be frequently revisited and twice per year open to changes.
The growth of a SaaS business in the mid-long term depends on whether this business can increase its expanding revenues and generate negative churn. Expanding revenues can come in several forms but it is natural that in time, every SaaS business raises their prices.
Customers expect SaaS solutions to evolve with time, for new features to be added and for their value to increase. They should also be open to a fair price raise when one is clearly communicated.
Pricing changes should be seen as a step up and not as something to be put off — it’s a natural evolution for every SaaS business.
- ChartMogul: Top SaaS Pricing pages 2017
- Monetization Matters for SaaS Growth
- The Price is Right: Essential Tips for Nailing Your Pricing Strategy
- Stripe Atlas: Guide to Software as a Service pricing
- How We’re Thinking About Pricing — Drift
- Picking your pricing model
- How to Set Prices that Maximize Profit | OpenView Labs
- Ten Year’s Worth of Learnings About Pricing * Tomasz Tunguz
- The Price Is Right: For Early-Stage SaaS Companies, It Needs To Be
- There are Only 3 Pricing Strategies for Your Startup * Tomasz Tunguz
- SaaS Pricing Considerations | OpenView Labs
- 3 Major Software Pricing and Packaging Mistakes | OpenView Labs
- Best Product Pricing Practices for B2B SaaS — Bowery Capital
- 3 Simple Tips for Pricing SaaS Products In The Early Days | SaaStr
- Pricing Experiments You Might Not Know But Can Learn From
- 5 Simple Pricing Hacks to Jumpstart Your Startup’s Growth | OpenView Labs
- 20 Pricing Page Best Practices That Will Increase Your Sales (+ Pictures)
- B2B SaaS pricing pages in 2017: Lessons from 100+ top businesses
- Product Strategy for Scale: Pricing
- SaaS Pricing Best Practices from 90 Companies: Why the Hottest SaaS Businesses Now Put Their…
- Insightful Study of 386 SaaS Startup Pricing Pages
- A Study of the Top 270 SaaS Pricing Pages
- The Saddest SaaS Pricing Pages of the Year — 2015
- 3 types of pricing strategy (and why you need value-based pricing)
- SaaS Pricing Models: How the Right Pricing Will Help You Earn a Fortune
- SaaS Pricing Models — Pricing Strategy Examples and Best Practices | Forseti Law Firm
- The Challenge of Performance Pricing for SaaS Companies * Tomasz Tunguz
- A Complete Guide to Changing Your SaaS Pricing
- Don’t Blindly Model Your SaaS Pricing on 37 signals
- How to Develop a Tiered Pricing Structure | OpenView Labs
- The Value Metric: Optimize Your Pricing Strategy for High Growth
- Scalable Pricing: A Key Tool For SaaS Success
- How Product Led Companies Like Expensify & Dropbox Approach Pricing to Grow The Bottom Line |…
- Freemium Model for SaaS — The Good, The Bad, and The In-between — Chargebee’s SaaS Dispatch
- Why Product Qualified Leads are the Answer to a Failing Freemium Model | OpenView Labs
- “Monetize Backwards” to Build a SaaS Business That Lasts
- Is this the end of the subscription era?