More Than Loose Change: Why HubSpot’s Pricing Transformation Was Hard (But Necessary)

By Dharmesh Shah, Co-Founder & CTO at HubSpot

Pricing is a feature of your customer experience.

Brian Halligan, HubSpot’s CEO, often says: “It’s not what you sell, it’s how you sell.”

If you’re scaling a SaaS company, your product matters. This is pretty well understood. But today, companies win and lose based on their customer experience — and the product is just one part of that experience. Buyers are vocal when dissatisfied, products are often easily replicable, and trust in businesses is eroding. Delighted customers are more powerful and influential than any marketer, salesperson, or service rep could be alone. Removing friction from your customer experience is essential to creating that delight.

At HubSpot, while our pricing model wasn’t “broken,” it was creating friction in our flywheel. For a business like ours — a subscription-based model with multiple product tiers, multiple product lines, and add-ons — pricing has to be coherent across every permutation of products a customer might use. Our pricing model worked okay, but it wasn’t notably awesome.

When it comes to customer experience, “not awesome” = “broken.” The “not awesome” part of your experience might not shut down your business, but it probably isn’t solving for your customers. And anything that doesn’t solve for the customer needs to be changed. Customer experience is a living thing, and it needs to adapt as your business scales.

At HubSpot’s annual INBOUND 2020 event (where we had over 70,000 people register), we announced an overhaul of a crucial part of our customer experience that had not scaled well as HubSpot grew — our contact tier pricing. We’ve made tweaks to how contact pricing worked in the past, but this is by far our most transformative change.

Historically, customers paid for the total number of contacts in their HubSpot instance, whether they marketed to those contacts or not. Starting on October 21, our customers will be able to set any of their contacts as “marketing contacts” or “non-marketing contacts” — and only pay for the contacts they want to market to with email or ads.

Simple, right? (We hope so.) But the path to this decision was anything but. Knowing what we know now, here are three valuable lessons we’ve learned from this journey.

1. What worked in the past could break in the future.

As your company scales and develops new products, features, and offerings, it’s all too easy for your pricing strategy to fall out of sync with customer value. An annual subscription fee might have made sense when your company first went to market, but now a monthly no-contract plan may be more in line with customer expectations.

I’ve seen too many companies fail to evolve their pricing as their offerings evolve, then try to solve the misalignment with a sudden and dramatic pricing change. This can deal a painful blow to their relationships with their customers.

Let’s take HubSpot as an example. Our company has changed a lot since our founding. In 2006, we were a single-product company selling what we now call Marketing Hub. (Back then, it was just called “HubSpot.”) Since then, we have added HubSpot CRM, Sales Hub, Service Hub, and CMS Hub to our portfolio.

That’s when things got complicated. Marketing Hub was billed on a base price with included contacts, and database size — i.e. how many contacts were in the database, which we felt reflected the value they got from our software.

When we transitioned into a multi-product world, the interaction between our products started creating pricing issues. HubSpot CRM is free and Sales Hub is priced on a per-seat basis. Not only did our pricing philosophy differ across Hubs, sales activity would often generate additional contacts that would then raise the subscription price of Marketing Hub, whether or not those contacts were valuable from a marketing perspective.

This created friction and confusion for customers. Our approach had not been designed for a multi-product world. As we entered a new phase of growth, it became apparent that we needed a new strategy.

2. Pricing should be mutually beneficial to your customer and your company.

What makes a good customer experience? The ease of buying from your company is one factor. How well the product lives up to its promise is another. And pricing is a crucial part of this experience too. Do customers feel like your pricing accurately reflects the value they get from your company, or do they feel like your company is attempting to squeeze them for every possible dollar?

We have a saying at HubSpot: “Solve for the customer.” Everything we do is rooted in this philosophy, and we use “customer value” as our North Star when making strategic decisions.

From that philosophy emerges our second lesson on pricing — that pricing should be mutually beneficial to the customer and the company, and never exploitative of customers.

Our primary growth axis for pricing — contacts — became misaligned with customer success when we went multiproduct. Some customers felt that we were punishing them for their success on our platform and found the pricing counterintuitive. Others wanted to use multiple Hubs but were reluctant to because of the associated costs for their contact database. Many customers resorted to doing regular manual maintenance on their databases by deleting contacts — an approach that saved them money on their HubSpot contract, but was still costly in terms of employee time. It also carried an opportunity cost — if any deleted contacts became a prospect again in the future, our customers lost the historical data in the CRM pre-deletion. That was hard feedback for us to hear, but it was fair.

When we went back to the drawing board on contact pricing, our goal was to create a model that fairly and accurately represents customer value while also reflecting our vision that customers are most successful when they use a unified platform. A customer’s measure of success isn’t just how much they can grow their database, but how many leads in that database are worthy of nurturing. Thus, the idea of splitting marketing contacts out from non-marketing contacts — and only charging customers for the contacts they needed to interact with — was born.

3. Pricing friction can only be removed through transformational change.

It’s really hard to make transformational changes to pricing. These changes often carry a huge short-term revenue hit, and rolling back a change to pricing will create confusion and whiplash for customers.

Those are two big reasons why this journey was challenging for us. Not only did we need to rethink the fundamental philosophy behind pricing, we had to be able to absorb the financial impact as well. And the reality was that when we first started hearing negative feedback on our pricing structure, we weren’t in a place to make a major change. We talked about contact tier pricing at offsite after offsite, but delayed taking a big swing at the model because it was too hard and too expensive.

Until about a year ago. This time, we said, “Enough.” When your pricing model creates friction, transformational changes are often the only way to remove it. This month’s announcement isn’t our first rodeo. We’ve made incremental pricing changes in the past — for example, separating contact pricing from the base product, when previously contact pricing was bundled with Marketing Hub. We also introduced tier-based pricing for contacts and scaled pricing that got cheaper as you added more contacts.

All of these choices were improvements. But we hadn’t gotten to the root of the problem, and were trying to cure the cause by treating the symptoms. Marketing contacts shifts our entire contact pricing model by putting the power in our customers’ hands, more than any of our incremental changes ever had. HubSpot customers now pay only for the contacts they need — when they need them.

Introducing marketing contacts

Our marketing contacts pricing model allows customers to only pay for the contacts they want to market to via email or ads. Customers can also store up to one million contacts they don’t actively market to, such as unsubscribed and bounced contacts, for free.

In addition, we are introducing scaled pricing in our Professional and Enterprise tiers (previously only available in Starter). The more contacts a customer has, the less money each individual contacts costs. This leads to economies of scale for our customers.

With marketing contacts, customers can:

• Quickly identify marketing contacts with a simple eligibility flow that surfaces all bounced and unsubscribed contacts and requires just a few quick clicks to mark them as non-marketing contacts.
• Store up to one million non-marketing contacts in their database for free, ensuring that all of a company’s contacts are available in one streamlined system.
• Spend less time worrying about contact limits and shift their focus to what really matters — providing an excellent experience for their customers. Scaled contacts pricing also becomes more cost efficient as customers increase their number of contacts, allowing them to grow and be rewarded for their success.

Marketing contacts puts the power back in our customers’ hands. It reflects the way our customers get value from HubSpot today — a unified platform without divisions between marketing, sales, and service databases and multiple points of entry for customers. It puts power in our customers’ hands by giving them more control than ever over their HubSpot instance. And it realigns our success with our customers’ success so that they, and HubSpot, can both grow better.

Marketing contacts are available for existing and new HubSpot customers starting today. Learn more here.