Further SaaS pricing strategies to Counteract Stagflation -
The presentation was previously made on SaaS pricing of fees and packaging to combat stagflation in 2022. However, this article is based on the presentation that was updated in March 2023 by David Vogelpohl. For additional information, or to see the previous presentation, check out the additional details at the end of the article.
Pricing the price of your software as a services (SaaS) can be difficult enough in the good of times, but figuring out how to determine the right pricing to drive greater revenue when there is stagflation is even difficult.
This article gives tips for making the most of pricing and packaging for your SaaS services in a weak market:
- What is Stagflation?
- Utilizing your pricing model to combat stagflation.
- Enhancing your SaaS Pricing Strategy for innovative MRR as compared to. net revenue retention.
- Try out creative SaaS pricing models that unlock revenue.
- The rate of inflation isn't constant: Vary your strategy.
- What can I do to help.
What Is Stagflation?
In simple terms, stagflation is an economic phenomenon that is influenced by three major factors:
- A low rate of growth.
- High inflation.
- The unemployment rate is high.
This means there's more pressure than ever before on:
- Prospects' wallets are the ones you'd like to impress.
- Current customers' wallets you'd like to see upgrade.
That's why carefully considering your SaaS pricing model becomes crucial in order to keep expanding your business even within a tight economic environment.
Using Your SaaS Pricing Model to Fight Stagflation
It is the simplest solution to raise your prices, and you wouldn't be alone if you did so.
More than a third of SaaS software, software, or digital goods clients lowered rates in the past year.
Incredibly, SaaS businesses tend to increase prices above the inflation rate.
The pull of this lever -- no surprise -- generally works in increasing revenue, although it's difficult to pull off in a time when customers aren't having as much money for spending in a depressed economy.
Rethinking pricing and package is one of the few levers that are not optimized in SaaS.
The reason why prices are increasing? Why Not Try Something Else?
There are many other ways you can make more money when the market is tight, in addition to increasing the price.
Increased acquisition, increasing the conversion rate, and decreasing the rate of churn can be all alternatives.
However, all of those options take a lot of effort in terms of cross-functional time and energy for their implementation.
When you think about the time and funds that must be invested in the process of increasing sales or reducing the rate of churn using strategies like PLG, or product-led growth (PLG) or enhanced initiatives to improve customer satisfaction It can be an unwieldy and overwhelming process as illustrated with large and medium sized T-shirts.
Every one of the large and medium t-shirts represents the work, time, and money. it takes to implement PLG as well as customer success strategies in a way that will improve customer retention and reduce the rate of churn.
But product pricing changes take very little effort and can be done very quickly, as signified by the t-shirt with a small size above.
Like Patrick McKenzie points out, it's as easy as replacing a smaller number with a bigger number:
In the end, altering your pricing may be the easiest, simplest change you can do when you are in a position to grow its revenue fast.
Optimizing Your SaaS Pricing Strategy to Meet New MRR and. net revenue retention: The Growing Mustache
If you're considering various pricing strategies, another aspect to consider is whether or not you'd like to maximize for future MRR or net revenue retention or both.
Enter the "growth mustache."
The grow mustache is a bracket with a sideways slant that a former CFO of mine often was referring to. (I added the "mustache" descriptor, because it does look similar to a mustache for me.)
Growth is fueled by increasing monthly recurring revenues (MRR) as well as new customers entering the market and net revenue retention (NRR), or the percentage of your current customers' MRR or ARR you're retaining or increasing.
In the event that your NRR exceeds 100%, this is an increase in your profit However, the same applies of the value of your business.
Generally, there's operational leverage with different pricing and packaging however, you must also recognize that the environment in which customers may have less money coming into the store and more being expended. What you do with the pricing of your product could impact your ability to gain new customers, maintain and grow existing customers as well, so keep this in mind as you make changes.
Try a New Pricing Model for SaaS that is Creative Combinations to Unlock revenue
Once you've decided that switching pricing plans is the best option, there are still many ways that to test. Pricing per feature, plans that pay as you go and freemium pricing models flat-rate pricing versus the usage-based pricing and per-user plans -- which is right for your SaaS enterprise?
There are several options to consider, to begin with:
- SKUs:
- Platform tiered plans
- Product(s) tiered plans
- Persona tiered plans
- Single add-ons
- Bundles of add-ons
- Entitlements:
- Features
- Use
- Support
- Pricing:
- Price
- Recurrence
- Geography
- Method of payment
- Discounts
- Free trials
Look within those options for ways you can increase your operational leverage.
For some, that means creating a model based on personas that will yield a little more average revenue per customer (ARPU).
In the case of others, this means adding a new feature that lets them increase the cost.
If you're not sure the possibility of switching from a flat-rate structure or user-based pricing, towards a more flexible model that is based on features or on usage.
Monitor the effects of any Changes to Your SaaS Pricing Strategy
For example, if customers' base decreases tiny amount due to an increasing price however, the remaining users are paying a higher cost and earning more generally, some companies might appreciate the new price point.
Be aware of the changes that are important to your business strategy. An established SaaS company may have different goals than one that a new business will.
The word "success" is written with three S's
When we think about pricing and packaging, we couple our ability to make more profit with our capacity to come up with something fresh.
For instance, consider the Innovation S curve which is a curve that says: we make something; it grows in adoption; it plateaus. It's very easy to be trapped in thinking that the only method to create an entirely new source of revenue is to develop a brand novel product completely.
Then, we can break the thought process and think about how new income S curves can be made by altering packaging, plans, add-ons, and more all by providing users with new ways to purchase from you, and to use your service.
If we further take into consideration a usage measure based on the value metric with overages these new plans as well as add-ons themselves can increase ARPU with time.
SaaS Pricing and Packaging Add-Ons
These add-ons can be a way to increase the revenue average per user for both existing and new customers on an income-based budget because they have the option of choosing which products to buy from you as opposed to having to pay, for instance, flat-rate pricing for a larger package, which includes a number of features they don't want or don't need.
For example, are there any existing entitlements available to offer as an add-on without having to create any extra engineering work? Can one of those functions be sliced out to create the new SKU but without having to create an entirely new product?
Add-ons can be found in numerous varieties, so you can include a variety of add-ons, or even create bundles.
They come with risk -as they could lower the upgrade MRR in the event that fewer users upgrade to a bigger package. But accessories can also be a significant factor in NRR.
To minimize the possibility, you must carefully evaluate the rate of your downgrade and upgrade as you begin making changes to your add-on and packages products.
You can, however, put off pitching additional features until after users have signed up to your main product. After they've used the product they've purchased and are enjoying it -- and once all purchases made are considered to be upsells that can boost your sales retention rates -- pitch them add-ons that would further enhance users' experience using your product.
Customers can purchase your SaaS product with an affordable price which helps you increase your MRR and ARPU with those sales.
And a lower initial price can also help you gain an advantage when going after market sharein particular if you're able to lower prices of competitors by a bit.
The creation of a new pricing level to drive Average revenue per user (ARPU)
It is possible that the ARPU-boosting level you require exists between your existing plans?
For example, if you have a tiered pricing model that offers $25, $150, and $300 choices, perhaps the best pricing level to generate more sales can be found somewhere between the three, around $75.
Segmenting SaaS Plans can help you understand the Value of Your Product and increase ARPU
Another option is to divide your packaging based on very specific customer needs.
As an example, WP Engine is a managed WordPress platform that manages various types of websites, however they noticed the opportunity to focus on WooCommerce customers specifically, and so they created a package that targeted just that audience.
This allowed them to highlight their customers' requirements in this specific segment to attract their attention, and to get additional sign-ups. In time, WP Engine was able to increase the value of their product to the users who were using it and increase revenues for WP Engine.
The Payment Frequency increases leverage
An annualized pricing option gives purchasers the benefits of saving money by committing for a year up front however, it also offers you the benefit of reducing the churn rate and increasing the overall value of a client's lifetime which is also known as LTV.
For further benefits from this method to further leverage this strategy, you could offer additional discounts on annual prices for new subscribers or for those subscribers willing to switch from monthly fees to annual fees.
Intro period pricing can also aid in the adoption process for customers.
Tip If you're providing an Enterprise plan and the cost starts to appear slightly more expensive in the event of a payment every year, try to keep that price under $5000. Many procurement departments have a policy of requiring employees to obtain approval on any purchase that is greater than that, so when you keep costs under that limit this will allow customers to payment with a credit card, without jumping through internal hoops in their own organizations. The rules can be different and aren't a rule, but it's a good guideline to try out.
Inflation Isn't Flat: Vary Your Strategy
As you consider changing the way you manage your SaaS business's pricing policy, potential customers' willingness to pay isn't just the one issue to think about. The rate of inflation can change drastically in a relatively short amount of time. That fluctuation can also be different across every region or country.
The financial headwinds that relate to different geographical areas can suggest the importance of localization when you sell your Saas product internationally.
Get rid of unnecessary purchasing friction with Localization
The process of localization usually involves multiple elements which include, but not be limited to:
- Accepting the preferred payments of the regions which you're selling your products into.
- The localization of the price.
- The currency is localized.
Each one of them has each of them having its own benefit, not only for the buyers but for your profit margin as well.
The conversion rate for localizing prices is 2x in B2C SaaS businesses. Just make sure you have a good justification for the different prices in different countries or regions, in case a potential customer finds several prices.
Local currencies are easier to be approved for as well as those who are in the market for it to comprehend. When new customers see your SaaS costs displayed in a one they are familiar with and understand, it is simpler for them to shop and removes the hassle of maths involved in conversion before they make the decision.
How Can help?
The information contained in this article was recently presented by David Vogelpohl in a webinar hosted by Cumul.io. You can view the presentation's original on the YouTube channel.
Additional articles on SaaS costs and pricing might find interesting:
