More SaaS Cost Pricing Options to Counteract Stagflation -
earlier presented earlier on SaaS fees pricing and packaging to combat stagflation in 2022. However, this report is based on an updated presentation delivered in the month of March 2023 by David Vogelpohl. For additional information, or to look over the presentation from earlier look over the extra information at the bottom of the article.
Pricing the price of your software as a services (SaaS) isn't easy enough in the good times. But figuring out how to dial in the right pricing to drive higher revenue during times of inflation can be more difficult.
This article provides tips on improving the pricing and packaging of your SaaS products in a less-than-stellar market:
- What is stagflation?
- Applying your pricing model to combat stagflation.
- Enhancing your SaaS Pricing strategy for the new MRR as compared to. Net revenue retention.
- Explore new SaaS pricing model combinations to unlock revenue.
- The rate of inflation isn't constant You can change your strategies.
- What can I do to help.
What Is Stagflation?
Simply put, stagflation is the economic state that is affected by three main variables:
- The economy is slowing down.
- High inflation.
- A high rate of unemployment.
There's more pressure than ever on:
- Prospects' wallets are the ones you'd like to impress.
- The wallets of existing customers that you'd like to upgrade.
This is why taking a close look at your SaaS pricing strategy is crucial for you to keep expanding your business even within a tight economic environment.
Using Your SaaS Pricing Model to Fight Stagflation
It is the simplest solution raising your rates to the point that you're not the only one to do this.
More than a third of SaaS software, software or digital goods clients lowered prices in the last year.
It is interesting to note that SaaS businesses tend to increase prices above the rate of inflation.
Pulling this lever -- no surprise, it generally helps to increase revenue, even although it's a tricky move to make in a time when customers aren't having as much money to invest in a depressed economy.
Rethinking pricing and package is among the most under-optimized levers in SaaS.
What is the reason for raising prices? What's the reason not to try something else?
There are plenty of other ways you can attempt to boost revenue in the market is tight, besides increasing your pricing.
The possibility of increasing acquisition, boosting conversion rates and decreasing churn are all possible options.
But, each of these options take a lot of effort of cross-functional time and energy for their implementation.
If you consider the effort and resources that need to be devoted to increasing acquisition or decreasing churn through strategies such as product-led growth (PLG) or enhanced strategies for customer success, it can become an unwieldy and overwhelming process, illustrated here through large and medium-sized T-shirts.
The large and medium-sized t-shirts symbolizes the amount of effort, resources, etc. the process requires to establish PLG and efforts to improve customer satisfaction to boost customer acquisition while reducing churn.
But product pricing changes take only a few minutes and can be accomplished very quickly, as signified by the tiny t-shirt on top.
As Patrick McKenzie points out, it's as easy as replacing a number with a bigger number:
All things considered, changing pricing could be the most simple, easy modification you could do when you are in a position to increase revenue quickly.
Optimizing your SaaS Pricing Strategy to Meet New MRR as compared to. net revenue retention The Growing Mustache
As you consider implementing new pricing methods, an additional factor to keep in mind is whether you wish to optimize for new MRR as well as net revenue retention or both.
And then there's"the "growth mustache."
The mustache of growth is a sideways bracket an ex-CFO from my past always was referring to. (I added the "mustache" description, since it does look similar to a mustache for me.)
The growth is driven by the new monthly recurring revenues (MRR) and new customers coming in and the net retention rate (NRR) that is, the amount of your existing customers' ARR or MRR you're retaining or increasing.
And if your NRR is over 100%, that's a multiplier to your profits however, it's also a multiplier of the value of your business.
There is typically a leverage for operations when you have different pricing and packages However, it's also important to know that you're in an environment where your customers might have less coming into the store and more leaving. The way you alter the price of your products could impact the ability of you to attract new customers, retain and grow existing customers as well, so take this into consideration when you begin making adjustments.
Test Creative SaaS Pricing Model Combinations to Unlock Revenue
After you've decided switching pricing plans is the way to go There are a lot of ways you can experiment. Pay-as-you-go plans, per-feature pricing, freemium pricing models, flat-rate pricing versus the usage-based pricing and per-user plans -- which is suitable for your SaaS enterprise?
Below are some options to consider, as a starting point:
- SKUs:
- Platform tiered plans
- Product(s) tiered plans
- Persona tiered plans
- Add-ons that are only single
- Bundles of Add-Ons
- Entitlements:
- Features
- Usage
- Assistance
- Pricing:
- Price
- Recurrence
- Geography
- Method of payment
- Discounts
- Trials for free
Check out those possibilities for methods to increase your operational leverage.
In some cases, this means creating a model based on personas that will yield an average of slightly more revenues per customer (ARPU).
In the case of others, this means the addition of a new component that lets them increase prices.
If you're not sure this could mean a switch from a flat-rate structure or user-based pricing, towards a more flexible model that is based on features or on usage.
Track the Effects of Any Changes to Your SaaS Pricing Plan
For example, if customers' base decreases small amount when you rise in the price however, the remaining users are paying a higher cost and earning more in the end, certain businesses may feel ecstatic about the change.
But know which changes can be beneficial to your company strategy. A well-established SaaS company may have different priorities than a startup is.
Success is spelled with 3 S's
When we think about pricing and packaging, we think of combining the ability to earn more money with the ability to come up with something fresh.
Consider the innovation curve that we create; it grows in adoption and then it stalls. And it's easy to get caught in the thinking that the only method to get an additional revenue stream is to design a completely new product entirely.
We can decouple that thinking and think about how new revenue S curves are made by altering packages, plans as well as add-ons, just by giving users new ways to purchase from you and use your platform.
When we also look at a use metric based on a value measure that is over-aged these new plans as well as additions can boost ARPU as time passes.
SaaS Pricing and Packaging Add-Ons
Add-ons offer an easier path to increasing average revenue per user for existing as well as new clients on an income-based budget because they are able to pick and choose the features they want to purchase as opposed to paying, say, flat-rate prices for a bigger package with a variety of features they don't want or need.
As an example, are there existing entitlements you can offer as an add-on without needing to do any engineering work? Are there any of these functions that can be separated to create a new SKU without making a completely new product?
Add-ons are available in a variety of styles So you'll be able to have many different add-ons or create multiple bundles of them.
These add-ons carry a high riskas they could lower the upgrade MRR in the event that fewer users upgrade to a bigger package. However, add-ons can be a powerful factor in NRR.
To minimize the possibility, you must carefully evaluate your rates of upgrade and downgrade as you begin making changes to your add-on and packages offerings.
You can, however, wait to pitch add-ons up to after users have signed up for your core product. When they're already using your product and enjoy the experience -- and any additional purchases they make would qualify as upsells, which helps your net sales retention rates -- pitch them add-ons which will further improve users' experience using your product.
Customers can purchase the SaaS service at the lower cost that will help build your MRR as well as ARPU by offering sales.
And a lower initial price point can also aid you in gaining an edge to gain market sharein particular if you're able to undercut competitors' pricing just a little.
The creation of a new pricing level to drive Achieving Average revenue per user (ARPU)
Could it be that the ARPU boosting tier you need is one that is available in your current plans?
If, for instance, you're using a tiered pricing model that offers the options of $25, $150, or $300 choices, perhaps the most appropriate pricing tier to drive more revenue can be found somewhere between the three and around $75.
Segmenting SaaS plans to clarify the value of your product and increase ARPU
Another option is to divide your packaging according to particular customer requirements.
For example, WP Engine is a managed WordPress platform which handles many different websites but they saw an opportunity to market WooCommerce users in particular, which is why they designed a bundle that targeted just that audience.
This allowed them to highlight customers' needs in this particular segment, which helped capture their attention and get greater signups. Over time, WP Engine was able to add more product value for those users that increased the the revenue of WP Engine.
Pay Frequency Boosts Leverage
The annualized pricing option offers customers the advantage of a discount by paying for a year up front, but it also gives customers the advantage of decreasing the churn rate and increasing the overall value of a client's lifetime which is also known as LTV.
To further leverage this strategy, you can provide more aggressive annual pricing discounts on new subscribers as well as customers who wish to move from monthly payments to annual fees.
Intro period pricing can also help users to adopt the pricing more easily.
Tips If you're providing the Enterprise plan and your price starts to look somewhat more costly with a monthly payment, try to keep that price below $5000. Many procurement departments have the policy of asking employees to obtain approval to make purchases greater than that, so should you be able to keep the price below that threshold, it's easier for users to payment with a credit card, without having to go through the internal hurdles at their own companies. It's possible to vary this and it's not any kind of rule but it's an excellent idea to test.
It's not flat: Adjust Your Strategy
As you consider making changes to your SaaS company's pricing strategy and strategy, the willingness of potential customers to pay isn't the only factor to consider. Inflation rates can fluctuate wildly within a short period of time. That fluctuation can also be different across every region or country.
The financial headwinds that relate to various geographies can mean that localization becomes more important if you offer your saas product worldwide.
Remove Unnecessary Purchasing Friction With the Localization
Localization typically involves multiple aspects which include, but not be limited to:
- Accepting the preferred payment for the region you're selling into.
- Localizing the pricing.
- Localizing the currency.
Each one of them has its own additional benefit not only for the buyers and for your profit margin also.
The conversion rate for localizing prices is 2x in B2C SaaS companies. Just make sure you have an adequate reason for having various pricing across diverse regions or countries, should a prospective customer finds multiple prices.
Local currencies are much easier to be approved for as well as those who are in the market for it to comprehend. When customers who are new to your SaaS charges in the local currency which makes it much easier for them to buy without the friction of maths involved in conversion before they make a decision.
How Can help?
The data in the article was recently presented by David Vogelpohl in a webinar held by Cumul.io. Check out the video on the YouTube channel.
More articles about SaaS fees and pricing you might find interesting:
