Additional SaaS Fees Pricing Strategies to Reduce Stagflation -
The presentation was previously made earlier on SaaS charges pricing and packaging in order to fight stagflation in 2022, but this piece is based upon the latest presentation given in the month of March 2023 by David Vogelpohl. For more information or to see the previous presentation, check out the additional details in the final paragraph of this post.
Pricing your software as a service (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 inflation can be difficult.
This article gives tips for making the most of pricing and packaging for your SaaS services in a weak economy:
- What exactly is stagflation?
- Applying your pricing model to fight stagflation.
- Enhancing your SaaS Pricing Strategy for new MRR vs. Net revenue retention.
- Try out creative SaaS pricing models that increase revenues.
- Inflation isn't flat You can change your strategies.
- How can help.
What is Stagflation?
Succinctly put, stagflation is the economic state that is affected by three main factors:
- The economy is slowing down.
- High inflation.
- High unemployment.
There's more pressure than ever on:
- The wallets of prospects that you wish to attract.
- Customers' wallets would you like to see upgraded.
That's why carefully considering the SaaS pricing strategy is crucial for you to keep growing your business in a tight economy.
Using Your SaaS Pricing Model to Fight Stagflation
The easiest answer is raising your rates to the point that you're not by yourself if you were to raise your prices.
More than a third of SaaS software, software, and digital goods customers raised prices in the last year.
It is interesting to note that SaaS firms tend to hike rates that are higher than inflation rates.
The pull of this lever -- not a surprise -- generally works in increasing revenue, although it's an uneasy decision to make when many customers have less money to invest in a depressed economy.
However, rethinking pricing and packaging is also one of 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 a myriad of ways you can try to increase revenue when the market is sluggish, in addition to increasing the price.
The possibility of increasing acquisition, boosting conversion rates and decreasing turnover are some of the possibilities.
However, all of those alternatives require a significant amount of work in the form of energy and time to implement them.
When you think about the time and resources that need to be invested in growing acquisition and reducing customer churn with strategies like Product-led Growth (PLG) or increased initiatives to improve customer satisfaction, it can become a slow and potentially overwhelming process as illustrated by medium and large t-shirts:
The large and medium-sized t-shirts symbolizes how much effort, resources, etc. the process requires to establish PLG and efforts to improve customer satisfaction with the intention to increase customer acquisition and decrease the rate of churn.
However, changing the price of a product requires minimal effort and can be accomplished very quickly, as signified by the t-shirt with a small size above.
According to Patrick McKenzie points out, it can be as simple as replacing a number by a larger one:
All things considered, changing pricing could be the most simple, easy option to make when your business needs to increase revenue quickly.
Optimizing Your SaaS Pricing Strategy to Meet New MRR as compared to. the Net Revenue Retention: The Growing Mustache
As you consider implementing new pricing methods, an additional aspect to consider is whether you wish to optimize for an entirely new MRR or net revenue retention or both.
And then there's"the "growth mustache."
The growth mustache is a sideways bracket a former CFO of mine often referred to. (I included the "mustache" description, since it appears like a mustache to me.)
The growth is driven by the increasing monthly recurring revenues (MRR) as well as new customers coming in and the net retention rate (NRR) which is the percentage of your current customers' MRR and ARR you're keeping or increasing.
In the event that your NRR is greater than 100%, this is a multiplier to your profits however, the same applies of your valuation.
In general, you can leverage your operational capabilities by varying pricing and packaging However, it's also important to know that you're in an environment where customers may have less money coming in and more money being expended. What you do with your pricing could affect your capacity to acquire new customers, maintain and expand existing ones, or both, so be aware of this when you start making changes.
Try a New Pricing Model for SaaS that is Creative Combinations to Increase revenue
After you've decided changing pricing options is the way to go, there are still many ways that you can experiment. Pay-as-you-go plans, per-feature pricing and freemium pricing models flat-rate pricing, use-based pricing, per-user plans -which are suitable for your SaaS enterprise?
Below are some ideas to think about for starters:
- SKUs:
- Platform tiered plans
- Product(s) tiered plans
- Persona tiered plans
- One-time add-ons
- Bundles of add-ons
- Entitlements:
- Features
- Usage
- Assistance
- Pricing:
- Price
- Recurrence
- Geography
- Method of payment
- Discounts
- Free trials
Look within those options for strategies to boost your operational leverage.
Some may require creating a model based on personas that will yield an average of slightly more revenue for each user (ARPU).
If you're not, it's adding a new feature which allows them to increase the cost.
In the case of some, it may mean switching from a flat-rate pricing model or user-based pricing in favor of a more dynamic, feature-based or usage-based pricing structure.
Track the Effects of Any Modifications to Your SaaS Pricing Plan
For example, if customers' base decreases tiny amount due to an increasing price, but the remaining active users are paying a higher rate and making more money in the end, certain businesses may be thrilled with that change.
But know which changes will impact your business structure. Established SaaS firm may have different priorities from one a start-up is.
The word "success" is written with three S's
When we think about the packaging and pricing, we couple the potential to generate more profit with our capacity to create something new.
For instance, consider the innovation S curve which is a curve that says: we make something; it grows in adoption but then it slows down. It's very easy to be stuck in the belief that the only way to generate an entirely new source of revenue is to design a completely totally new product.
We can decouple that thinking and start thinking that new income S curves are made by altering package, plan additions and add-ons simply by offering users the opportunity to shop with you and use your platform.
When we also consider a usage measure based on the value metric with overages the new plans and additions can boost ARPU as time passes.
SaaS Prices and Packaging Add-Ons
The addition of add-ons is a great way to increasing average revenue per user for both existing and new customers on an income-based budget because they can pick and choose which products to buy from you instead of paying, say, flat-rate prices for a bigger package with a variety of options they do not want or require.
In other words, do you have already existing entitlements that you could sell as add-ons without creating any additional engineering work? Are there any of these functions that can be separated to create the new SKU but without having to create a completely new product?
Add-ons come in many varieties and you could have many different add-ons or make multiple bundles of them.
There is a risk involved -as they could lower the upgrading MRR when fewer users upgrade to a bigger package. But the addition of add-ons is a potent driving force of NRR.
To minimize the danger, be sure to carefully assess your rates of upgrade and downgrade when you start making adjustments to your add-on and packages services.
You can, however, delay pitching add-ons up to the time that customers have signed up to your main product. Once they're using your product and like the experience -- and all purchases made are considered to be upsells that can boost your number of revenue retention -- pitch them add-ons that would further enhance the experience they get from using your product.
It allows users to purchase your SaaS product at an affordable price, and then it helps you increase your MRR and ARPU through those upsells.
A lower cost can aid you in gaining an edge to gain market share- especially if you can undercut competitors' pricing just a little.
Create a New Pricing Tier to drive Average Price Per User (ARPU)
Could it be that the ARPU boosting tier you're looking for exists in conjunction with your existing plans?
As an example, if you're using a tiered pricing model with the options of $25, $150, or $300 options, maybe the most appropriate pricing tier to generate more sales can be found somewhere between the three about 75 dollars.
Segmenting SaaS plans to clarify the Benefits of Your Product and increase ARPU
Another option is to separate your packaging in accordance with individual customer demands.
As an example, WP Engine is a managed WordPress platform, which manages various types of websites, however they noticed the opportunity to focus on WooCommerce users in particular, therefore they developed a product specifically targeted at that group.
The company was able to emphasize customers' needs in this particular segment, which helped attract their attention, and to get greater signups. In time, WP Engine was able to add more product value to those customers, which increased WP Engine's revenue.
The Payment Frequency increases leverage
A pricing plan that is annualized gives customers the advantage of saving money by committing for a year up front however, it also offers an opportunity to reduce the rate of churn while increasing a customer's overall lifetime value (or LTV.
For further benefits from this method, you can provide greater discounts for annual subscriptions on new subscribers as well as for subscribers who are willing to move from monthly payments to annual fees.
Pricing for the first period can make adoption easier for users.
Tip: If you're offering the Enterprise plan and the cost starts to appear a little more expensive in the event of a payment every year make sure to keep the cost below $5000. Most procurement departments have the policy of asking employees to obtain approval for any purchases larger than $5000, therefore should you be able to keep the price under that limit, it's easier for users to make a purchase via credit card without having to go through the internal hurdles in their own organizations. It's possible to vary this and it's not a rule, but it's a good guideline to try out.
It's not flat: Adjust Your Strategy
When you think about changing your SaaS business's pricing policy, potential customers' willingness to pay isn't just the one factor to consider. Inflation can vary a lot in a relatively short amount of time, and that fluctuation can also be different in every country or region.
Headwinds to financial performance in relation to various geographies can mean that localization is more crucial in the event that you are offering your saas product internationally.
Remove Unnecessary Purchasing Friction With Localization
The term "localization" typically refers to a variety of aspects which include, but not be including:
- Accepting the preferred payment in the areas you're selling into.
- Localizing the pricing.
- The currency is localized.
Each one of them has its own additional benefit not just for buyers, and for your profit margin also.
Pricing for localization converts to 2 times for B2C SaaS businesses. Be sure to provide a good justification for various pricing across various countries and regions in case a potential customer manages to see several prices.
Local currencies are much easier to get approved and for those who are in the market for it to comprehend. When customers who are new to your SaaS costs displayed in a local currency, it makes it that much easier for them to buy, removing the purchase friction of conversion math before making an investment.
How Can help?
The information contained in this article was recently presented by David Vogelpohl in a webinar hosted by Cumul.io. Watch the original presentation on the YouTube channel.
Additional articles on SaaS charges and pricing that you might find interesting:
