More SaaS Cost Pricing Options to Offset Stagflation -
previously presented earlier on SaaS pricing of fees and packaging in order to fight stagflation in 2022. However, this article is based on the latest presentation given in March 2023, by David Vogelpohl. To find out more or view the prior presentation look over the extra details in the final paragraph of this post.
Pricing the price of your software as a services (SaaS) can be hard enough, even in the most favorable of times, but figuring out how to determine an appropriate price to generate more revenue in times of inflation can be difficult.
This article gives tips for optimizing pricing and packaging of your SaaS products in a less-than-stellar economy:
- What exactly is stagflation?
- Using your pricing model to combat stagflation.
- Optimizing your SaaS Pricing strategy for the innovative MRR in comparison to. the net retention of revenue.
- Try out creative SaaS pricing models that increase revenues.
- Inflation doesn't have a flat surface: Vary your strategy.
- How can help.
What exactly is Stagflation?
In simple terms, stagflation is an economic phenomenon that is influenced by three key variables:
- Low growth.
- Inflation is high.
- High unemployment.
This means there's more pressure than ever before on:
- The pockets of the people you want to attract.
- Customers' wallets would you like to see upgraded.
It's the reason taking time to consider 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
It is the simplest solution raising your rates as you'd not be alone if you did so.
More than a third of SaaS software, software and digital goods customers increased rates in the past year.
Incredibly, SaaS firms tend to hike prices above the inflation rate.
This lever -- not a surprise -- usually helps to boost revenue, even though it can be an uneasy decision to make since many consumers have less funds to spend in a stagnant economy.
But reconsidering pricing and packaging is also one of the most under-optimized levers in SaaS.
Why Raise Prices? Do you really need to do something different?
There are plenty of other levers you could pull to make more money when the market is sluggish, besides increasing your pricing.
The possibility of increasing acquisition, boosting conversion rates, and reducing churn are all possible options.
All of those options take a lot of work in the form of energy and time to implement them.
When you think about the time and resources that need to be put into the process of increasing sales or reducing churn through strategies such as Product-led Growth (PLG) or enhanced initiatives to improve customer satisfaction, it can become an unwieldy and overwhelming process as illustrated through large and medium-sized shirt designs:
The large and medium t-shirts represents the work, time, and money. that are required to put into place PLG as well as customer success strategies to increase customer acquisition and decrease the rate of churn.
Changes to pricing for products require minimal effort and can be done very quickly, as signified by the tiny t-shirt on top.
According to Patrick McKenzie points out, it can be as simple as replacing a number by a larger one:
In the end, altering your pricing may be the simplest, most straightforward option to do when you are in a position to increase revenue quickly.
Optimizing your SaaS Pricing Strategy for New MRR as compared to. the Net Revenue Retention The Growing Mustache
When you are considering implementing a different pricing, an additional factor to keep in mind is whether you wish to increase your efficiency for the an entirely new MRR, or for net revenue retention -- or both.
Enter"the "growth mustache."
The grow mustache is a sideways bracket an ex-CFO from my past often was referring to. (I also added the "mustache" designation, as it does look like a mustache to me.)
Growth is driven by increasing monthly recurring revenues (MRR) as well as new customers entering the market and the net retention rate (NRR) which is the percentage of your current customers' ARR or MRR you're retaining or increasing.
If your NRR is greater than 100%, that's the basis for a multiplier in your earnings 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 the customers could have less entering the system and more going out. How you change your pricing could affect your ability to gain new customers, retain and increase the number of customers you already have as well, so keep this in mind as you start making changes.
Try a New Pricing Model for SaaS that is Creative Combinations to Unlock the Revenue
Once you've decided that you've decided that changing your pricing is the way to go, there are still numerous ways you can experiment. Pricing per feature, plans that pay as you go as well as freemium pricing models. flat-rate pricing, usage-based pricing, per user plans -which are suitable for your SaaS business?
Here are a few options to consider, to begin with:
- SKUs:
- Platform tiered plans
- Product(s) tiered plans
- Persona tiered plans
- One-time add-ons
- Bundles of Add-Ons
- Entitlements:
- Features
- Usage
- Help
- Pricing:
- Price
- Recurrence
- Geography
- Payment method
- Discounts
- Trials for free
Check out those possibilities for methods to increase your operational leverage.
Some may require formulating a buyer persona-based pricing plan that has a slightly higher average revenue per customer (ARPU).
For others, that means adding a new feature that lets them increase the price more.
In the case of some this could mean a switch from a flat-rate structure or user-based pricing, in favor of a more dynamic, feature-based or usage-based pricing structure.
Keep track of the impact of any Changes to Your SaaS Pricing Strategy
For example, if customers' base decreases little when there's an rise in the price, but the remaining active customers pay a more expensive price and generating more revenue overall, some businesses might appreciate the new price point.
But know which changes are important to your business model. An established SaaS firm may have different priorities from one a start-up has.
Success is spelled with 3 S's
Often when we think of pricing and packaging, we couple the potential to generate more revenue with our ability to create something new.
For instance, consider the Innovation S curve: We make something; it grows in adoption and then it stalls. And it's easy to get trapped in thinking that the only option to get a new revenue stream is to design a completely totally new product.
We can decouple that thinking and start thinking that new income S curves are created by changing the package, plan additions and add-ons simply by offering users new ways to purchase from you, and to use your service.
When we also look at a use metric based on a value metric with overages the new plans and extensions themselves could increase ARPU with time.
SaaS Pricing and Packaging Additional Add-ons
The addition of add-ons is a great way to increase the revenue average per user, for both current as well as new clients on an income-based budget because they have the option of choosing what to purchase from you as opposed to spending, for example, flat rate pricing for a larger package, which includes a number of features they don't want or require.
For example, are there already existing entitlements that you could offer as an add-on without creating any additional engineering effort? Can one of those functions be separated to create an entirely new SKU, without creating an entirely new product?
Add-ons can be found in numerous varieties, so you can use a wide range of different add-ons or make multiple bundles.
They come with risk -since they may lower the upgrading MRR when fewer users upgrade to a bigger package -- but accessories can also be a significant factor in NRR.
To reduce the risk, carefully measure your rates of upgrade and downgrade as you begin making changes to your add-on and packages services.
Additionally, you can also put off pitching additional features until when the users have enrolled for your core product. After they've used the product they've purchased and are enjoying the experience -- and all purchases made would qualify as upsells, that can boost your number of revenue retention You can pitch them additional features to further improve their experience of using the product.
This allows customers to enter the SaaS product with the lower cost that will help build your MRR as well as ARPU by offering additional sales.
Also, a cheaper price point can also give you an edge in pursuing market share as well- especially if you can beat competitors' prices by a bit.
Creating a New Pricing Tier that drives the Average Price Per User (ARPU)
Is it possible that the ARPU boosting tier you require exists between your existing plans?
As an example, if you're using a tiered pricing model that offers $25, $150, and $300 options, maybe the right pricing tier to drive more revenue is somewhere in between about $75.
Segmenting SaaS plans to clarify the Value of Your Product and boost ARPU
Another option is to separate your packaging based on very specific customer needs.
In this case, WP Engine is a managed WordPress platform which handles many different websites but they saw an opportunity to market WooCommerce users in particular, therefore they developed a product specifically targeted at that group.
The company was able to emphasize customers' needs in this specific segment to attract their attention, and to get more signups. In time, WP Engine was able to add more product value to the users who were using it that increased the the revenue of WP Engine.
The Payment Frequency increases leverage
The annualized pricing option offers buyers the benefit of discounts by having to pay for a year up front, but it also gives you the benefit of reducing your churn rate while improving the customer's overall lifetime value (or LTV.
In order to further benefit from this approach You can also offer more aggressive annual pricing discounts for new subscribers or for subscribers who are willing to switch from monthly fees to annual fees.
The introduction of a price period may aid in the adoption process for customers.
Tips If you're selling an Enterprise plan, and the cost starts to appear a little more expensive when paid for annually, try to keep that cost below $5000. Many procurement departments have a policy of requiring staff members to be approved for any purchases larger than $5000, therefore should you be able to keep the price below that threshold this will allow customers to easily make that purchase via credit card without having to go through the internal hurdles within their companies. This can vary and isn't an absolute rule, however it's an excellent idea to test.
It's not flat: Adjust Your Strategy
When you think about changing the way you manage your SaaS company's pricing strategy and strategy, the willingness of potential customers to pay for the service isn't the only thing to keep in mind. Inflation can vary a lot within a short period of time. That fluctuation can also be different throughout the world or in each region.
Headwinds to financial performance in relation to different regions can indicate the importance of localization in the event that you are offering your saas product globally.
Remove Unnecessary Purchasing Friction With Localization
Localization typically involves multiple aspects, including but not limited to:
- Accepting the preferred payments of the regions you're selling into.
- The localization of the price.
- Localizing the currency.
Each one of them has its own additional benefit not only for the buyers as well as for profit margins also.
The conversion rate for localizing prices is 2x for B2C SaaS companies. Make sure that you provide a good justification for various pricing across different countries or regions, in case a potential customer is able to view more than one price.
Local currencies are simpler to obtain approval for and customers in your target market to grasp. When new customers see your SaaS costs displayed in a currency they're used to, it makes it that much easier for them to purchase, removing the purchase friction of the conversion process before making an investment.
What Can You Help?
The information in the above article was recently presented by David Vogelpohl in a webinar presented by Cumul.io. Check out the video on the YouTube channel.
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