Additional SaaS Cost Pricing Options to Counteract Stagflation -
earlier presented earlier on SaaS charges pricing and packaging for stagflation prevention by 2022. This piece is based upon an updated presentation delivered in March 2023, by David Vogelpohl. To find out more or view the prior presentation look over the extra information at the bottom of the article.
Pricing your software as a service (SaaS) isn't easy enough even during the best times. But figuring out the best way to set an appropriate price to generate more revenue in times of stagflation is even more difficult.
This article gives tips for making the most of pricing and packaging for your SaaS items in a subpar economic environment:
- What exactly is stagflation?
- Using your pricing model to fight stagflation.
- Optimizing your SaaS Pricing Strategy for new MRR in comparison to. Net revenue retention.
- Explore new SaaS pricing models to generate revenues.
- Inflation isn't flat Variate your approach.
- What can I do to help.
What is Stagflation?
Succinctly put, stagflation is an economic phenomenon that is influenced by three major factors:
- The economy is slowing down.
- High inflation.
- A high rate of unemployment.
This means there's more pressure than ever before on:
- The wallets of prospects you want to attract.
- Current customers' wallets 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 in a tight economy.
Using Your SaaS Pricing Model to Fight Stagflation
The most straightforward solution is to increase your price, and you wouldn't be by yourself if you were to raise your prices.
A third of SaaS, software, or digital goods clients increased costs in the past year.
Incredibly, SaaS companies tend to raise prices higher than inflation rates.
Pulling this lever -- no surprise, it generally helps to increase revenue, even though it can be a tricky move to make in a time when customers aren't having as much money for spending in a stagflation economy.
But reconsidering pricing and packaging is also one of the most under-optimized levers in SaaS.
Why Raise Prices? What's the reason not to try something else?
There are many other levers you could pull to make more money when the market is sluggish, apart from increasing the cost of your products.
Increased acquisition, increasing the conversion rate, and decreasing turnover are some of the options.
But, each of these choices require lots of effort in terms of time and effort from different departments for their implementation.
When you think about the time and money that will need to be put into growing acquisition and reducing churn through strategies such as Product-led Growth (PLG) or bolstered strategies for customer success this can turn into an unwieldy and overwhelming process as illustrated through large and medium-sized t-shirts:
Every one of the medium and large t-shirts represent how much work, time, and money. the process requires to establish PLG and efforts to improve customer satisfaction with the intention to boost customer acquisition while reducing customer churn.
However, changing the price of a product requires very little effort and can be accomplished very quickly, as signified by the t-shirt with a small size above.
Like Patrick McKenzie points out, it's as simple as replacing a number by a larger one:
In the end, altering your prices could be the easiest, simplest change you can make when your business needs to increase revenue quickly.
Optimizing Your SaaS Pricing Strategy for the New MRR and. Net Revenue Retention The Growing Mustache
If you're considering various pricing strategies, another thing to think about is whether or not you'd like to maximize for an entirely new MRR, or for net revenue retention or both.
Enter"the "growth mustache."
The mustache of growth is a sideways bracket my former CFO frequently referred to. (I also added the "mustache" designation, as it does look like a mustache to me.)
Growth is driven by new monthly recurring revenues (MRR) as well as new customers coming in, and by net revenue retention (NRR), or the amount of your existing customers' MRR and ARR you're retaining or increasing.
In the event that your NRR is over 100%, this is a multiplier to your profits However, it's also a multiplier of the value of your business.
In general, you can leverage your operational capabilities when you have different pricing and packages, but you also know the environment in which your customers might have less coming into the store and more leaving. The way you alter the pricing of your product could impact your ability to gain new customers, retain and expand existing ones and/or both. So keep this in mind as you start making changes.
Explore a new pricing model for SaaS. Combinations to Unlock Revenue
Once you've decided that you've decided that changing your pricing is the way to go but there's many ways that you could test. Pricing per feature, plans that pay as you go, freemium pricing models, flat-rate pricing as opposed to use-based pricing, per-user plans -which are right for your SaaS business?
There are several alternatives to take into consideration, to begin with:
- SKUs:
- Platform tiered plans
- Product(s) tiered plans
- Persona tiered plans
- Add-ons that are only single
- Bundles of accessories
- Entitlements:
- Features
- Use
- Assistance
- Pricing:
- Price
- Recurrence
- Geography
- Method of payment
- Discounts
- Free trials
Explore these options to find ways you can increase the leverage you have in your operation.
Some may require creating a persona-based pricing plan that has a little more average income for each user (ARPU).
For others, that means including a new add-on that allows them to raise the price more.
In the case of some, it may mean switching from a flat-rate pricing structure or user-based pricing, in favor of a more dynamic, feature-based or usage-based pricing structure.
Monitor the effects of any Modifications to Your SaaS Pricing Strategy
If, for instance, the number of customers decreases small amount when you increasing price, but the remaining active customers are able to pay a greater rate and making more money generally, some companies might appreciate the new price point.
But know which changes are important to your business model. A well-established SaaS firm may have different priorities from one a start-up is.
Success Is Spelled With 3 S's
When we think about the packaging and pricing, we often think of the potential to generate more profit with our capacity to come up with something fresh.
Take for example the innovation S curve that we create; it grows in adoption but then it slows down. It's not difficult to get trapped in thinking that the only option to get a new revenue stream is to design a completely novel product completely.
We can decouple that thinking and think about how new revenues S curves can be developed by altering the package, plan additions and add-ons all by providing users with the opportunity to shop with your company and utilize your platform.
When we also take into consideration a usage measurement based on a value metric that has overages, those new plans and additions can boost ARPU over time.
SaaS Prices and Packaging Additional Add-ons
The addition of add-ons is a great way towards increasing the average amount of revenue per user for existing and new customers on the tightest budgets, since they are able to pick and choose which products to buy from you -- rather than paying, say, flat-rate price for a package that includes a set of features they don't want or require.
For example, are there any existing entitlements available to sell as add-ons without having to create any extra engineering work? Could one of those functions be sliced out to create an entirely new SKU, without creating a completely new product?
Add-ons can be found in numerous varieties and you could include a variety of add-ons, or even create bundles of them.
They come with risk -- because they can depress the upgrading MRR when fewer users upgrade to a bigger package. But add-ons can be a powerful driving force of NRR.
To reduce the danger, be sure to carefully assess your rates of upgrade and downgrade before you make changes to your add-on and packages offerings.
Additionally, you can also put off pitching additional features up to the time that customers have signed up for your core product. Once they're using your product and enjoy the experience -- and any additional purchases they make are considered to be upsells that can boost your sales retention rates You can pitch them additional features which will further improve users' experience using your product.
Customers can purchase the SaaS product with an affordable price, and then it will help build your MRR as well as ARPU by offering sales.
Also, a cheaper price can also give you an edge to gain market share, too -in particular if you're able to lower prices of competitors a little.
Create a New Pricing Tier to drive Average Price Per User (ARPU)
Could it be that the ARPU boosting tier you need is one that is available in your current plans?
As an example, if you have a tiered pricing model with $15, $150 and $300 options, maybe the best pricing level to drive more revenue lies somewhere in the middle, around 75 dollars.
Segmenting SaaS Plans can help you understand the Value of Your Product and boost ARPU
Another option is to divide your packaging in accordance with specific customer needs.
As an example, WP Engine is a managed WordPress platform, which manages many different websites however, they recognized an opportunity to target WooCommerce customers specifically, and which is why they designed a bundle that targeted just that audience.
The company was able to emphasize their customers' requirements in this specific segment to draw their attention and gain greater signups. As time passed, WP Engine was able to provide more value for those users that increased the WP Engine's revenue.
Payment Frequency Increases Leverage
A pricing plan that is annualized gives buyers the benefit of a discount by paying for a year up front however, it also offers an opportunity to reduce the rate of churn while increasing the customer's overall lifetime value (or LTV.
In order to further benefit from this approach to further leverage this strategy, you could offer more aggressive annual pricing discounts on new subscribers as well as for those subscribers willing to switch from monthly fees to annual rates.
Pricing for the first period can help users to adopt the pricing more easily.
TIP: If you're offering an Enterprise plan, and the price starts to look a little more expensive when paid for annually, try to keep that price under $5000. Most procurement departments have an policy that requires staff members to be approved to make purchases greater than that, so when you keep costs below that threshold and make it easier for customers to payment with a credit card, without navigating internal obstacles at their own companies. This can vary and isn't any kind of rule but it's a good idea to test.
The Inflation Rate isn't Even: Change Your Strategy
As you consider changing the way you manage your SaaS firm's pricing strategies, potential customers' willingness to pay for the service isn't the only factor to consider. Inflation can vary a lot in a relatively short amount of time. That fluctuation can also be different throughout the world or in each region.
Headwinds to financial performance in relation to various geographies can mean the importance of localization 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 limited to:
- Accepting the preferred payments of the regions which you're selling your products into.
- The localization of the price.
- Localizing the currency.
Each comes with its own additional benefit not just for buyers, as well as for profit margins as well.
Pricing for localization converts to 2 times for B2C SaaS businesses. Be sure to provide a good justification for various pricing across diverse regions or countries, for instance, if a potential client finds more than one price.
Local currencies are much easier to obtain approval for and the target market to understand. When new customers see your SaaS costs displayed in a one they are familiar with and understand, it is easy for them to purchase, removing the purchase friction of conversion math before making a decision.
What Can Help
The information contained in this piece was just presented by David Vogelpohl in a webinar held by Cumul.io. Check out the video on the YouTube channel.
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