More SaaS Pricing Strategies for Fees to Offset Stagflation -
The presentation was previously made on SaaS charges pricing and packaging in order to fight stagflation in 2022. However, this article is based on the presentation that was updated in March 2023, by David Vogelpohl. For more information or to view the prior presentation, check out the additional details in the final paragraph of this post.
Pricing your software as a service (SaaS) can be hard enough in the good of times. Figuring out how to dial in the right pricing to drive more revenue in times of stagflation can be even more challenging.
This article provides tips on making the most of pricing and packaging for your SaaS items in a subpar economy:
- What is Stagflation?
- Utilizing your pricing system to tackle Stagflation.
- Enhancing your SaaS Pricing strategy for the New MRR vs. Net revenue retention.
- Test creative SaaS pricing models that increase revenue.
- The rate of inflation isn't constant Variate your approach.
- What can I do to help.
What is Stagflation?
In simple terms, stagflation is an economic phenomenon that is influenced by three key factors:
- Low growth.
- Inflation is high.
- The unemployment rate is high.
There's more pressure than ever before on:
- Prospects' wallets are the ones you want to attract.
- Customers' wallets you'd like to see upgrade.
That's why carefully considering your SaaS pricing strategy is crucial for you to keep building your company within a tight economic environment.
Using Your SaaS Pricing Model to Fight Stagflation
It is the simplest solution to raise your prices to the point that you're not the only one to do this.
More than a third of SaaS software, software and digital goods customers increased rates in the past year.
Incredibly, SaaS businesses tend to increase prices above the rate of inflation.
The pull of this lever -- not a surprise -- usually helps in increasing revenue, though it can be a tricky move to make when many customers have less money to spend 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 options you can pull to make more money when the market is tight, in addition to increasing the price.
Increasing acquisition, increasing conversion rates, and reducing turnover are some of the alternatives.
All of those options take a lot of effort of cross-functional time and energy to implement them.
If you take into consideration the effort and resources that need to be devoted to growing acquisition and reducing churn through strategies such as PLG, or product-led growth (PLG) or enhanced customer success efforts, it can become an unwieldy and overwhelming procedure, as shown by medium and large shirt designs:
Each of those large and medium-sized t-shirts symbolizes the work, time, and money. the process requires to establish PLG as well as customer success strategies with the intention to improve customer retention and reduce churn.
But product pricing changes take minimal effort and can be done 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 lower number with a bigger number:
In the end, altering pricing could be the most simple, easy modification you could implement when you need to grow its revenue fast.
Optimizing your SaaS Pricing Strategy to Meet New MRR as compared to. the Net Revenue Retention: The Needle of Growth
As you consider implementing different pricing, an additional thing to think about is whether or not you'd like to increase your efficiency for the an entirely new MRR or net revenue retention -- or both.
And then there's"the "growth mustache."
The mustache of growth is a sideways bracket a former CFO of mine frequently referred to. (I included the "mustache" descriptor, because it appears like a mustache to me.)
The growth is driven by the an increase in monthly recurring revenue (MRR) and new customers coming in and the net retention rate (NRR), or the percentage of your current customers' MRR and ARR you're retaining or increasing.
In the event that your NRR is greater than 100%, this is the basis for a multiplier in your earnings However, this is also an increase for your value.
Generally, there's operational leverage with different pricing and packaging However, it's also important to know that you're operating in a market where the customers could have less coming into the store and more being expended. How you change the price of your products could impact the ability of you to attract new customers, maintain and increase the number of customers you already have as well, so take this into consideration when you start making 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 way to go but there's a lot of ways you can experiment. Pay-as-you-go plans, per-feature pricing as well as freemium pricing models. flat-rate pricing, the usage-based pricing and per-user plans -which are right for your SaaS enterprise?
There are several ideas to think about for starters:
- SKUs:
- Platform tiered plans
- Product(s) tiered plans
- Persona tiered plans
- Single add-ons
- Bundles of add-ons
- Entitlements:
- Features
- Usage
- Support
- Pricing:
- Price
- Recurrence
- Geography
- Payment method
- Discounts
- Trials for free
Look within those options for ways you can increase your operational leverage.
In some cases, this means formulating a buyer price based on a persona that is an average of slightly more revenue per user (ARPU).
For others, that means adding a new feature which allows them to increase prices.
For others yet the possibility of switching to a flat-rate price system or a user-based pricing model towards a more flexible model that is based on features or on usage.
Monitor the effects of any Changes to Your SaaS Pricing Strategy
In this case, for example, if customers' base decreases little when there's an increase in price point, but the remaining active customers are able to pay a greater price and generating more revenue in the end, certain businesses may appreciate the new price point.
Be aware of the changes that will impact your business model. Established SaaS business may have very different priorities from one a start-up will.
The word "success" is written with three S's
In most cases, when we think of pricing and packaging, we think of combining the ability to earn more money with the ability to invent something completely new.
Consider the innovation curve that we create and it becomes more popular; it plateaus. It's very easy to be stuck in the belief that the only way to get an entirely new source of revenue is to develop a brand totally new product.
Then, we can break the thought process and start thinking that new revenue S curves can be developed by altering the packages, plans additions and add-ons all by providing users with new ways to purchase from you and use your service.
If we take into consideration a usage measure based on the value metric that has overages, those new plans and additions can boost ARPU over time.
SaaS Price and Packaging Additional Add-ons
Add-ons offer an easier path to increasing average revenue per user for both existing as well as new clients on the tightest budgets, since they have the option of choosing what to purchase from you as opposed to spending, for example, flat rate prices for a bigger package with a variety of features they don't want or need.
For example, are there any existing entitlements available to offer as an add-on without having to create any extra engineering effort? Could one of those functions be cut out and used to make an entirely new SKU, without creating a completely new product?
Add-ons can be found in numerous varieties, so you can have many different add-ons or even create bundles.
There is a risk involved -- because they can depress the upgrade MRR in the event that fewer users have upgraded to a more powerful package -- but accessories can also be a significant driver of NRR.
To minimize the danger, be sure to carefully assess your upgrade and downgrade rates when you start making adjustments to your add-on and packages products.
You can, however, delay pitching add-ons up to when the users have enrolled for your primary product. After they've used your product and like it -- and after all purchases made are considered to be upsells which helps your net sales retention rates -- pitch them add-ons which will further improve the experience they get from using your product.
It allows users to purchase the SaaS product with a lower price point, and then it can help you build your MRR as well as ARPU by offering sales.
And a lower initial price point can also give you an edge to gain market share as well- especially if you can undercut competitors' pricing by a bit.
Creating a New Pricing Tier to drive Achieving Average Revenue Per User (ARPU)
Is it possible that the ARPU-boosting level you require exists between your existing plans?
For example, if you're using a tiered pricing model, with $25, $150, and $300 options, maybe the most appropriate pricing tier to drive more revenue can be found somewhere between the three, around 75 dollars.
Segmenting SaaS Plans can help you understand the Value of Your Product and increase ARPU
Another option is to separate your packaging based on very individual customer demands.
For example, WP Engine is a managed WordPress platform which handles all kinds of sites, but they saw an opportunity to target WooCommerce users specifically, 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 attract their attention, and to get more signups. Over time, WP Engine was able to provide more value to the users who were using it, which increased revenues for WP Engine.
Pay Frequency Boosts Leverage
An annualized pricing option gives purchasers the benefits of a discount by paying for the entire year upfront, but it also gives you the benefit of reducing the churn rate and increasing a customer's overall lifetime value, or LTV.
In order to further benefit from this approach, you can provide more aggressive annual pricing discounts for new subscribers or for subscribers who are willing to change from monthly charges to annual fees.
The introduction of a price period may help users to adopt the pricing more easily.
Tips If you're selling the Enterprise plan and the cost starts to appear a little more expensive when paid for annually make sure to keep the price under $5000. Many procurement departments have an policy that requires staff members to be approved on any purchase that is greater than this, and when you keep costs under that limit and make it easier for customers to easily make that payment with a credit card, without having to go through the internal hurdles at their own companies. This can vary and isn't any kind of rule but it's an excellent guideline to try out.
Inflation Isn't Flat: Vary Your Strategy
As you consider making changes to the way you manage your SaaS firm's pricing strategies, potential customers' willingness to pay isn't just the one issue to think about. The rate of inflation can change drastically within a short period of time, and that change can vary throughout the world or in each region.
The financial headwinds that relate to different geographical areas can suggest that localization becomes more important if you offer your saas product internationally.
Remove Unnecessary Purchasing Friction With the Localization
Localization typically involves multiple aspects which include, but not be the least:
- Accepting the preferred payment for the region that you're selling to.
- The price is localized.
- Localizing the currency.
Each one of them has each of them having its own benefit, not just for buyers, and for your profit margin also.
Localizing pricing converts at 2x in B2C SaaS businesses. Be sure to provide a good justification for different pricing in diverse regions or countries, in case a potential customer manages to see multiple prices.
Local currencies are much easier to get approved and for those who are in the market for it to comprehend. If new customers can see your SaaS costs displayed in a currency they're used to which makes it simpler for them to shop, removing the purchase friction of conversion math before making an investment.
How Can help?
The information in the above article was recently presented by David Vogelpohl in a webinar hosted by Cumul.io. Check out the video on their YouTube channel.
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