Additional SaaS pricing strategies to Counteract Stagflation
previously presented on SaaS pricing of fees and packaging to combat stagflation in 2022. However, this piece is based upon the presentation that was updated in the month of March 2023 by David Vogelpohl. For more information or to view the prior presentation, check out the additional details at the end of this post.
Pricing the price of your software as a services (SaaS) can be hard enough even during the best of times, but figuring out how to dial in the right pricing to drive higher revenue during times of stagflation can be even difficult.
This article provides tips on improving the pricing and packaging of your SaaS items in a subpar market:
- What exactly is stagflation?
- Using your pricing system to tackle stagflation.
- Optimizing your SaaS Pricing Strategy for new MRR vs. Net revenue retention.
- Explore new SaaS pricing models to unlock revenue.
- The rate of inflation isn't constant: Vary your strategy.
- How can help.
What is Stagflation?
Simply put, stagflation is an economic phenomenon that is influenced by three key factors:
- Low growth.
- The inflation rate is very high.
- A high rate of unemployment.
This means there's more pressure than ever before on:
- The wallets of prospects that you wish to attract.
- Current customers' wallets you'd like to see upgrade.
That's why carefully considering your SaaS pricing model becomes crucial if you want to continue growing your business in an economic downturn.
Using Your SaaS Pricing Model to Fight Stagflation
The easiest answer is raising your rates to the point that you're not the only one to do this.
Over a third of 's SaaS software, software or digital goods clients increased costs in the past year.
It is interesting to note that SaaS firms tend to hike prices higher than the rate of inflation.
This lever -- not a surprise -- generally works in increasing revenue, although it's difficult to pull off in a time when customers aren't having as much cash to spend in a depressed economy.
Rethinking pricing and package is among the few levers that are not optimized in SaaS.
What is the reason for raising prices? Why Not Try Something Else?
There are plenty of other ways you can make more money when the market is tight, in addition to increasing the price.
Increased acquisition, increasing conversion rates, and reducing turnover are some of the options.
However, all of those alternatives require a significant amount of work in the form of energy and time for their implementation.
When you think about the time and money that will need to be devoted to growing acquisition and reducing churn through strategies such as product-led growth (PLG) or enhanced customer success efforts, it can become an inexplicably slow process, illustrated here by medium and large t-shirts:
Every one of the medium and large t-shirts represent the time, effort, and resources. the process requires to establish PLG and efforts to improve customer satisfaction to boost customer acquisition while reducing customer churn.
But product pricing changes take minimal effort and are done quick, as shown by the tiny t-shirt on top.
According to Patrick McKenzie points out, it's as easy as replacing a smaller number with a higher:
In the end, altering your pricing may be the simplest, most straightforward change you can make when your business needs to boost revenue rapidly.
Optimizing your SaaS Pricing Strategy for New MRR vs. Net Revenue Retention The Needle of Growth
As you consider implementing different pricing, an additional aspect to consider is whether you wish to increase your efficiency for the future MRR, or for net revenue retention -- or both.
Then there's the "growth mustache."
The grow mustache is a bracket with a sideways slant that my former CFO always referred to. (I also added the "mustache" description, since, well, it looks as if it's a mustache.)
Growth is fueled by an increase in monthly recurring revenues (MRR) and new customers entering the market as well as Net Revenue Retention (NRR), or the amount of your existing customers' MRR or ARR you are retaining or growing.
If your NRR is greater than 100%, that's a multiplier to your profits, but this is also an increase to the value of your business.
Generally, there's operational leverage with different pricing and packaging, but you also know the environment in which your customers might have less coming in and more money leaving. How you change the price of your products could impact your ability to gain new customers, retain and expand existing ones and/or both. 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 you've decided that changing your pricing is the way to go There are a lot of ways to test. Per-feature pricing, pay-as-you go plans as well as freemium pricing models. flat-rate pricing as opposed to the usage-based pricing and per-user plans -- which one is the best for your SaaS business?
There are several ideas to think about 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
- Help
- Pricing:
- Price
- Recurrence
- Geography
- Payment method
- Discounts
- Trials for free
Look within those options for ways you can increase the leverage you have in your operation.
Some may require coming up with a buyer price based on a persona that is a little more average income per customer (ARPU).
In the case of others, this means including a new add-on which allows them to increase the cost.
For others yet, it may mean switching from a flat-rate pricing system or a user-based pricing model 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
If, for instance, customers' base decreases small amount when you increasing price and the remaining customers are able to pay a greater rate and making more money in the end, certain businesses may appreciate the new price point.
Be aware of the changes that will impact your business strategy. An established SaaS company may have different priorities than a startup has.
Success is spelled with 3 S's
When we think about pricing and packaging, we couple our ability to make more revenue with our ability to come up with something fresh.
Take for example the Innovation S curve which is a curve that says: we make something that is then adopted by more people and then it stalls. And it's easy to get trapped in thinking that the only option to create a new revenue stream is to design a completely novel product completely.
We can decouple that thinking and start thinking that new revenue S curves could be developed by altering the package, plan as well as add-ons simply by offering users new ways to purchase from you and use your service.
If we further look at a use metric based on a value metric that has overages these new plans as well as extensions themselves could increase ARPU as time passes.
SaaS Prices 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 instead of paying, say, flat-rate price for a package, which includes a number of features that they do not need or don't need.
For example, are there any existing entitlements available to offer as an add-on without creating any additional engineering tasks? Are there any of these functions that can be sliced out to create an entirely new SKU, without creating the product completely new?
Add-ons are available in a variety of styles So you'll be able to use a wide range of different add-ons or make multiple bundles of them.
There is a risk involved -since they may lower your upgrade MRR if fewer people upgrade to a bigger package -- but accessories can also be a significant driver of NRR.
To mitigate that danger, be sure to carefully assess your rates of upgrade and downgrade when you start making adjustments to your add-on and packages offerings.
You can, however, put off pitching additional features until the time that users have signed up for your core product. Once they're using your product and like it -- and after the additional purchases they make would qualify as upsells, that can boost your number of revenue retention You can pitch them additional features that would further enhance the experience they get from using your product.
It allows users to purchase the SaaS product at a lower price point, and then it can help you build your MRR as well as ARPU by offering additional sales.
And a lower initial price can also aid you in gaining an edge when going after market shareparticularly if you are able to beat competitors' prices 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 require exists between your existing plans?
If, for instance, you're operating a tiered price model that offers $15, $150 and $300 choices, perhaps the right pricing tier for generating more profit lies somewhere in the middle, around $75.
Segmenting SaaS Plans can help you understand the value of your product and boost 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 handles many different websites however, they recognized the opportunity to focus on WooCommerce customers specifically, and which is why they designed a bundle specifically targeted at that group.
It allowed them to focus on customers' needs in this specific segment to draw their attention and gain more signups. In time, WP Engine was able to provide more value for those users, which increased the revenue of WP Engine.
The Payment Frequency increases leverage
A pricing plan that is annualized gives purchasers the benefits of a discount by paying for a year up front however, it also offers an opportunity to reduce the churn rate and increasing the overall value of a client's lifetime (or LTV.
For further benefits from this method to further leverage this strategy, you could offer greater discounts for annual subscriptions for new subscribers or for subscribers who are willing to move from monthly payments to annual fees.
The introduction of a price period may aid in the adoption process for customers.
Tip If you're providing the Enterprise plan, and the price point starts looking somewhat more costly in the event of a payment every year, try to keep that cost below $5000. Most procurement departments have an policy that requires staff members to be approved on any purchase that is greater than that, so if you can keep prices under that limit this will allow customers to purchase via 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 a good suggestion to follow when trying.
The Inflation Rate isn't Even: Change Your Strategy
When you think about changing your SaaS business's pricing policy, potential customers' willingness to pay for the service isn't the only thing to keep in mind. The rate of inflation can change drastically within a short period of time. That fluctuation can also be different in every country or region.
Headwinds to financial performance in relation to various geographies can mean that localization becomes more important when you sell your Saas product worldwide.
Eliminate Unnecessary Purchase Friction Localization
Localization typically involves multiple aspects which include, but not be limited to:
- Accepting preferred payment terms of the regions that you're selling to.
- The price is localized.
- Localizing the currency.
Each of those comes with an additional advantage that is not just for customers, and for your profit margin as well.
Pricing for localization converts to 2x in B2C SaaS firms. Make sure that you provide a good justification for various pricing across different countries or regions, for instance, if a potential client is able to view several prices.
Local currencies are much easier to obtain approval for and those who are in the market for it to comprehend. If new customers can see your SaaS costs displayed in a one they are familiar with which makes it simpler for them to shop and removes the hassle of the conversion process before making an investment.
How Can Help
The information in the above piece was just presented by David Vogelpohl in a webinar presented by Cumul.io. Check out the video on the YouTube channel.
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