More SaaS pricing strategies to Counteract Stagflation
earlier presented earlier on SaaS fees pricing and packaging in order to fight stagflation in 2022, but this article is based on the presentation that was updated in the month of March 2023 by David Vogelpohl. For more information or to look over the presentation from earlier look over the extra details at the end of this article.
Pricing your software as a service (SaaS) can be hard enough in the good of times, but figuring out how to dial in the appropriate pricing that will generate higher revenue during times of stagflation can be even difficult.
This article gives tips for making the most of pricing and packaging for your SaaS services in a weak economy:
- What is Stagflation?
- Utilizing your pricing model to combat Stagflation.
- Optimizing your SaaS Pricing Strategies for New MRR in comparison to. net revenue retention.
- Test creative SaaS pricing models to unlock revenues.
- Inflation isn't flat: Vary your strategy.
- How can help.
What is Stagflation?
In simple terms, stagflation is the economic state that is affected by three major variables:
- The economy is slowing down.
- The inflation rate is very high.
- The unemployment rate is high.
This means there's more pressure than ever on:
- Prospects' wallets are the ones you'd like to impress.
- Customers' wallets would you like to see upgraded.
This is why taking a close look at your SaaS pricing model becomes crucial in order 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 by yourself if you were to raise your prices.
Over a third of 's SaaS software, software or digital goods clients increased prices in the last year.
It is interesting to note that SaaS businesses tend to increase rates that are higher than the rate of inflation.
Pulling this lever -- no surprise, it generally helps to boost revenue, even although it's a tricky move to make in a time when customers aren't having as much funds to invest in a stagflation economy.
But reconsidering pricing and packaging is 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 options you can pull to try to increase revenue when markets are tight besides increasing your pricing.
Increased acquisition, increasing conversion rates and decreasing turnover are some of the possibilities.
All of those options take a lot of effort in terms of energy and time in order to put them into practice.
If you take into consideration the effort and resources that need to be invested in 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 be a slow and potentially overwhelming process as illustrated through large and medium-sized T-shirts.
Every one of the large and medium t-shirts represents how much work, time, and money. the process requires to establish PLG and efforts to improve customer satisfaction in a way that will boost customer acquisition while reducing churn.
However, changing the price of a product requires minimal effort and can be accomplished very swiftly, as is evident by the small t-shirt above.
As 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 simplest, most straightforward option to do when you are in a position to grow its revenue fast.
Optimizing your SaaS Pricing Strategy for the New MRR as compared to. Net Revenue Retention The Needle of Growth
As you consider implementing various pricing strategies, another factor to keep in mind is whether you wish to maximize for an entirely new MRR as well as net revenue retention -- or both.
Then there's"the "growth mustache."
The grow mustache is a sideways bracket that my former CFO frequently referred to. (I added the "mustache" designation, as it does look like a mustache to me.)
Growth is driven by an increase in monthly recurring revenue (MRR) and new customers joining and Net Revenue Retention (NRR), or the amount of your existing customers' ARR or MRR you're retaining or increasing.
In the event that your NRR is over 100%, that's an increase in your profit However, this is also an increase of your valuation.
In general, you can leverage your operational capabilities by varying pricing and packaging However, it's also important to know that the environment in which your customers might have less entering the system and more being expended. What you do with 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.
Try a New Pricing Model for SaaS that is Creative Combinations to Unlock Revenue
Once you've decided that switching pricing plans is the best option There are numerous ways you can experiment. Pricing per feature, plans that pay as you go as well as freemium pricing models. flat-rate pricing, the usage-based pricing and per-user plans -- which one is the best for your SaaS business?
Below are some options to consider, to begin with:
- SKUs:
- Platform tiered plans
- Product(s) tiered plans
- Persona tiered plans
- Add-ons that are only single
- Bundles of add-ons
- Entitlements:
- Features
- Usage
- Support
- Pricing:
- Price
- Recurrence
- Geography
- Method of payment
- Discounts
- Free trial
Check out those possibilities for methods to increase your leverage in operations.
In some cases, this means formulating a buyer persona-based pricing plan that has an average of slightly more revenues per customer (ARPU).
If you're not, it's the addition of a new component that lets them increase prices.
In the case of some this could mean a switch to a flat-rate price system or a user-based pricing model to a more dynamic model that is based on features or on usage.
Track the Effects of Any changes to your SaaS Pricing Plan
For example, if customers' base decreases small amount when you rise in the price and the remaining customers are able to pay a greater price and generating more revenue overall, some businesses might appreciate the new price point.
But know which changes can be beneficial to your company strategy. A well-established SaaS business may have very different priorities from one a start-up is.
Success is spelled with 3 S's
When we think about pricing and packaging, we think of combining the potential to generate more revenue with our ability to invent something completely new.
Consider the innovation curve that we create and it becomes more popular but then it slows down. It's not difficult to get caught in the thinking that the only way to create a new revenue stream is to design a completely totally new product.
It is possible to separate that thought and think about how new revenue S curves are developed by altering the packages, plans as well as add-ons simply by offering users new ways to purchase from your company and utilize your platform.
If we take into consideration a usage metric based on a value measure that is over-aged, those new plans and add-ons themselves can increase ARPU over time.
SaaS Prices and Packaging Additional Add-ons
These add-ons can be a way to increasing average revenue per user for both existing and new customers on an income-based budget because they have the option of choosing what to purchase from you instead of paying, say, flat-rate pricing for a larger package, which includes a number of features that they do not need or don't need.
For example, are there existing entitlements you can offer as an add-on without needing to do any engineering effort? Could one of those functions be separated to create the new SKU but without having to create 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 of them.
These add-ons carry a high risksince they may 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 reduce the possibility, you must carefully evaluate your upgrade and downgrade rates before you make changes to your add-on and packages products.
In addition, you may wait to pitch add-ons up to after users have signed up for your core product. After they've used your product and like the experience -- and the additional purchases they make 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 the lower cost, and then it helps you increase your MRR and ARPU with those upsells.
And a lower initial price point can also aid you in gaining an edge when going after market share- especially if you can lower prices of competitors by a bit.
The creation of a new pricing level to Drive the Average Price Per User (ARPU)
Is it possible that the ARPU boosting tier you require is available in your current plans?
As an example, if you're using a tiered pricing model that offers the options of $25, $150, or $300 choices, perhaps the right pricing tier to generate more sales lies somewhere in the middle and around 75 dollars.
Segmenting SaaS Plans can help you understand the Benefits of Your Product and increase ARPU
Another option is to divide your packaging based on very individual customer demands.
For example, WP Engine is a managed WordPress platform which handles many different websites however they noticed an opportunity to target WooCommerce customers specifically, and therefore they developed a product specifically targeted at that group.
It allowed them to focus on their customers' requirements within this one segment to draw their attention and gain additional sign-ups. Over time, WP Engine was able to provide more value to those customers and increase the revenue of WP Engine.
Payment Frequency Increases Leverage
An annualized pricing option gives customers the advantage of discounts by having to pay for a year up front and also provides you the benefit of reducing the churn rate and increasing the customer's overall lifetime value, or LTV.
In order to further benefit from this approach, you can provide more aggressive annual pricing discounts to new subscribers, or for those subscribers willing to move from monthly payments to annual charges.
The introduction of a price period may aid in the adoption process for customers.
TIP: If you're offering an Enterprise plan and the cost starts to appear a little more expensive when paid for annually and you want to keep that cost below $5000. Many procurement departments have a policy of requiring staff members to be approved to make purchases greater than that, so when you keep costs below that threshold, it's easier for users to easily make that purchase using a credit card without having to go through the internal hurdles in their own organizations. This can vary and isn't any kind of rule but it's an excellent idea to test.
It's not flat: Adjust Your Strategy
When you think about altering the way you manage your SaaS firm's pricing strategies, potential customers' willingness to pay isn't the only factor to consider. Inflation rates can fluctuate wildly in a relatively short amount of time, and that variation can be further varied throughout the world or in each region.
The financial headwinds that relate to different regions can indicate that localization becomes more important in the event that you are offering your saas product globally.
Remove Unnecessary Purchasing Friction With Localization
Localization typically involves multiple aspects which include, but not be the least:
- Accepting the preferred payments for the region you're selling into.
- The localization of the price.
- The currency is localized.
Each of those comes with its own additional benefit not just for customers, as well as for profit margins too.
Pricing for localization converts to 2 times for B2C SaaS businesses. Just make sure you have a good justification for the different prices in diverse regions or countries, should a prospective customer manages to see several prices.
Local currencies are much easier to obtain approval for and customers in your target market to grasp. When new customers see your SaaS charges in the one they are familiar with, it makes it that easy for them to purchase without the friction of the conversion process before making a decision.
What Can Help
The information in the above piece was just presented by David Vogelpohl in a webinar presented by Cumul.io. You can view the presentation's original on the YouTube channel.
More articles about SaaS fees and pricing you might find interesting:
