Additional SaaS Fees Pricing Strategies to Counteract Stagflation
previously presented on SaaS pricing of fees and packaging for stagflation prevention by 2022. This article is based on the presentation that was updated in March 2023, by David Vogelpohl. For more information or to see the previous 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, but figuring out the best way to set an appropriate price to generate greater revenue when there is stagflation is even difficult.
This article gives tips for improving the pricing and packaging of your SaaS products in a less-than-stellar economic environment:
- What exactly is stagflation?
- Using your pricing model to fight Stagflation.
- Enhancing your SaaS Pricing strategy for the innovative MRR as compared to. net revenue retention.
- Test creative SaaS pricing models to unlock revenues.
- Inflation doesn't have a flat surface Variate your approach.
- What can I do to help.
What exactly is Stagflation?
Simply put, stagflation is an economic condition affected by three key variables:
- The economy is slowing down.
- Inflation is high.
- The unemployment rate is high.
There's more pressure than ever to:
- The wallets of prospects you want to attract.
- Customers' wallets that you'd like to upgrade.
That's why carefully considering your SaaS pricing model becomes crucial if you want to continue expanding your business even in an economic downturn.
Using Your SaaS Pricing Model to Fight Stagflation
It is the simplest solution to increase your price, and you wouldn't be by yourself if you were to raise your prices.
More than a third of SaaS, software, as well as digital products customers increased rates in the past year.
Interestingly, SaaS firms tend to hike rates that are higher than inflation rates.
This lever -- not a surprise, it generally helps to increase revenue, even when it is an uneasy decision to make in a time when customers aren't having as much money for spending in a depressed economy.
Rethinking pricing and package is also one of the least optimized levers of SaaS.
The reason why prices are increasing? Why Not Try Something Else?
There are plenty of other ways you can try to increase revenue when the market is sluggish, apart from increasing the cost of your products.
Increased acquisition, increasing the conversion rate, and decreasing churn are all possible alternatives.
However, all of those alternatives require a significant amount of effort in terms of cross-functional time and energy in order to put them into practice.
If you take into consideration the effort 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 be an unwieldy and overwhelming procedure, as shown by medium and large t-shirts:
Each of those large and medium-sized t-shirts symbolizes the work, time, and money. that are required to put into place PLG and efforts to improve customer satisfaction to increase customer acquisition and decrease the rate of churn.
Changes to pricing for products require minimal effort and are done swiftly, as is evident 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:
If you think about it, changing pricing could be the easiest, simplest option to make when your business needs to boost revenue rapidly.
Optimizing Your SaaS Pricing Strategy for the New MRR as compared to. the Net Revenue Retention The Growing Mustache
As you consider implementing various pricing strategies, another factor to keep in mind is whether you wish to maximize for new MRR, or for net revenue retention -- or both.
And then there's the "growth mustache."
The mustache of growth is a sideways bracket that a former CFO of mine often was referring to. (I also added the "mustache" descriptor, because, well, it looks as if it's a mustache.)
The growth is driven by the an increase in monthly recurring revenue (MRR), or new customers joining as well as Net Revenue Retention (NRR), or how much of your existing customers' ARR or MRR you're keeping or increasing.
If your NRR is over 100%, this is the basis for a multiplier in your earnings, but it's also a multiplier to your valuation.
Generally, there's operational leverage by varying pricing and packaging however, you must also recognize that you're in an environment where the customers could have less entering the system and more leaving. What you do with the price of your products could impact your capacity to acquire new customers, maintain and expand existing ones, or both, so keep this in mind as you make changes.
Explore a new pricing model for SaaS. Combinations to Increase Revenue
If you've determined that switching pricing plans is the way to go There are many ways that you can experiment. 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 one is suitable for your SaaS enterprise?
There are several alternatives to take into consideration, to begin with:
- SKUs:
- Platform tiered plans
- Product(s) tiered plans
- Persona tiered plans
- Single add-ons
- Bundles of add-ons
- Entitlements:
- Features
- Use
- Help
- Pricing:
- Price
- Recurrence
- Geography
- Method of payment
- Discounts
- Free trials
Look within those options for ways you can increase your operational leverage.
In some cases, this means creating a persona-based pricing plan that has an average of slightly more income per customer (ARPU).
In the case of others, this means including a new add-on which allows them to increase the cost.
In the case of some, it may mean switching to a flat-rate price model or user-based pricing towards a more flexible model that is based on features or on usage.
Monitor the effects of any Modifications to Your SaaS Pricing Plan
In this case, for example, if the customer base shrinks a little when there's an increasing price, but the remaining active users are paying a higher cost and earning more in the end, certain businesses may appreciate the new price point.
But know which changes are important to your business model. Established SaaS business may have very different priorities from one a start-up is.
Success is spelled with 3 S's
In most cases, when we think of pricing and packaging, we think of combining the potential to generate more money with the ability to create something new.
Consider the innovation curve that we create and it becomes more popular but then it slows down. It's very easy to be stuck in the belief that the only way to generate a new revenue stream is to design a completely new product entirely.
We can decouple that thinking and start thinking that new income S curves are developed by altering the package, plan, add-ons, and more simply by offering users new ways to purchase from you, and to use your platform.
When we also consider a usage metric based on a value metric with overages, those new plans and add-ons themselves can increase ARPU with time.
SaaS Prices and Packaging Add-Ons
Add-ons offer an easier path to increase the revenue average per user, for both current and potential customers with an income-based budget because they are able to pick and choose what to purchase from you as opposed to spending, for example, flat rate pricing for a larger package with a variety of options they do not want or require.
As an example, are there existing entitlements you can sell as add-ons without having to create any extra engineering work? Could one of those functions be separated to create a new SKU without making a completely new product?
Add-ons come in many varieties So you'll be able to include a variety of add-ons, or create multiple bundles of them.
There is a risk involved -- because they can depress the upgrade MRR in the event that fewer users are upgrading to a larger package. But the addition of add-ons is a potent driver of NRR.
To reduce the danger, be sure to carefully assess the rate of your downgrade and upgrade before you make changes to your packages and add-on services.
In addition, you may delay pitching add-ons until after users have signed up to your main product. After they've used your product and enjoy it -- and after the additional purchases they make are considered to be upsells which helps your net sales retention rates You can pitch them additional features which will further improve the experience they get from using your product.
This allows customers to enter the SaaS product with a lower price point, and then it helps you increase your MRR and ARPU with those additional sales.
And a lower initial price point can also help you gain an advantage to gain market share as wellparticularly if you are able to undercut competitors' pricing just a little.
Creating a New Pricing Tier to Drive Achieving Average Revenue Per User (ARPU)
Is it possible that the ARPU-boosting tier you require is available in your current plans?
For example, if you have a tiered pricing model, with the options of $25, $150, or $300 choices, perhaps the best pricing level for generating more profit can be found somewhere between the three, around $75.
Segmenting SaaS Plans to Clarify the Value of Your Product and Increase ARPU
Another option is to divide your packaging in accordance with individual customer demands.
For example, WP Engine is a managed WordPress platform, which manages various types of websites, however, they recognized an opportunity to market WooCommerce users specifically, therefore they developed a product that targeted just that audience.
This allowed them to highlight the needs of customers in this specific segment to capture their attention and get additional sign-ups. In time, WP Engine was able to increase the value of their product to the users who were using it, which increased the revenue of WP Engine.
Payment Frequency Increases Leverage
A pricing plan that is annualized gives purchasers the benefits of a discount by paying for the entire year upfront and also provides customers the advantage of decreasing the churn rate and increasing a customer's overall lifetime value which is also known as LTV.
To further leverage this strategy, you can provide additional discounts on annual prices on new subscribers as well as customers who wish to move from monthly payments to annual fees.
Pricing for the first period can make adoption easier for users.
Tip If you're providing an Enterprise plan and your price point starts looking somewhat more costly with a monthly payment and you want to keep that cost below $5000. A lot of procurement departments follow a policy of requiring employees to obtain approval on any purchase that is greater than this, and when you keep costs lower than that and make it easier for customers to make a purchase via credit card without jumping through internal hoops at their own companies. This can vary and isn't any kind of rule but it's an excellent idea to test.
Inflation Isn't Flat: Vary Your Strategy
If you are considering making changes to your SaaS firm's pricing strategies and strategy, the willingness of potential customers to pay isn't the only factor to consider. The rate of inflation can change drastically within a short period of time. That fluctuation can also be different throughout the world or in each region.
Financial headwinds as they relate to different geographical areas can suggest the importance of localization when you sell your Saas product globally.
Get rid of unnecessary purchasing friction with the Localization
The term "localization" typically refers to a variety of aspects that include but are not limited to:
- Accepting the preferred payment for the region which you're selling your products into.
- Localizing the pricing.
- The currency is localized.
Each one of them has its own additional benefit not just for buyers, as well as for profit margins as well.
The conversion rate for localizing prices is 2 times for B2C SaaS companies. Make sure that you provide an adequate reason for having various pricing across diverse regions or countries, should a prospective customer manages to see multiple prices.
Local currencies are simpler to be approved for as well as the target market to understand. If new customers can see your SaaS charges in the currency they're used to which makes it simpler for them to shop, removing the purchase friction of maths involved in conversion before they make the decision.
What Can help?
The information in the above piece was just presented by David Vogelpohl in a webinar hosted by Cumul.io. You can view the presentation's original on their YouTube channel.
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