Prioritize Pricing

A McKinsey study showed that a 1% increase in price translates to an over 11% increase in profit!

It’s absolutely bonkers to me that one of the biggest drivers of growth within emerging SaaS companies is pricing, yet it’s reported companies spend well less than 30 minutes annually on this.

Here are the mistakes I commonly see with pricing and here’s what you should do instead:

1. Obviously, 30 minutes a year focused on pricing strategy isn't going to cut it.? Dedicate a meeting quarterly just on pricing and review the data below.? Bring in team members from various departments, not just the senior leadership team.

2.?Prepare for the meeting by bringing the following data:

a. Closed Lost customers and prospects due to price (no, 0 is not a good thing and it tells you you’re leaving a lot $$ on the table)

b. Average discount amounts:? If this is 20%+, and your ACV is under $100k, fix this before tackling pricing.? $1k bet you’ll find the higher discounted deals = higher churn and less expansion opportunity.

c. Competitive Info:? Do not copy, but it’s important to understand your pricing relative to the market.

d. Most/least popular package/features and how those relate to churn.? Sometimes you’ll discover certain features can help boost retention 10%+.? You’ll obviously want to take that into consideration when updating your pricing to ensure adoption of those features.

3. Identify your value metric.? Far too often SaaS companies follow a license based model because it’s easy and well known.? For some SaaS companies, this might make sense.? But for many, additional licenses are not driving value.? Even worse, your customers might be limiting the # users to save money, actually reducing the potential value of your platform.? This lowers your monthly active users (MAU) and increases gross churn.

Instead, spend time talking to your customers and understand where they see value.? Understand your buyer personas.? Where do your customers see value in your platform?? Once you know this, then you can create packages and expansion plans based on this.

4. Segmentation analysis of your customers.? Are you leaving money on the table because your more complex, enterprise buyers are paying the same as your mid-market?? Or, for your SMBs customers, are you just heavily discounting to get them on board vs creating an offering with reduced functionality to allow them to expand down the road?? Maybe you need to better segment by region or by industry.? The more you understand your customer cohorts and the buying decisions they make the more you can customize your offering to derive the most value from these cohorts.

5. Spend time thinking through how to create the least amount of friction possible to have your customers upgrade.? Far too often there are unnecessary processes and internal procedures that lead to longer expansion cycles and ultimately companies leaving revenue on the table.

Finally, don’t be afraid to experiment.? You will learn the elasticity of your product and certain features quickly from some A/B testing.? You can always make changes again from new data points you collect.? The key here is to understand what data points (churn, % ACV lift, conversion rates, etc) to collect post change to be able to assess the effectiveness of the changes.

The data is telling, start making pricing a priority today.