Changing Your SaaS Pricing Model

Why should you consider changing your SaaS pricing?

Pricing is one of your company’s most powerful tools.

Almost every aspect of the business, from sales and marketing to customer support and product, is designed to reinforce the pricing strategy that you’ve created. As such, your pricing can’t remain immobile – it needs to improve all the time.

But why? What’s the benefit of tweaking your pricing model regularly?

Simple. If you don’t take an active approach to SaaS platform pricing, you may be missing out on substantial revenues. In fact, a study of Fortune 500 companies found that a 5% increase in price leads to a 22% boost in operating profits. In other words, adjusting your prices could be one of the most effective ways to improve your company’s bottom line.

It’s also worth noting that a price increase can help you acquire better customers who are more serious about your product. Because these customers are likely to value your work much more highly than your existing userbase, this can substantially improve your firm’s customer lifetime value (LTV) and help you to build a more sustainable business model.

Bottom line: repricing your product/service can help to spur growth and boost profits.

When should you adjust your SaaS pricing model?

Next question – when is the right time to update your SaaS pricing? There are a couple of crucial indicators that it may be time to raise prices:

• Customers aren’t trying to negotiate – If your customers seem to be happy with your pricing and aren’t even trying to get discounts, it may indicate that you aren’t valuing your service correctly.

• You haven’t adjusted pricing for years – Most SaaS businesses update their pricing every year, if not more frequently. If you haven’t touched pricing for years, or since the launch of your company, it’s likely that you’ve fallen behind the competition and need to catch up by adjusting your prices.

• Customers tell you what a “great deal” they’re getting – This one should be obvious. If your customers are always talking about the great value-for-money that your product provides, it may be an indication that you haven’t settled on a SaaS business model pricing strategy that accurately captures the value you’re providing.

• You’ve added new features without updating pricing – If you haven’t monetised any new features that you’ve added to your service since you launched, then you aren’t receiving any return on that investment. Your customers are receiving a superior product, so they should expect to pay a little extra as well.

• Your product offers significant ROI – Finally, if your work provides excellent value to your customers, then it makes sense that your SaaS platform pricing should reflect the value that they’re receiving.

How to adjust your SaaS platform pricing

If you’ve decided to take another look at your pricing strategy, it’s vital to pay attention to the nitty-gritty before you dive in. Here are some of the critical steps:

1. First off, you should confirm that adjusting your SaaS pricing is the best course of action. Ultimately, you’re asking customers to part with more money, so it’s important that you’ve got a good reason to do so. Consider other potential changes you could make, such as tweaking your pricing metrics, before settling on repricing.

2. Next, it’s time to work out how much to increase your prices. Market research is going to be one of the most time-consuming elements of this step, but you’ll also need to run an impact analysis (detailing how your current customers are going to be affected) and review all your options with a customer advisory panel.

3. Now, you need to work out a strategy for your existing customers. For some of your older customers, changing your SaaS pricing model could mean a steep hike in the amount they’re expected to pay. Think about alternative strategies like grandfathering or stair-step pricing, which allows them to move up to your new rates gradually.

4. Finally, it’s time to communicate with your customers. Honesty and transparency is usually the best policy, but for many customers, any price increase is a difficult pill to swallow. As such, you should make sure that you’ve got a script/response ready for any complaints. Ultimately, customers need to understand why you’ve decided to raise prices. If you can communicate this effectively, protests are likely to be minimal.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.