With advice from Zapier, HubSpot, Pocket and Chargify

Small improvements to your pricing strategy have a huge impact, on

customer signups, MRR, and the overall growth of your business.

Trouble is, working out how to improve your pricing strategy can

feel seriously complicated: you need to factor in your competitors'

pricing, the perceived value of your solution, the price sensitivity of

your customers...

…and somehow come up with a perfectly optimised price.

Thankfully, big journeys start with small steps.

To help you improve your SaaS pricing strategy, I asked a ton of

founders, CEOs, CMOs, advisers and VCs to share their best pricing

advice, and answer a simple question:

"What is your #1 tip for improving your pricing strategy?"

“A lot of companies choose pricing randomly or by just looking at competitors.

But pricing should be approached with the same thoughtfulness and systematic

thinking that we do for product strategy, business model, and other elements of our

business.

You need to take into account your target audience, economics of your distribution

channel, among other things to come up with a thoughtful hypothesis.”

“Pricing needs to be thought about through a framework that is customer focused. Too many companies

sit in a room and simply guess and check to come to their pricing, which inevitably leads to a significant

amount of money being left on the table.

Instead, your research framework should leverage data collected from your target customers to

“quantify” your buyer personas and understand who they are, what they want, and ultimately how much

they're willing to pay for what they want from your product.

Utilizing this type of customer data prevents you from selling the wrong product to the wrong pricing,

which leaves an enormous amount of cash on the table."

“Experiment. Don't be afraid to try new price points.

You'll learn how the conversion rates change and get a feel for the price

elasticity of your product.

You can always grandfather customers too, to make sure the price

changes don't accidentally upset current happy customers.”

“100% it is to start with the customer!

Understand who you’re selling to, what they need to accomplish (their Required Outcome), how they

need to accomplish that (their Appropriate Experience), and what value they’ll get when they achieve

that Desired Outcome (Required Outcome + Appropriate Experience).

By really getting to know your customers like that, you’ll also start to figure out the core “value metric”

your pricing should be architected around (seats, consumption, etc.), how they need to buy, land and

expand potential within customer segments, etc.

When it comes to pricing, start with your customer; after all, they’re the ones paying you!”

“While there is a ton of research that goes into a pricing strategy, the only true test is how users react. Because of this,

run a test every few months to see what works and what doesn’t. But before you start running tests:

1) A pricing strategy isn’t always about changing your price. It can include adding (or removing) a freemium offer,

changing the duration of a trial, or hiding/killing your lowest priced plan (this plan typically has the highest churn).

2) Before you can do any testing, you need to track and understand your baseline metrics. If you can not recite keys stats

such as conversion rate, churn, average revenue per user/account, lifetime value, etc., then start there before you do

anything!

Keep in mind, not every test will be successful. Sometime it's hard to do work and feel like you failed, but don’t be afraid

to revert back to a previous configuration. Keep testing and you will eventually find experiments that move the needle in

the right direction.”

“1) When deciding your pricing, don't base it on your direct competitors' price: base it on the value you

are providing to your client (in terms of added revenue, or reduced costs, including cost of time).

2) Showing them the profit they are going to make by using your product (we developed an ROI

calculator for this purpose) allows you to use price anchoring to make it easier for them to see that price

as an investment, rather than just a cost.

3) Don't be afraid of choosing a price even if you are not confident about it yet because of a lack of

metrics/data; the price is part of your offering, so the most important thing is to have feedback on that as

soon as possible. You can always change it later and grandfather the early price.”

“My #1 tip for pricing strategy is to treat it as an experiment. Don't kid yourself, your teammates, and your customers, by

thinking you'll discover the perfect pricing strategy just by thinking about it.

Instead, treat it like a product feature. Define what success means, in a really concrete, objective, quantifiable way. What

does a good funnel look like with the right pricing strategy in place?

Then, keep experimenting. Change the pricing strategy often, if needed, until you get the signup, engagement, and

retention metrics you defined above. Yes, experimentation may be a bit more time-consuming than a product feature,

but it's at least as important here as elsewhere.

When experimenting, be good to your existing customers. Always grandfather them into the plan/pricing strategy most

beneficial for them. You're solving for the next millions in revenue, not trying to squeeze out more from the early

supporters.”

“Make sure that you understand that pricing is a marketing exercise. It's about

deciding where your product or service will sit on the value spectrum of

solutions available to your customers.

Be very clear about the value that you deliver to your customers and then align

your pricing with that. There'll always be customers that want it to be

cheap/free and also those who want to pay you much more for you to change

your offering. Don't do either of those things. Know you value, set your price

and stick with it."

“Always have an upsell.

If you have customers who are spending money for your software, then there is always going to be a percentage of them

willing to spend even more in order to have the problem solved more completely or more easily.

Whether it is a higher pricing tier, add-on services, whatever, it is crucial to the success of any SaaS business that you

have a way for customers to spend more money with you. This isn't to suck out every penny from your customers and it

shouldn't be a gimmick where they pay more without getting more. Find ways to give your customers more value and

then charge accordingly.

Not only will this increase your MRR without needing new customers, but an increased CLV makes it much easier to

grow with paid acquisition or even a traditional sales team. The more value you can provide your customers, the more

you can charge your customers, and the more you can profitably spend to acquire more customers."

"Quantifying your buyer personas is integral to a great pricing strategy.

Most SaaS companies now know they’re supposed to use buyer personas to narrow down their customer acquisition

focus. But almost all make these only qualitative, with demographic and personality profile information. This means

these buyer personas aren’t really actionable.

We started to use quantified buyer personas after our friend Patrick Campbell at Price Intelligently showed us how crazy

efficient they are to narrow the focus even further. They boost these customer profiles with actionable data, such as

feature value analysis, willingness to pay, and unit economics.

Once you know what customers want, how much they are willing to pay, and how much they’ll cost to acquire, then your

pricing strategy will start to fall into place."

“The best thing you can do to improve your pricing strategy is experiment, measure and repeat.

Experiment, testing different pricing tiers, raising or lowering your price, or using a different pricing

model. Measure before you make any changes to give yourself a benchmark against which you measure

the results of your experiments. And repeat: aim to review a few times a year, to take into account any

changes you’ve made to your SaaS product that impact the amount of value it’ll bring to your customers,

the change in the market, and your customers' changing needs.

The worst thing you can do is just to set-and-forget your pricing. You need to treat it as a constant work

in progress – your pricing strategy will never be perfect because your competitors, the business

environment and your customers’ requirements change over time.”

“Startup’s pricing strategies should be explicit.

They should decide which strategy to pursue, and align sales, marketing, product and

engineering efforts along those lines.

Madhavan Ramanujam, a pricing expert and partner at Simon-Kucher partners,

recommends polling your executive team to prioritize revenue growth, volume growth,

profit generation, and market share to ensure the company’s pricing strategy is

consistent with the goals of the team.”

“1) When you're small, test massive changes. The smaller you are, the easier it is to test crazy hypotheses

without alienating a ton of existing customers. Want to get started on something now? Go and double

your pricing.

2) When you're big, optimise. With a decent customerbase, even tiny improvements to your pricing

strategy will have sizable returns. Something as simple as reordering your pricing packages, or changing

the last digit of your price, can make a real difference to MRR.

3) Never stop experimenting. There's no such thing as a 'perfect price'. Even if we could optimise price

for a given snapshot of time, your business isn't static, and new customers, features and ideas mean that

your perfect price changes alongside.”

“Here’s my #1 tip for pricing strategy:

Until you have formulated a compelling value proposition, don’t try to

develop a pricing strategy.

Unless a customer can see some value in your solution, they probably won’t

buy it. No matter how well-crafted your pricing strategy, if it’s not in sync with

your value proposition, you’ll end up with lipstick on a pig.”

“For us the key to pricing has been A/B testing to measure Conversion Rates and Churn Rates at different price

points.

We've learned that there is a range of price insensitivity (where we can reduce prices but not grow faster) so we

want to be at the top end of that range, as well as low entry pricing (where we get lots more subscribers, but

they tend also to churn faster, which ultimately doesn't help us grow faster). There's a price point at which

people will say "Sure let's try this, its not much money to commit." But then they are more likely to churn.

We aim to attract users who value the service, and invest in giving REALLY great customer service and helping

them be really successful with our service. Because our long term growth depends on attracting customers that

retain. So that means our Pricing Strategy has to be aligned with our User Onboarding strategy.”

“For SaaS products, the #1 tip for improving your pricing strategy is to understand the different customer

cohorts your product has, and then to offer tiers that allow the customer to self-select into the appropriate

offering.

This strategy allows you to provide not only the most value to your customers, but also increase your overall

revenue by minimizing money you might otherwise be leaving on the table.

You can further optimizing your tiered approach through trials -- but pay attention to the cost for the additional

offerings. If the extra support costs aren't recouped, you may be better off looking at ways to increase your price

& grandfathering in your existing customers for an appropriate amount of time.”

“Most SaaS companies fail to invest enough into their pricing strategy. A study done by the Harvard Business

Review demonstrated that a 1% improvement in price results in a 11.1% increase in operating profit. So the ROI

is there!

My biggest tip for improving your pricing strategy is therefore simple: prioritise it.

Treat your pricing as a core part of your growth strategy. Agree to commit a certain level of time to your pricing

strategy every month. Set-up a monthly meeting purely to discuss pricing, pricing tests, and new ideas.

Just by giving pricing the priority it deserves, you'll see tremendous results, and fast.”

Sign-up to our free 5-week SaaS pricing course, and receive actionable advice and tailor-made tools to reduce churn and grow your revenue:

https://www.cobloom.com/saas-pricing-course