SaaS pricing and packaging is one of the most overlooked areas to drive new revenue. Especially during times of stagflation, SaaS companies need to find new and innovative ways to grow their revenue. We invited David Vogelpohl, CMO of digital commerce platform FastSpring, to share his years of experience helping subscription businesses grow their revenue.
In this article, we’ll highlight the main SaaS pricing strategies to beat the economic downturn. For more real-life examples, watch the recorded webinar with FastSpring below.
Stagflation is a combination of low growth, high inflation, and high unemployment. Due to stagflation, businesses have less money to spend. Since technology is an obvious area for cost-cutting, stagflation is putting higher pressure on SaaS companies to retain and generate new revenue.
As a result, SaaS companies collectively look for smart ways to generate new revenue. Increasing prices is the obvious lever, which many SaaS companies have done successfully. However, pricing and packaging optimization is one of the most under-optimized levers in SaaS and can have the most leverage for growth during stagflation.
The pricing and packaging of a SaaS product is often an overlooked area for optimization. And yet, it’s a great lever to pull during uncertain economic times for multiple reasons.
So what’s the catch? While pricing may seem like an easy fix, there are a few pitfalls to look out for.
Nonetheless, smart improvements in your pricing and packaging can result in immediate and significant payouts. When you consider changing your SaaS pricing strategy, it’s crucial to start with the low-hanging fruit. Look for items that don’t require much work, but have a significant impact.
Economic recession impacts not only your business, but also your customers’. In today’s environment, your customers may have less money coming in and more going out. Therefore, it’s essential to consider customer engagement to retain strong relationships.
Now more than ever, sales and customer success teams deal with conversations about leniency in payment terms, indexation, or other elements. Being considerate about your customer’s situation, rather than jacking up your prices without notice, will help you maintain a good relationship.
A good SaaS pricing strategy is an essential piece of the revenue puzzle, and has a considerable impact on the growth and success of a SaaS business.
In our joint webinar, FastSpring’s CMO, David Vogelpohl explains a few strategies to optimize your SaaS pricing model. Below, we’ve explained a few concepts that will help you build a better SaaS pricing strategy.
Growth in SaaS is driven by two big sources of revenue.
As David explains, these two sides of revenue form something that looks like a “growth mustache”.
When you adapt your SaaS pricing model, it’s important to understand in advance which of the two areas you’re trying to affect, if not both.
Skip ahead to the webinar to view some specific examples of growth levers that can influence the growth mustache.
A typical SaaS pricing model will be centered around a few metrics that tie immediately to the value your product brings. Typical examples are:
With more and more layoffs, these metrics might decrease. For example, when the number of users using your product drops, you will need other, additional value drivers to make up for any lost revenue.
David uses the example of Google Workspace to show different value metrics like seats and storage.
Add-ons are a great tactic to consider. They add more value for your customers without being tied to a specific plan, and they add more opportunities for revenue growth. Many of our customers at Cumul.io use reporting and analytics as a product add-on to boost their revenue.
Watch the webinar section for more tips on how to use add-ons in your SaaS pricing model.
If your pricing plans are tied to specific new features and products, by default you’ll need to develop new features to develop a new revenue stream.
By making smart combinations in your feature-based plans, you can create new upsell possibilities, decoupled from your innovation roadmap.
Check out the example from Canva on how to create multiple revenue S-curves.
If the price increase from your lowest tier to medium tier is steep, it can be well worth considering a tier in between. As David said about the example below: “The gap between these two pricing plans is so big you can drive a truck through it.” Some customers might be more inclined to upsell from the lower pricing tier as the gap closes, which can increase your average revenue per account (ARPU).
Be mindful of the downsell potential. If many of your customers are in the mid-tier and at risk of downselling to that lower price point, this might not be the best strategy.
Watch David’s example of uncovering a hidden SaaS pricing tier.
If you’re selling into different segments that each have their specific needs, you could experiment with segment-specific pricing. Bundle features that are highly relevant for a specific segment to maximize revenue.
Check out an example of segment pricing.
Playing around with payment frequencies is a well-known tactic in SaaS pricing. You can offer higher discounts on annual licenses to convince new customers who want to save money. But at the same time, you can increase your ARPU with customers who aren’t ready to commit to an annual plan. Especially during economic recession, flexibility in payment options will be greatly appreciated.
Check out how HubSpot uses payment frequency to drive revenue.
The SaaS pricing strategies above are great examples of generating more revenue with the same product. Combine these smart packaging tips with product innovation, and you’ll accelerate your success even faster.
Even without big budgets and with a small team, there are many ways to speed up your product development. For example, using embedded analytics software, you could launch reporting features in less than two months from now. And there are many more examples!
Ready to boost your revenue streams? Get started today!