As a SaaS company, it’s easy to make mistakes when it comes to pricing. Whether it’s offering too many options, basing your price on something you shouldn’t or not being upfront about your price, there are a range of missteps that can hinder success. But if you can avoid these common pitfalls, improving your price optimization by just 1% can boost your operating profits by 11.1%.
So, what mistakes are some of the most common for SaaS companies?
Traditionally, one-time software sales focused on covering large upfront and marginal costs and then adding in a profit margin, also known as “cost-plus” pricing. But SaaS is a different way of delivering value to customers and your price needs to take that into consideration. Prices for SaaS shouldn’t be based on the raw costs of developing your service but rather on what potential customers perceive as your ongoing value.
Similarly, competitors may offer insight on where to start but your price should really be based on the value that your customers think your specific service is worth. No two products are exactly the same and you’ll likely miss out on revenue because people would have been willing to pay more for the unique features on your platform. Or maybe your product is more streamlined and will appeal to more users at a lower price. Either way, don’t just copy your competitors’ prices!
The amount people are willing to spend varies from person to person. You can capture more customers, and thereby more revenue, by offering different plans with different bundles of features.
For example, SalesForce uses a tiered pricing structure based on the number of features in a package, which allows customers to sign up initially at a lower tier and then encourages them to upgrade over time as they become more and more reliant on the service.
While customers like options, too many can also be counter-productive. Many offer too many different plans and a plethora of add-on features, which over-complicates your check-out process and is a sure way to make potential customers feel overwhelmed and bounce. Most limit themselves to just three different plans but the optimal number really depends on your particular service and target market.
The SaaS market is highly competitive and constantly changing so your pricing needs to evolve too. This requires continually testing and retesting your pricing strategy to make sure that it is optimized. The most successful SaaS companies revisit their pricing every 6 to 9 months.
Again, SaaS is highly competitive so not being upfront about your price can cause a great deal of anxiety for potential customers and cause them to walk away. It’s critical to have your price structure clearly and transparently displayed along with the value provided at each price point you offer.
There are a lot of factors that go into pricing. But avoiding some of these common pitfalls can go a long way towards effectively growing your customer base and giving you more time to focus on developing a great SaaS product that then keeps customers subscribed.