Categories Articles, SaaS

How can you get someone excited to actually pay more for your Software-as-a-Service product?

It seems impossible, however some companies have managed to pull off this amazing sleight of hand without losing huge numbers of customers.

As a SaaS business, it’s inevitable that at some point you will have to change your pricing structure. With each new stage of growth, your business should reevaluate how much you charge customers. In fact, some SaaS pricing experts insist that you change your pricing as often as every 6 months.

It’s incredibly difficult to spin a price increase as a positive change for existing customers and new business prospects — but it is possible.

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SaaS companies should not be afraid to up the price if their product is truly worth the money. It’s all about creating value, and asking the market to pay exactly what your product is worth.

Here’s how you can turn a price increase into a boon for your company, your customers, and your bottom line.

The Changing Nature of SaaS

Unlike many physical products on the market, SaaS companies are ever-changing and ever-improving. For example, when was the last time that you added a new feature or improved upon an existing element of your product? At most SaaS companies, changes happen weekly or even daily, depending on your engineering team’s development cycles. You’re constantly evaluating your product’s capabilities and changing them according to the market’s demands. When a customer requests a new feature, you often build it into the next version.

If your product has improved so dramatically over time, shouldn’t you now be asking customers to pay more money for it? It’s truly not the same SaaS product that they bought last year — they’re getting much more for the exact same amount of money. Improvement comes at a price. It costs your company time, money, and resources each time you build a new feature. Therefore, it’s vital that you update your prices to reflect the increased value you’re providing to customers.

Communicate with Customers

Your product might be worth more money today, but you can’t just send out an email abruptly announcing a change in price. You have to start engaging with your existing customers long before you ever change the price tag on your software. Send out surveys and ask them if they’d be willing to pay more for specific features or new offerings from your company. Then use that input to begin to shape the changes you’d like to make to your SaaS pricing structure.

Once you’ve done the research and used it to come up with a new price, go back to those same customers. Tell them that this pricing change is coming in advance, and that it’s based on their own feedback. Show them the increased value you’re providing with new features, new offerings, better customer support, and more. Then, offer to let every existing customer lock in their existing price for the next 1 to 2 years — depending on your company’s financial situation. It will tell your customers that they are valued, appreciated, and offers them a discount as a thanks. As an added benefit, they’re now locked into a contract before you even change the price, reducing the risk of churn in the future.

Learn More About Driving Down Churn »

Driving Up Revenue

No matter how well you communicate with customers, some will inevitably churn when the price increases. It may be that they can’t afford the higher price, or they were going to churn anyway. You simply have to let these customers go as a side effect of doing business. What’s even more worrisome to many businesses is that a higher price means a shift in their target market. Missing out on business prospects in the lower-end segment of the market who can no longer afford your services is an unavoidable side effect of a price increase.

However, the fact is, increasing your price is worth losing a few customers and a few sales prospects. In SaaS, Monthly Recurring Revenue is all that matters. If your price per seat or per month is higher, that revenue will compound over time again and again, leading to a huge jump in your overall revenue. Even though you may lose a few customers or prospects today, you will earn more money over time, with less effort and less investment. That is worth every cancelled contract and lost prospect.

So don’t be afraid! Changing your product’s price is scary, but it’s necessary for your business to grow. With steady improvements to your product, the right communications to customers and prospects, and the right strategy, you can increase your price without risking your business’ success.

 

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