What it might look like to optimize the prices of your B2B SaaS product.
OR: “5 pricing tweaks that could increase your New MRR by over 30% tomorrow.”
Increasing the efficiency of your B2B SaaS marketing hinges on pulling one of four levers: getting more traffic, converting more of that traffic, increasing your ARPU, and decreasing your churn.
The internet is filled with advice on how to optimize three of these. You could spend all month doing nothing but reading about how to get more traffic, how to improve your conversion rate, and how to decrease your churn.
Curiously, you almost never see anything about how to increase the amount your customers pay.
This is especially confusing when the little you do read about improving SaaS pricing describes it as nothing less than transformational.
Intercom, the in-app messaging service, increased their revenue-per-user over 30 percent when they first started testing different pricing structures.
Chargify, the subscription billing company, saved their business by raising their prices. (They also caused a PR disaster when they did it. Oh well. Seven years later, they’re still on top.)
Ruben Gamez, the founder of Bidsketch, saw a greater immediate increase in his revenue from chanign his pricing than he did from getting mentioned in an email FreshBooks sent to a million people.
It’s clear that changes to your pricing can lead to some of the largest increases in your revenue acquisition. So why don’t more companies make a systematic effort to improve their pricing? Why is it actually hard to find people doing it and talking about it?
I think one of the reasons that more companies don’t do optimize their pricing is that they don’t have a clear vision of where to start. It all seems very opaque and complex.
- Would you have to raise prices across the board or only on a single plan?
- Introduce new plans or get rid of existing ones?
- Could you do it without changing your prices at all?
If you don’t know where to start, the normal thing to do is… nothing.
I want to show you what a few simple changes to your pricing might look like, and what they could do to your New MRR.
Let’s start with a basic pricing setup; two plans, $45 and $120 with an 80%-20% split between the two. Imagine something like this:
The first change we could make would be to raise the price of the lowest plan. If we raise it from $45 to $70, while maintaining out conversion rate and signup distribution, our new revenue would increase by 33%.
A similar change we could make would be to raise the price of our most expensive plan, let’s say from $120 to $250. If we again maintained our conversion rate and signup distribution, our new revenue would increase by 43%.
(Note, for this change in pricing to generate no new revenue, we would have to lose 30% of our signups. Do you think you would lose a third of your signups if you did something like this?)
Now, let’s have a little fun. What if we added a high-end $500 a month plan? Something for your best, most well-equipped customers. With an 80%-15%-5% split between plans, our new revenue would increase by 31%.
Do you think you could get one customer in twenty to signup for a high-end plan? I think you probably could.
Moving on, one of the most interesting ways that you can increase your revenue acquisition isn’t by raising your prices (effective as that is) but by changing the ratio of the plans your customers sign up for. This can be done through a number of means, most obviously by changing the distribution of features and the allotments of your “value metric” (number of widgets you offer on each plan).
For this next example, lets’s start with our original two plans and $500 one we just experimented with adding. Shifting our signup distribution, or “mix”, from 80%-15%-5% to 70%-20%-10% would increase our new revenue by 33%.
Let’s look at a more drastic change. What if we took our three plan setup and simply dropped the lowest plan entirely? Just stopped offering it. If we maintained the 3-to-1 signup ratio of the two remaining plans and kept only half of our conversions, our new revenue would increase by 36%.
We would have to lose just over 60% of our conversions for this to be a revenue neutral change. If we only lost 20% of our conversions, our new revenue would more than double.
So, I hope I’ve shown you what optimizing your pricing might look like with these examples.
A lot of people read about price optimization and think that it’s some incredibly advanced and complex process that isn’t for them. It doesn’t have to be though, and often the best place to start something complex is with a small measurable change. Just think, if you implemented one of these changes and saw success, what would that do for your business?
(If you want to explore these types of changes using your own pricing as a starting point, I’ve created a tool you can use to compare the revenue consequences of different pricing setups. You can find it at nicholasmullen.com/b2b-saas-pricing-calculator.)