We've thought a lot about our pricing strategy for our Saas Startup. Pricing is such an important topic. Price to low in SaaS and you can't give the kind of service that customers need, or you leave money on the table. Price too high and you you'll put your product out of reach for a large market segment. Its a delicate balancing act, that needs constant testing, communication with users and customers. And for SaaS you also need to factor in the costs and results of User Onboarding.
There's a fourth angle to consider, which is that your pricing strategy also impacts your ability to afford customer acquisition channels. (The more you can charge, the more you can afford to pay to acquire each new customer.)
TL;DR We've Tested different Pricing for our SaaS Startup and here's what we've learned (so far). For us the key to pricing has been AB testing to measure Conversion Rates and Churn Rates at different price points.
Our SaaS Pricing Strategy: Test Price Points for Impact on Subscription, Churn and Onboarding
For us the key too pricing has been AB testing to measure Conversion Rates and Churn Rates at different price points. We've also been heavily focused on user onboarding - both to help customer be successful with our product, as well as to continually learn customer needs and get first hand feedback.
Ultimately we've learned that the only way to find out what works is to measure these three things:
CONVERSION RATE FOR DIFFERENT PRICE POINTS: We've measured the conversion rate different Price Points. That's not just Signup for a Free Trail, but to actual conversion to a monthly subscription.
CHURN RATE FOR DIFFERENT PRICE POINTS: Similarly we've measured the Churn Rate at different Price Points. We wanted to learn about the level of customer commitment, i.e. does a higher price encourage commitment?
IMPACT OF USER ONBOARDING: For us, working personally with new users to help them be successful and get the best from our SaaS product has always been a core strategy. But what was the cost impact of onboarding for lower paying customers?
Insights of our SaaS Pricing Strategy (so far)
HIGH PRICE TESTS: 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.
LOW PRICE TESTS: We also tested 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.
Pricing Strategy for our Ideal SaaS Customer
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. I've written in more depth about our onboarding strategy here and you'll see that we've put a lot of effort into helping 1-on-1 as much as possible - which has paid off really well.
"AB Test Prices and Align Pricing Strategy with your User Onboarding Strategy"
Ultimately the balance is a continual process and one we'll keep working on.
UPDATE: Low Price Point Upgrades
UPDATE: We've recently noticed a trend that clients we subscribed at a low price point, who (a) did NOT need a lot of User Onboarding (more self service type users) and (b) have valued our service so much they upgraded to a higher price plan. That's opening up a new line of thinking on our pricing strategy: offering a "low entry price/ low onboarding cost" tier, where we'd basically filter out users who subscribe to a lower entry plan, let those users mature over a period of time (we're noticing this trend with users that have subscribed for over a year) until they have really convinced themselves (or their boss, or their client) of the value, and then devise an upgrade strategy.
If I'm honest, that's something we've always shied away from - because we WANT to be able to engage with customers, and we've always used the price point validation as a way to be sure we're getting valuable feedback from real longterm customers.
I'm curious how you've approached your own SaaS Pricing Strategy? Please share what tips have you learned in the comments below. (In particular, your thoughts around low entry price and low onboarding effort, and then ugrading those accounts.)