Futrli's guide to developing effective SaaS pricing models

Why should you consider changing your SaaS pricing?

Having a solid pricing structure is key in managing a successful business. Your pricing strategy is informed by a multitude of factors, ranging from sales and marketing to customer support and product design. Because of its multifactorial nature, pricing cannot remain still. It is a living, breathing thing that needs adapting continuously.

What are the benefits of tweaking your pricing model regularly?

Not being proactive about SaaS pricing models means that your company might miss out on substantial revenues. A study undertaking by Fortune 500 companies showed that a 5% increase in price leads to a 22% boost in operating profits. Constantly reviewing and adapting your pricing strategies is one of the most effective ways for SaaS companies to improve their bottom line. An increase in pricing has helped many SaaS companies attract customers that are willing to pay what your product is worth - which shows they are more serious about it. Having customers value your product more can help establish a more sustainable business model.

When to review and update SaaS pricing strategies?

See below for a list of indicators showing you to climb up the latter of pricing tiers:

1. If your customers are not putting in the work to try and get discounts, you should review what customers pay and consider adjusting your pricing model
2. If you have not updated your business price points in years – it is recommended that SaaS companies review and adjust update their pricing every year, if not more frequently
3. If your customers and target market feedback that they are getting a “great deal”, it may be an indication that you haven’t settled on a SaaS business model pricing strategy that accurately captures the value you’re providing
4. If you have added new features and improved your product or service, it is high time you review a product-based pricing model to receive the return on that investment
5. If your product or services provide excellent value to your customers, you should ensure your value-based pricing reflects what they receive

How to adjust your (per user) pricing model

1. Confirm this is the best course of action: If you are going to ask a customer base and target market to go into the next stage of your SaaS pricing strategy with you, you should have a good reason to do so. It might be worth considering other changes you could make, eg adjusting your pricing metrics, before settling on repricing.
2. Work out how big the increase should be: This step largely consists of market research and impact analysis (showing how your current customers are going to be affected). You should then review all your options with a customer advisory panel.
3. Develop a strategy for your existing customers: For some older customers of your SaaS company, an increase in price could be significant. It may be advisable to consider alternative strategies like grandfathering, tiered pricing, usage-based pricing, or stair-step pricing, allowing older customers to move up to your new rates gradually.
4. Communicate the change in your SaaS pricing model: A price increase will always be difficult to swallow for some customers. Take their concerns seriously - ensure that you’ve got a script/response ready for any complaints. It is key that customers understand why you’ve decided to raise prices. If you can communicate this effectively, protests are likely to be minimal.