Whether you’ve owned, managed, or worked for a SaaS start-up you’ll know there are some decisions that are easy to take. These are the no-brainers that are determined within seconds. As far as you can tell there are no downsides from going full-steam ahead at the instant push of a button.
And then there are those tough decisions.
Tough decisions are those which you agonise over for hours, sometimes days. Your reasoning, or rather your inertia – that rabbit caught in the headlights – is that things are running pretty well right now. What will happen if we do xyz? It’s the fear of upsetting the status-quo. Personally I think status-quo for a start-up is lazy, and a killer.
In my experience at least, one of the most difficult decisions is around raising prices; or making changes to the features or levels of functionality available in your paid plans – sometimes at the same time! You worry, quite naturally, about what the customers will think. Will we see a huge spike in churn? Will our “new” paid-plan no longer seem attractive? That triple-whammy of increased churn, killing conversion and lower MMR in one fell swoop. Tumble weed time!
This isn’t just a start-up problem. Whether you’re a mom-and-pop shop, or a mythical unicorn pricing is hard to get right. Netflix have recently announced they’re putting up prices for users in the US and Latin America to fund original content, and within our sector, Pingdom have increased prices to….. Well perhaps they can explain. But that’s not the point.
Here’s my reasoning why putting your prices up shouldn’t be a difficult decision. In fact it should, if you do it right (and properly, with reasoning behind it) be one of those no-brainers.
I will show you how I believe in putting up prices you can not only increase revenues from new customers, but make your existing customers and advocates more loyal than ever.
Whatever you do though, do not prices up blindly. As long as you have good reasons, justifications (think of this as customer transparency) and you communicate, communicate, communicate – then there is no reason why this shouldn’t work provided certain steps are taken to protect your customers. More on that in a bit.
So why put prices up?
Quite simply your underlying costs may have increased. If you can’t reduce your own costs elsewhere within your business (for instance move to cheaper offices, look to renegotiate supplier agreements in your supply chain) then either prices go up or you start losing money on each customer. Do customers buy into this reasoning? Absolutely. They want to use companies that are going to be here in several years to come; particularly where they’re paying a year in advance (or more at Enterprise level).
When you first launched your product you may have kept prices artificially low to try and lure in as many customers as possible. In the longer term this may be unsustainable (particularly in terms of managing CS), and also your pricing may no longer reflect how your product has grown from that initial offering, the MVP, to the fully blown market-leading product it is today. Never undervalue your product!
Remember if you currently sell your lowest priced plan for $5, by doubling the price to $10 you only need to find half the amount of customers to bring in the same revenue. Given that for most start-ups two of the biggest challenges are bringing traffic to your site and converting it, and secondly managing customer service, a price increase (handled correctly) can be a silver-bullet to help solve both issues. In this scenario if your conversion rate stays the same (often you’ll find that your conversion rate actually goes up with your prices!) you’ll bring in double the amount of revenue for half the amount of customers that might need to call upon customer services.
At StatusCake we have, since launch, put up our prices once and on another occasion abolished one of our paid plan tiers altogether. But after a long of agonising and heart-searching I believe we got it right both times.
At the heart of everything you do should be treating the customer fairly. Offer transparency and good lines of communication.
We all know, being consumers ourselves, that when you sign-up for something you sign-up at the price on that particular day. It’s the price you’re comfortable with – where you feel it offers you value. Do you still feel the product would offer you value if it was 10%, 25%, or 100% more?
We, at StatusCake believe the same – we try and think like a customer.
We, as a minimum, “Grandfather” existing user accounts. We promise that you’ll never pay more money than the price at which you signed-up at (for the lifetime of your account), and we’ll never take features or functionality away from you. You’ll never be worse off or pay more by simply staying with us. Any other approach is, in our minds at least, unacceptable. Even giving customers a grace period before charging them a higher price is putting a gun to their heads, albeit saying we’ll pull the trigger in x weeks, y months time. It’s like saying don’t worry about paying up and leaving now, I’ll give you a few weeks to find somewhere else. How generous am I?!
It’s important though, even if you’re doing all the right things for the customer – grandfathering them in or more – that you nevertheless still tell them why you’re making changes. Customers are the heart of what you do, we do, so tell them. It’s not change for the sake of change (or pure greed!). We did this both when increasing prices in November 2013, but also when we abolished our “Basic” plan in November 2014. For those of you wondering, we don’t have any plans for next month, November 2015!
When we abolished our “Basic” plan we upgraded all those existing “Basic” users free of charge onto our Superior Plan.
Firstly, morally, we believe it’s wrong to ask a customer to pay more for the same product. Or force them to pay extra for levels of access or functionality they may have no use for. Quite simply it goes against what we feel is fair, right and proper.
And for any SaaS start-up think of the bigger picture. A year or two down the track those users who were upgraded to our Superior plan free of charge will be a very small percentage of our overall user-base. And actually, why shouldn’t they be rewarded for signing up in our early days – being our advocates, giving us that leg-up that helped get us on our way.
I still see every month many of those “Basic” users renewing. And rather than being irritated at how much more we could be “wringing out of them” I actually draw comfort from the fact that they’re still with us some 3 years later. And here’s why. Because whether you’re paying $1, $100 or $10,000 per month it’s not all about the money – even at Enterprise level. Customers stay with you, even those Grandfathered accounts, because you’re getting something right. And our earliest users I think are those who when they feel we’ve grown corporate, or don’t care about them – they’ll be the first, not the last to go. That’s why I want to keep seeing them hang around for many months and years to come!
James Barnes, Co-Founder StatusCake.com
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