What’s the most important aspect of your business? Is it the Product…the Team…the Market?
Often overlooked and usually an arbitrary “feels-good” number, Pricing belongs right up there with those other three business model pillars.
You Won’t Hit the $1,000,000 Milestone At $10/mo
To achieve the $1MM ARR startup milestone it’ll take you 8,333 customers at $10/mo…which you won’t hit until December…AND only if you have all those customers starting Jan 1 and none of them cancel.
Let’s say you charged $150/mo annually and even offered a free month. Now you only need to find 600 customers…over the course of the whole year!
And if you charged $1000/mo…you get the idea.
BUT! you wisely contend, $10 and $150 price points are like apples and oranges. A customer who is willing to pay $150 is much different, much harder to find than one who’ll pay $10.
And right you are, which is precisely the point. This is why price testing is so important – to optimize, maximize, perfect the balance between what you charge and the “perceived” value your customers get in return.
10 Quick & Dirty SaaS Pricing Hacks
So to help fine tune your pricing here are 10 pricing strategies that’ve worked for other SaaS businesses. These are all small, testable changes, often requiring little dev work, that you can try today:
1. Charge More
Charging more is rule #1 on this list for a reason. The most common mistake SaaS startups make is charging too little, afraid they’ll scare away potential customers. You cannot build a business off of $9/mo (ok, you can, but it’s so difficult we’ll pretend this isn’t even an option).
The answer? Figure out the value your customers get from your product and align the pricing to that. Bidsketch has one of the best examples of a successful price increase.
2. Add or Remove Pricing Tiers (Tier Tip #1)
A simple rule of thumb – keep a 1:1 ratio between the number of tiers you have and the number of customer profiles you have. No more, no less.
Avoid making the mistake Dyn has, but offering too many tiers, which forces the customer to select the their tier instead of you leading them toward the desired tier.
Consider whether you need to add, or remove, price tiers.
3. Add a Decoy Tier (Tier Tip #2)
Dan Ariely, author and professor, has a fascinating study where he offered the following Economist subscription options to 100 MIT students:
He found that 84% of students chose the last option – the Print & Web subscription. He then removed the Print only option and ran the same test. Make sense right…why would someone choose the Print only option when they could get the Print + Web for the same price?
The results…32% of students chose the Print & Web subscription. A staggering 52% fewer students choose the top tier subscription option without the Print only offering displayed.
What happened? The Print only chose is never supposed to be selected, but is instead listed as a “decoy” to influence customers to choose the Print & Web subscription.
Read more about Dan’s fascinating work in his book, Predictably Irrational, and consider whether you can benefit from adding a decoy tier.
4. Change Your Tier Names (Tier Tip #3)
Patrick McKenzie (patio11) sums up tier naming perfectly:
The simple best reason to avoid fanciful names for pricing plans, or anonymous pricing plans, is that customers *will up-sell themselves* if the name for the plan which best fits their objective needs does not match their self-conception of their business.
Consider renaming your tiers to let them do the upselling work for you.
5. End Prices with a “9”
You see this everywhere, every day. Whether something is $0.99 cents or $999, prices ending in a “9” outperform in study after study.
Another trick? Leave off the cents and stick to big, simple numbers. Check out these two examples from Vero and consider ending all your prices in $9 increments:
6. Add an Annual Purchase Option
Consider offering an annual option at a discount (e.g. get one month free). Two big benefits come from annual purchases:
- Get cash flow up front – To a young SaaS startup cash is king, so a year’s subscription paid in full now outweighs the discount you give the customer.
- Reduce churn – At Less Meeting, the average length of an annual license is 75% longer than month-to-month licenses, making this much more desirable.
Some bonus tips – make annual licenses your default option, or add a multi-year option to really take advantage of cash flow and churn benefits like Optimizely did.
7. Shorten Your Free Trial
Think about the last thing you bought. Did you try it out before hand? Maybe a lite version…an in store demo product…or even read up on some Amazon reviews? Free trials give customers much-needed confidence in what they’re buying.
However, free trials also tell your customers when to buy.
At Less Meeting we found that purchases usually came in very close to the end of the 30 day trial (70% of the time!).
We then researched usage patterns of purchasers during their trial and further found that the majority of purchasers had fully on-boarded within a couple weeks. They’d vetted Less Meeting within those first couple weeks and simply waited to purchase because they didn’t have to.
We tested shortening the trial to 14 days to increase cash flow and found two key results:
- Total purchases remained unchanged = good!
- Purchases at end of trial didn’t drop dramatically = good!
Consider the complexity of your product and the buying process of your customer to see if a shorter trial can increase cash flow.
8. Display Sale Prices & Savings
Show your current price alongside a bigger number. This strategy is so successful it’s been shown to even beat out prices ending in a ‘9’ (see Hack #5 above).
Remember, this change is purely cosmetic, not requiring any development work, so you can easily test this with a few quick UI updates.
9. Charge More
Got the point yet?
10. Want More Ideas?
Looking for more pricing ideas to try out? Here are 5 extra ways you can improve your pricing:
- Remove your lowest level/freemium plan to segment your product toward businesses with bigger budgets
- Add add-on options within our app to allow VIP customers to maximize their value
- Display a phone number on your pricing page to improve conversions
- Format the preferred pricing tier differently than all the others
- Change the order of your pricing tiers from high to low (or vice versa)
Remember, these are just ideas. Some will work for you and some won’t, which is why it’s important to test out what works for you.
Which of these tests have you tried? What other pricing hacks are out there?