Pricing iterations - when should you do it and how?
Step-by-step Frameworks from Pricing Leaders on iterating your pricing models.
Let me start with a stat - In Q1 of 2023, only a measly 2.3% B2B SaaS companies(with a public pricing page) made any change on their pricing. And I'm not talking about the monetary price changes alone. I'm talking marketing copy changes, changes in packages or bundling - just any tiny change in their pricing page at all.
Now, you might be wondering, "What's the big deal?"
Well, with the tech downturn and the freezing of buyers’ budgets, focussing only on acquisition, just won’t cut it anymore. Open up Linkedin and you'll see "do more with less" plastered everywhere(maybe not as much as ChatGPT, but it’s close for sure). Gone are the days where growth was mainly about cranking up that ad spend.Despite seeing your numerous ads, the reality is that your (very interested) buyer won't buy your product if they don't have the budget to buy more software.
Now, here's where it gets interesting. Did you know that your pricing growth lever is actually 7.5 times more powerful for driving growth compared to acquisition? And that's a big deal! The time is here for you to start paying closer attention to your pricing strategy.
But when should you focus on iterating your pricing?
And most importantly, how do you go about doing that?
In this edition of the newsletter, we go deep into these 2 questions. We’ll see how others have done it and provide you with a handy framework to apply to your own products.
Why aren't price changes as common as we might expect?
According to Ajit Ghuman(Head of Pricing at Twilio and author of Price To Scale), it's due to a variety of factors,
A lack of understanding about how to approach pricing changes. It can be a daunting task, and many companies simply don't know where to begin.
Nobody wants to rock the boat and risk driving away valuable customers by tweaking the prices. It's a delicate balancing act between maximizing revenue and maintaining customer loyalty.
No dedicated pricing owner within organizations. Without someone taking charge and championing the cause, pricing tends to fall by the wayside, remaining stagnant and untouched.
Pricing changes can be time-consuming and costly. “This is at least a year long project if you're overhauling your pricing” says Ajit. Natalie Louie from Zuora and Oracle echoes this sentiment, stating, "That's the hard thing with pricing. You can come up with all these great ideas, but it gets hard to actually build and implement them."
Now, here comes a shameless plug (we can't resist!)—this is precisely where Togai comes to the rescue. With Togai, you can make pricing changes and launch any pricing model without engineering effort, 10x faster.
Anyway, let’s get back to the article.
So When Should You Invest in Price Optimization?
This begs the question, “should I invest in optimizing my pricing now?”
John Kotowski(Founder of Buyerson Inc - a pricing consulting agency and PricingSaaS) has an excellent framework for how he looks at pricing iterations.
He says that every quarter, orgs should take a look at their product and see what they can do to improve revenue. “What's the one feature that will help us generate more MRR?" is the question one should be asking.
He recommends taking a look at your pricing and packaging to ensure you're not giving away valuable features for free, especially new ones. Consider segmenting your customers or bundling things differently to maximize your pricing potential.
Here's exactly what he told us:
Something I did at Format, because I owned revenue at Format was, Every quarter I was like, what's the one feature that will help us generate more MRR. And I would literally say, okay, here's when the new feature is coming out and here's who it's for. Here's the segment which maps to this plan. And here's how we're going to price it. But I'm not seeing this across, most SaaS companies right now. I did that at three different companies and it worked very well for me as somebody who led product.
-John
Additionally, there are two other scenarios when companies should consider investing in price optimization and experimentation.
The first is when external circumstances change, such as the economy turning and causing a significant decrease in revenue. You know, like now.
The second is when customers hint at specific use cases directly or indirectly.
You can look for signals. So one, if you have a product in market and you're selling it for, some price so you've already launched, you can look for signals such as low churn rate. If your turn rate is 1,2, 3%, if it's really low, that means you have a sticky product. So , there's an opportunity to raise prices.The other signal - if your customers are giving you feedback either through NPS surveys or , on the sales calls, oh, this is a really good value, or this is , really affordable. That's another clear signal that you're underpricing. So that's sort of the easiest thing you can do is look for signals where again, there's an opportunity to raise prices.
- John
I cannot name this company. I was on a sales call with the company. Where the customers were saying "we actually use different parts of your product for different things. And so you are losing money on the table because of your current pricing Mr.Vendor". So the customer is saying "you're giving too much away. There is a whole supply chain of work and I'm only paying at the end, but I want to use this and this and this. And so how do I do that?" So many times customers hint at all of the use cases that you're solving for or how to sell. Like maybe they want just one use case and they don't want the other, and you realize, oh, I didn't do enough bundling of my product. My product is a monolith. So monolith products can have that issue where you have more money that you can get, but you're not allowing people to segment themselves
-Ajit
Now, onto another critical question!
How exactly do you go about implementing a price change?
Well, instead of bombarding you with a lengthy quote, I've got something even better for you—a concise 4-minute video. In this video, John outlines a step-by-step framework that provides clear guidance on how to optimize and increase your prices.
Well, that's the end of the guide. But before we end the newsletter, I would like to share some exciting news from our end.
Togai's integrations
In other news, I am PUMPED to announce that we're introducing integrations! We've spoken with 100+ companies and we've clearly seen that pricing (especially the internal workflows) looks different in every company. Most of these are manual, clunky and error prone processes leading to hours of manual effort, billing errors and angry customers.
This is why we decided to build integrations. We actually went one step ahead to build a marketplace which means that you'll be able to create automated workflows on your own but that's coming soon.
Today, we have tight two way native integrations with Zuora, Stripe, Zohobooks and Razorpay!
This means you can automate all your internal workflows and not just save time but also ensure that there are no more billing disputes.
I hope you found this guide was useful. Just remember that pricing is not a set and forget exercise. It’s a powerful lever that you can use to maximise not just revenue but also margins and profits.