SaaS companies have finally woken up to the importance of pricing. Nearly two-in-three SaaS businesses we surveyed changed their pricing in 2017, according to OpenView’s 2018 Expansion SaaS Benchmarks survey. And it wasn’t only small companies that changed their pricing. Even among companies with $20M+ in ARR, more than 60% changed their pricing at some point in the last year.
For companies that changed their pricing, these changes had a substantial positive impact on revenue growth – but the impact was far from consistent. The average pricing change resulted in a 20-25% improvement in ARR. But one-in-four companies reported a 50% or greater improvement just from pricing! On the flip side, one-in-six saw less than a 10% increase.
After personally leading or supporting 40+ pricing engagements over the past 9 years, one thing has become abundantly clear: Successful companies are ones that have devoted significant time and effort to the implementation of pricing changes.
Look, pricing changes are notoriously difficult and even still most people underestimate what’s required. A pricing change is a great leap into the unknown and requires folks to ‘disagree and commit.’ It demands buy-in and cooperation across nearly every department spanning Product, Finance, Marketing, Operations and Sales – something most organizations are pretty bad at as a general rule. And, a pricing change tests a company’s capacity to effectively train and enable their customer-facing teams, which too often is an area of underinvestment.
But it is possible! Let’s take a look at a recent example of a pricing change gone right.
Case Study: Inside Deputy’s Successful Pricing Revamp
Deputy, a Sydney-based workforce management startup (and OpenView portfolio company), recently embarked on a significant pricing change and the results were even better than expected. I had a chance to sit down with Craig Harris, Deputy’s COO and architect of their pricing revamp, to discuss why Deputy changed their pricing and what made the initiative so successful.
But before we get into Deputy’s pricing change, it’s worth noting their somewhat unique, product led go-to-market model. Deputy was founded in 2008 and has 70,000 customers across 70 countries around the world. While Deputy’s core solution works for even extremely large enterprises, its core business is SMB and 100% of business comes in through their website.
“We get a lot of referrals from our customers and so our focus is all about how do we effectively drive our site visitors to a free trial and then convert those free trial customers into paying customers,” Craig explained. Given that go-to-market motion, Deputy historically focused on driving a high level of product utilization and resisted charging for additional features. Any friction or reduced conversion due to pricing would be a non-starter; it could kill the product led, viral loop that Deputy worked so hard to build.
Despite their reluctance to revisit pricing strategy, Deputy’s board challenged them to consider a price increase. Craig noted that “from where they stood, [the Board] could see the additional value we provided over the years…and that was evidenced through strong NPS scores.”
Craig’s first step was to conduct a comprehensive market research program to gauge customers’ views on Deputy’s affordability and to understand how Deputy was priced relative to competition in each core market. The research proved that Deputy was perceived to be cheap relative to the value they were providing. It also showed that customers had an appetite for the addition of annual prepaid plans, something Deputy had previously avoided given their focus on reducing any barriers to new customer growth.
Armed with these insights, Craig and the Deputy leadership team made the decision to both increase prices and introduce an annual prepaid option. Now he had to implement it.
Craig focused on two key aspects of implementation: the rollout strategy and communication plan.
For the rollout, he opted to apply the pricing increase to just new customers at first. That was his way of de-risking the move. But there were still a number of details to work out. For instance, Deputy had to ensure that the annual plan didn’t create a disincentive for a customer to continue to expand their user base, which would hurt expansion revenue. Craig’s solution was to give customers the option to opt in and expand their annual plan to include that incremental number of users or just pay an overage amount each month.
Communication strategy was, arguably, even more important to success, according to Craig. “That starts with having a clear plan of how you’re going to communicate with your customers and prospects,” he said. “But just as important is how you frame this with your employees who are going to be engaging with customers on the sales side, in marketing, and through to CX.”
His advice is to be really clear on why you’re doing this. Explain all of the work that’s been done to add more value to the product and demonstrate that you’re committed to providing a continuous uplift of capabilities in the future. (You can read Craig’s pricing announcement here).
Craig also recommends preparing for any scenario with clear positioning statements and escalation paths. Deputy was lucky that their pricing change went off without a hitch, but wanted to ensure that they were able to respond to any potential concerns that could arise.
The results speak for themselves. Despite raising prices of their monthly plans by 25-33%, Deputy didn’t see a drop off in trials or conversion rates. Meanwhile, annual plans had higher adoption than expected, helping both cash flow and retention rates. All in all, it was a huge success.
Tips for Implementing a Pricing Change
Reflecting on my experience with more than 40 pricing engagements, here are four tips to ensure smooth implementation of a pricing change.
- Designate a clear owner for the initiative. This person doesn’t do everything themselves, but rather quarterbacks the project, owns the roadmap, and keeps each department engaged. The best role is typically a PM and could also be a PMM or Operations Lead.
- Set up weekly, cross functional meetings. The meeting would review the agreed-to plan and results against milestone goals, discuss/resolve any issues, and sort out any necessary adjustments. These must be attended by key people across departments and each person must report on their progress and any impediments. The committee may be repurposed from one that already exists (e.g. Product Committee or Product/GTM Committee) or may have to be created expressly for this purpose.
- Pay special attention to communication, internally and externally. It’s especially important to frame why you’re making these changes and how they benefit customers in the long-term. Ensure that the appropriate teams (Sales, Marketing, CX) are adequately prepared to explain the pricing change and react to different scenarios.
- Track objective metrics/KPIs to de-risk and instill confidence. There’s a lot of anxiety that comes with pricing changes – much of which never comes to fruition. It’s important to find ways to de-risk the pricing changes, whether that’s by testing new pricing before rolling it out fully or launching with new customers before migrating existing ones. Build confidence by keeping track of success stories and the impact of pricing changes on KPIs like win rates, average deal sizes and customer retention.
Have you gone through a successful pricing change? What advice do you have for other SaaS companies? Let us know in the comments, we’d love to hear from you!