More SaaS Cost Pricing Options to Counteract Stagflation

May 26, 2023

 earlier presented earlier on SaaS charges pricing and packaging in order to fight stagflation by 2022. This article is based on the presentation that was updated in March 2023, by David Vogelpohl. For more information or to view the prior presentation look over the extra details at the end of this post.

Pricing your software as a service (SaaS) can be difficult enough, even in the most favorable of times, but figuring out the best way to set the right pricing to drive greater revenue when there is stagflation is even difficult.

This article provides tips on optimizing pricing and packaging of your SaaS items in a subpar economic environment:

What exactly is Stagflation?

In simple terms, stagflation is the economic state that is affected by three major variables:

  • The economy is slowing down.
  • High inflation.
  • High unemployment.

There's more pressure than ever to:

  • The pockets of the people that you wish to attract.
  • Customers' wallets that you'd like to upgrade.

This is why taking a close look at the SaaS pricing structure is essential for you to keep building your company within a tight economic environment.

Using Your SaaS Pricing Model to Fight Stagflation

It is the simplest solution raising your rates, and you wouldn't be the only one to do this.

Over a third of 's SaaS, software, or digital goods clients increased prices in the last year.

Graphs showing that over a third of  companies raised prices recently.

It is interesting to note that SaaS companies tend to raise rates that are higher than inflation rates.

The pull of this lever -no surprise, it generally helps to increase revenue, even although it's an uneasy decision to make when many customers have less cash for spending in a stagflation economy.

However, rethinking pricing and packaging is one of the least optimized levers of SaaS.

What is the reason for raising prices? Do you really need to do something different?

There are many other levers you could pull to attempt to boost revenue in markets are tight in addition to increasing the price.

Increased acquisition, increasing conversion rates, and reducing churn are all possible options.

But, each of these alternatives require a significant amount of effort of cross-functional time and energy in order to put them into practice.

If you take into consideration the effort and resources that need to be devoted to the process of increasing sales or reducing customer churn with strategies like PLG, or product-led growth (PLG) or increased customer success efforts this can turn into a slow and potentially overwhelming process as illustrated through large and medium-sized t-shirts:

Table with headers Strategy, Acquisition, and Churn, then rows labeled PLG, Customer Success, and Pricing and Packaging. Each cell includes a t-shirt of Small, Medium, or Large.

The large and medium-sized t-shirts symbolizes how much work, time, and money. that are required to put into place PLG as well as customer success strategies with the intention to boost customer acquisition while reducing churn.

However, changing the price of a product requires minimal effort and can be accomplished very swiftly, as is evident by the small t-shirt above.

As Patrick McKenzie points out, it can be as simple as replacing a lower number with a higher:

A screenshot of a tweet quoting Patrick McKenzie.

If you think about it, changing your pricing may be the simplest, most straightforward option to make when your business needs to grow its revenue fast.

Optimizing your SaaS Pricing Strategy for New MRR and. Net Revenue Retention The Needle of Growth

When you are considering implementing a different pricing, an additional factor to keep in mind is whether you wish to optimize for new MRR, or for net revenue retention -- or both.

Enter"the "growth mustache."

A graphic of a sideways bracket with Growth at the top and New MRR and NRR at the bottom.

The mustache of growth is a bracket with a sideways slant that my former CFO always used to refer to. (I also added the "mustache" descriptor, because it does look like a mustache to me.)

Growth is driven by an increase in monthly recurring revenue (MRR), or new customers coming in, and by net revenue retention (NRR) that is, the percentage of your current customers' MRR and ARR you're retaining or increasing.

In the event that your NRR is over 100%, that's the basis for a multiplier in your earnings However, the same applies for your value.

There is typically a leverage for operations by varying pricing and packaging however, you must also recognize that you're operating in a market where customers may have less money entering the system and more being expended. How you change your pricing could affect the ability of you to attract new customers, retain and increase the number of customers you already have as well, so keep this in mind as you make changes.

Explore a new pricing model for SaaS. Combinations to Increase the Revenue

If you've determined that changing pricing options is the route to go but there's numerous ways to test. Per-feature pricing, pay-as-you go plans and freemium pricing models flat-rate pricing as opposed to the usage-based pricing and per-user plans -- which one is right for your SaaS enterprise?

Below are some alternatives to take into consideration, for starters:

  • SKUs:
  • Platform tiered plans
  • Product(s) tiered plans
  • Persona tiered plans
  • Add-ons that are only single
  • Bundles of Add-Ons
  • Entitlements:
  • Features
  • Use
  • Assistance
  • Pricing:
  • Price
  • Recurrence
  • Geography
  • Method of payment
  • Discounts
  • Trials for free

Explore these options to find ways you can increase the leverage you have in your operation.

In some cases, this means formulating a buyer price based on a persona that is an average of slightly more revenue per user (ARPU).

For others, that means adding a new feature which allows them to increase the cost.

For others yet the possibility of switching from a flat-rate system or a user-based pricing model towards a more flexible feature-based or usage-based pricing structure.

Track the Effects of Any Modifications to Your SaaS Pricing Strategies

For example, if the number of customers decreases tiny amount due to an increasing price, but the remaining active users are paying a higher rate and making more money generally, some companies might feel ecstatic about the change.

Be aware of the changes that can be beneficial to your company structure. Established SaaS company may have different priorities from one a start-up is.

The word "success" is written with three S's

When we think about the packaging and pricing, we couple the ability to earn more revenue with our ability to come up with something fresh.

Consider the innovation curve: We make something; it grows in adoption; it plateaus. It's very easy to be trapped in thinking that the only method to get an entirely new source of revenue is to design a completely novel product completely.

Then, we can break the thought process and think about how new revenues S curves could be created by changing the package, plan, add-ons, and more, just by giving users the opportunity to shop with you and use the platform.

When we also take into consideration a usage measure based on the value metric with overages the new plans and add-ons themselves can increase ARPU with time.

SaaS Price and Packaging Accessories

Add-ons offer an easier path to increasing average revenue per user for existing as well as new clients on a budget, because they are able to pick and choose which products to buy from you as opposed to spending, for example, flat rate pricing for a larger package that includes a set of features they don't want or don't need.

For example, are there any existing entitlements available to sell as add-ons without creating any additional engineering tasks? Could one of those functions be separated to create the new SKU but without having to create an entirely new product?

Add-ons come in many varieties So you'll be able to have many different add-ons or even create bundles of them.

These add-ons carry a high risksince they may lower the upgrade MRR when fewer users are upgrading to a larger package -- but the addition of add-ons is a potent driver of NRR.

To mitigate that possibility, you must carefully evaluate the rate of your downgrade and upgrade before you make changes to your packages and add-on products.

You can, however, wait to pitch add-ons until the time that customers have signed up to your main product. When they're already using your product and enjoy the experience -- and any additional purchases they make are considered to be upsells which helps your net sales retention rates -- pitch them add-ons that would further enhance the experience they get from using your product.

Customers can purchase the SaaS product with the lower cost, and then it can help you build your MRR as well as ARPU by offering sales.

And a lower initial cost can give you an edge in pursuing market share as wellparticularly if you are able to undercut competitors' pricing a little.

Create a New Pricing Tier to drive Average Price Per User (ARPU)

Is it possible that the ARPU-boosting level you require exists in conjunction with your existing plans?

As an example, if you have a tiered pricing model that offers $25, $150, and $300 options, maybe the right pricing tier for generating more profit can be found somewhere between the three and around 75 dollars.

Segmenting SaaS plans to clarify the Benefits of Your Product and boost ARPU

Another option is to separate your packaging according to individual customer demands.

As an example, WP Engine is a managed WordPress platform that manages many different websites but they saw an opportunity to target WooCommerce customers specifically, and therefore they developed a product specifically targeted at that group.

A screenshot of the WP Engine pricing page for a segmented pricing plan for WooCommerce users.

It allowed them to focus on the needs of customers within this one segment to capture their attention and get more signups. In time, WP Engine was able to increase the value of their product for those users and increase the revenue of WP Engine.

The Payment Frequency increases leverage

A pricing plan that is annualized gives customers the advantage of saving money by committing for a year up front and also provides you the benefit of reducing your churn rate while improving the customer's overall lifetime value, or LTV.

To further leverage this strategy, you can provide greater discounts for annual subscriptions to new subscribers, or customers who wish to change from monthly charges to annual fees.

Pricing for the first period can make adoption easier for users.

Tips: If you're offering the Enterprise plan and the price point starts looking a little more expensive when paid for annually make sure to keep the price below $5000. Most procurement departments have the policy of asking team members to get approval to make purchases greater than that, so should you be able to keep the price below that threshold this will allow customers to easily make that purchase using a credit card without navigating internal obstacles in their own organizations. The rules can be different and aren't a rule, but it's a great idea to test.

The Inflation Rate isn't Even: Change Your Strategy

When you think about making changes to the way you manage your SaaS firm's pricing strategies considering the potential customer's willingness to pay isn't just the one factor to consider. The rate of inflation can change drastically in a relatively short amount of time, and that fluctuation can also be different throughout the world or in each region.

An inflation graph of the annual percent change in consumer price index in Brazil, US, India, Germany, and China from 2008 to 2022.

Headwinds to financial performance in relation to different geographical areas can suggest that localization is more crucial in the event that you are offering your saas product globally.

Remove Unnecessary Purchasing Friction With Localization

The process of localization usually involves multiple elements, including but not limited to:

  • Accepting the preferred payments for the region you're selling into.
  • Localizing the pricing.
  • Localizing the currency.

Each one of them has its own additional benefit not just for buyers, as well as for profit margins as well.

The conversion rate for localizing prices is 2 times for B2C SaaS businesses. Make sure that you provide a good justification for various pricing across diverse regions or countries, should a prospective customer is able to view multiple prices.

Local currencies are simpler to get approved and for customers in your target market to grasp. When customers who are new to your SaaS charges in the local currency and understand, it is much easier for them to buy without the friction of conversion math before making an investment.

How Can You Help?

The information contained in this piece was just presented by David Vogelpohl in a webinar held by Watch the original presentation on their YouTube channel.

David Vogelpohl   For more than 25 decades, David Vogelpohl has led teams that have built elite engines of development and technology for top brands like WP Engine, Genesis, AWS, Cloudflare, and more. David is a practical-insights presenter who focuses on practical strategies that can be used to boost growth.