Aligning your positioning, packaging, and pricing with your target customers is not only important for reducing CAC and churn, it’s also the key to monetizing customers and generating more monthly cash flow. Simply put, better pricing based on customer value is one of the best ways to boost your monthly recurring revenue (MRR) so you can profit and prepare for the road ahead.
Wistia's pricing page. Simply scrumptious.
To calculate your MRR, you multiply the total number of paying customers by the average amount they pay you every month, otherwise known as the average revenue per account (ARPA). As mentioned in the beginning of this post, MRR is an essential metric to track because SaaS is a business where revenue is usually received through recurring subscriptions.
A proper pricing process will help you convert more potential customers into paying ones, increase upsell opportunities, and ultimately increase your MRR. We’ve already discussed the importance of acquiring the right customers and pricing along a value metric so they see the value in what they’re purchasing, but having an attractive product mix will help you take full advantage of scalable pricing so you can appeal to both high profile clients and price sensitive ones.
In addition, you can use price sensitivity data to determine if your prices are justified by your offerings. Once you collect this valuable input from your customers, you may discover prices are too low and that you can raise prices without significantly increasing your churn rate. As anyone who’s ever read our blog before knows, a 1% improvement in price optimization results in an average boost of 11.1% in profits, and that’s no small boost when it comes to your recurring revenue.
This concludes our first series on SaaS metrics and your pricing strategy. To learn more about pricing specifics, check out our Pricing Strategy ebook, our Pricing Page Bootcamp, or learn more about our price optimization software. We're here to help!