SaaS companies tend to face five major problem areas when it comes to growth:
- Poor unit economics
- Poor user retention
- Poor MRR retention
- Poor acquisition volume
- Poor conversion
Almost all of these (with the exception of acquisition volume) can be solved by improving your pricing strategy. You need to explore these areas deeper, focusing on one at a time, and collect the necessary data to define the problem. These are the things that are stopping you from succeeding and stopping your customers from succeeding with you.
Cause: use data to discover the root cause of these issues
To find out what that underlying disease truly is, you have to go to the source: your customers.
Customers are the only people who can tell you why they don’t value your product as it stands. Unfortunately, the vast majority of SaaS companies usually avoid this step for three main reasons:
- It takes time.
- They’re scared of what they’ll find out.
- They think they already have the answers.
By asking the right questions of your customers and adding the right data to your buyer personas, you can find out more about where your company is succeeding and where it is failing than you ever would looking at an analytics dashboard.
I won’t beat around the bush—it takes hard work. You’ll no doubt hear things you don’t like, and you’ll need to face the harsh reality of your current pricing strategy.
But all of this is data that makes your company better and moves you up and to the right.
Solution: use data-driven experiments to test viable solutions
This is the fun (and also the scary) part. Running tests and gathering data to validate or invalidate your hypotheses are vital for identifying the best long-term pricing strategy that you can.
By testing small changes often, you can quickly get reliable data on each of your individual hypothesis. You can see what works and what doesn’t, and only take the time and effort to permanently implement the changes that maximize growth and revenue.
Implementation: put into action the best solutions
This is where you take the results from your experimentation and embed them into your pricing.
This is the entire point of your pricing process, though also the part that companies rarely follow up on. Going live with major pricing changes is terrifying for any SaaS company. Will customers recoil at the new prices? Will acquisition drop off a cliff?
With quantified buyer personas, though, you can make these changes confidently, safe in the knowledge that the value you provide aligns with what the customers want and what they are willing to pay.
Now you understand the process for developing your pricing, let’s take a look at a few strategies you can use to determine how much you should be charging.