Increased revenue and stabilized customer retention are the bedrocks of the SaaS industry. Tweet
In order to keep increasing monthly revenues and offset the cost of churn and customer acquisition, expansion revenue becomes vitally important to the success of your SaaS company.
Expansion revenue is key to growing monthly recurring revenue, because at its core is the idea that it’s easier and more cost-effective to increase the amount of money generated from current customers upgrading their service, than it is to market to and acquire new customers. By compelling current customers to upgrade, you’ll have a ready source of expansion revenue. Tweet
Here are five upgrade strategies that work:
The key to a successful upgrade is helping your customers get the most out of their current subscription. If they have received maximum benefit and return on investment, upgrading to the next level will be a natural progression. Don’t hold back valuable functionality, falsely assuming they’ll upgrade in order to get it.
Kissmetrics recently analyzed the pricing strategies of 12 SaaS companies, including the A/B testing software for marketers, Visual Web Optimizer. Their pricing and upgrade strategy is effective because the value of each level of service is clearly laid out, along with the amount of visitor testing that each level of service can provide.
Visual Web Optimizer makes upgrading a clear and easy choice. The levels of service progress naturally to accommodate the customer’s business as it grows, providing each business what it needs.
To develop a pricing structure that encourages upgrades, SaaS companies must understand where their users perceive value. Traditionally, SaaS companies have charged per user. However, a survey of thousands of SaaS customers found that they don’t see value in the number of users offered. Instead, the survey from Price Intelligently found users placed value on additional sales they received, contacts made, reporting functions and other tangible indicators of their ROI.
Think about what features of your product make your customer look good or make their life more convenient. Capture the tangible value you are saving the customer. For example, HelloFax allows users to send and receive faxes for free. Obviously, users avoid the expense and maintenance of a fax machine. However, HelloFax’s upgrade strategy focuses on making the user’s life more convenient since they must upgrade to send a fax to multiple recipients. Similarly, Box offers users a certain amount of GB for free, but for more storage and the ability to collaborate with colleagues, users must upgrade to the next level of service.
Pricing structure can get complicated, especially once you move from a simple per-user strategy. So get creative. Using a scalable pricing model can help you cater to the fiscally different sectors of your customer demographic. Custom pricing and bundle pricing are two good starting points to consider.
And be sure to involve your marketers—not just your sales and accounting teams. Your marketers will ensure that the structure is clear and makes sense to the customer. Even if it makes sense on paper, the takeaway may not be clear. Customers will not upgrade if they don’t fully understand what they get, and especially if they feel the structure is unfair or dishonest.
Tracking user activity will help you offer an upgrade at just the right time. For example, if you are a storage-based application, send an email or prompt within the application alerting the user that they’ve almost used all their free storage. Make upgrading to the next level simple and seamless, and something they can do immediately as they keep working.
Be sure to track feature usage. Once you know who is using particular features, you can target those customers for upgrades to the next level of service, based on their behavior. Give those customers special offers that will make the decision to upgrade an easy one.
While we warn against devaluing your product with over-the-top promotions, customers do love a good bargain. Think about offering a one-month free upgrade trial to existing customers, especially those who are willing to commit to a year subscription. And don’t be afraid to throw in an add-on.
Segment your users based on their activity, demographics or industry sector, and customize promotions just for them. Make it fun by holding a contest via your social media account or on your website and offer a free upgrade account to the winner.
Incorporating these 5 strategies will not only help your SaaS company improve renewal rates, they will also improve the way your customers value your service and will increase loyalty for future renewals.
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