Customer satisfaction drives renewal rates—most every SaaS company is aware of this fact. However, customer satisfaction is an objective measure that can mean different things to different people. Some customers are satisfied when prices are low, others are satisfied when features reflect their needs, and still others are satisfied when they receive a great deal of support.
When it comes to pricing, all of these factors need to be weighed. But the needs of your strongest, paying customers should weigh the most. Don’t be tempted to price your product low just to attract more business Tweet. Aim to secure high-quality customers who will renew their service and help grow your business long-term.
What follows are three SaaS pricing strategies designed to attract the high-quality, paying customers who renew their subscriptions.
Most SaaS companies offer a range of pricing plans. There are enterprise plans, managerial plans, unlimited plans, etc. This strategy aims to attract a wide range of users with differing needs or skill levels. Ultimately, the belief is that these users will eventually scale up to higher plans as their needs grow and they realize how much value you’re bringing them.
In reality, that is not always the case. Companies like Salesforce and Concur can afford to maintain an inconsistent pool of low-level users because they have resources from investors and high-end clients. Smaller companies and start-ups need to choose customers wisely and use their resources intelligently.
Improving service quality with limited resources is never easy, which is why it is important to charge your clients a competitive price for a full suite of services.
This might seem to go against the common practices of offering a variety of plans, but the logic behind the strategy is this:
Additionally, the money clients spend is invested into product improvement, which also leads to more renewals. When setting prices for your service, think of long-term renewal strategies, not simply short-term growth for growth’s sake.
Joseph Walla, CEO of HelloSign, urges SaaS companies to “build features for people that pay you.”
His statement is based on a common phenomenon: lower-level and non-paying users often request features that dilute the product. That’s because those users come from a wide range of backgrounds and have varying needs. The one thing they have in common is the need for a free or low-cost service.
Case in point: Evernote. The freemium plan helped launch Evernote into popularity, but eventually the company experienced a “5% problem.” Everyone who used Evernote only used roughly 5% of the service’s features. But they weren’t always the same features. Evernote lost its core identity, and in doing so, it lost renewals.
Rather than dilute your product by offering generic features that appeal to everyone, it is far better to reward your serious customers with the features they need.
By targeting a core group of users, even at above-average rates, you are ensuring they renew their subscriptions because the service has been designed with them in mind.
Promoting annual subscriptions (with a discount) increases the revenue that increases product quality and drives renewal rates. And the longer your clients spend with the service, the more likely they are to renew.
By charging annual subscriptions up front, customers are more likely to engage with the service in order to get their money’s worth. In the process, they become more dependent on the service and more likely to renew. This kind of client is also more willing to take on the learning curve of a new product and show greater commitment to your service.
This strategy comes with a caveat however. Customers may not want to pay up front for a full year of unknown service. This kind of strategy can be difficult to sell (though a quality free trial where you make an active effort to keep the customer engaged can certainly help). However, the benefit of charging up front is that it allows your company to sift quality clients from a mess of less committed ones.
One other option to encourage annual subscriptions is not to mention any pricing until the client is already registered and has filled out some information about their needs for the sales team to review. This approach has proven successful for companies like BigDoor and BlackStratus. This type of pre-screening allows sales departments to tailor subscriptions for clients and makes clients feel more secure that they’re making the right decision.
Overall, pricing strategies are a way to gauge your customer base. Are they serious clients who are ready to commit and engage with your platform? If so, then they are likely more willing to pay higher prices, reap the rewards of better service, and renew their subscriptions.
A great comprehensive service at a very low price is a rare and hardly sustainable SaaS species. But attracting quality customers will help keep your company from going extinct.
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