Four Insights to Take Your SaaS Pricing to the Next Level

Given the tough economic climate and fundraising environment expected this year, pricing will become an ever more important lever for SaaS companies. Griff Parry, CEO of m3ter, outlines his predictions for software pricing in 2023. 

In the face of a tech winter, SaaS companies should revisit and refresh their fundamentals to see growth in 2023. When the fundraising environment was more bountiful and new customers easier to acquire, pricing was often an afterthought for many vendors. But next year, it will prove to be a powerful lever for growth – strengthening loyalty, supporting customer acquisition, and delivering untapped value from existing accounts.  

In short, if you’re not already reviewing your pricing model, now is the time to start. 

Drawing on SaaS pricing expertsOpens a new window from across the industry, the following insights should help take your
pricing to the next level.

1. Your best pricing strategy will be informed by a broad spectrum of internal stakeholders  

From CFOs to CMOs, pricing is increasingly becoming the responsibility of a growing range of C-suite executives.

To understand the metrics which best represent how your customers use your product and which features deliver results that justify premium pricing, turn to your product teams. And to assess the needs of your customers and monitor the transition to a new pricing strategy, loop your sales and customer success teams into the process as well. 

Robust yet flexible pricing models are not built in silos. During the planning phase, the vendors with more seats at the table will also be the most successful at implementing new pricing models.

See More: How to Choose the Right Software Pricing Model for Your Business

2. Pricing can be innovative – and lead to growth

The macro-challenges of 2023 will also open the door for creative thinking and innovation. Pricing has been an overlooked growth lever for SaaS companies, but experimenting with different models can be a low-risk way of optimizing your bottom line. 

“In the past, people got scared that it was one or the other – usage-based pricing (UBP) or legacy pricing – or that it required many changes to make the switch. Now it’s clear that isn’t true, especially with hybrid models,” says Kyle Poyar of OpenView Partners.

Hybrid models are expected to gain popularity in 2023 as they benefit customers and vendors. Where customers might need to manage their cash flows or cut back, for example, vendors can offer commitment discounts or combined pricing models to help them through the storm.

3. Price rises are possible – but be cautious   

Customer tolerance of price inflation is likely to recede in 2023. While SaaS companies were able to raise prices four times fasterOpens a new window than global inflation in 2022, 57%Opens a new window of IT teams now say they’re under pressure to reduce their SaaS spending, and this squeeze on SaaS budgets is likely to continue in 2023. Navigating such an inflationary environment is new territory for most software businesses, and exercising caution is advisable. 

Reviewing your pricing model doesn’t necessarily mean putting up prices. In the long run, you may be able to retain more customers and build their loyalty by providing a solution that helps them reduce their spending in the short term. This is the advantage of usage-based pricing – it gives customers the control to use less and spend less without negotiating with you first or churn altogether. 

If raising prices is your chosen strategy, assess whether your product is sticky enough and your customer relationships are strong enough to warrant a price raise before you move ahead. 

“As a general rule, if NPS is greater than 20, you have an opportunity to raise prices,” says Christian Owens, CEO of Paddle. “If you raise prices, it may also be prudent to introduce methods to take the sting off, like ‘pay in advance for future usage,’ to help customers manage their costs.” 

4. Keep customers at the heart of your pricing 

Any changes to your pricing should be made once you’ve got a strong, data-driven understanding of your customer’s needs, priorities, and how they’re using your product. Keeping your customers at the heart of your pricing review lowers the risk of alienating them and losing their business. 

Be transparent and clear with your customers about how new pricing models would benefit them. Usage-based pricing, for example, can be unsettling for customers who want to know their costs in advance. Take the time to address their concerns and demonstrate how they can benefit from UBP in a recession. 

A customer-facing pricing dashboard can support you in these discussions by providing full visibility over usage and spending. 

See More: 5 Things to Avoid While Pricing SaaS Products

What’s next?

The coming months will not be straightforward, and there will be hard choices for many SaaS companies. But growth is still possible – especially if leaders address their pricing. As a historically neglected lever for growth, pricing is a powerful tool for reducing churn while maximizing value from existing customers. It should become a significant focus for many SaaS vendors in the coming year.  

How will the current tech climate motivate a keen focus on profitability for SaaS companies, and why is pricing a tool that shouldn’t be ignored? Share your thoughts with us on FacebookOpens a new window , TwitterOpens a new window , and LinkedInOpens a new window .

Image Source: Shutterstock

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