Pricing Analytics: 2020 Guide – All You Need to Know (+53 Examples)

Too many people in SaaS are basing their pricing strategy on what they think people “should” be willing to pay.

And funnily enough, too many people in SaaS are struggling to find the right price point to attract the right kind of customers.

Do you think this might be related?

By developing a pricing analytics strategy to determine with confidence which customers you should be going after at each product tier, you can drastically improve your knowledge about your growth potential.

What Are Pricing Analytics? 

Too many people in SaaS are basing their pricing models on what they think people “should” be willing to pay.

And funnily enough, too many people in SaaS are struggling to find the right price point to attract the right kind of customers.

Do you think this might be related?

By developing a pricing analytics strategy to determine with confidence which customers you should be going after at each product tier, you can drastically improve your growth potential and pricing decisions.

Your Customers Are Not Monolithic

Think about all the demographics that could be interested in your product. Start with size: freelancers, tiny offices with a few employees, small businesses. Then by industry: video production, insurance, auto dealerships, produce farms.

Gathering this data, organizing it, and segmenting it into different groups in different ways should immediately shed light on some patterns that exist. Your next step is to take advantage of those patterns and use them for future decision-making.

Although some companies, like Basecamp, have decided to focus on just one plan for unlimited usage without any customer segmentation, they’re an outlier and are likely putting extra attention on marketing and support to be able to treat each customer the same. In general, you want to have price elasticity to offer lower-demand customers lower price points, as well as vice versa.

Value-Based Pricing

Experts tend to agree that the best pricing is “value-based,” meaning that it directly relates to what value you’re bringing to your client.

If you’re selling payroll management software, for instance, think about how long it would take to do the same tasks with a different solution like Excel. Then calculate the average hourly wage of the payroll specialist doing that task, multiplied by how many hours a month are spent doing it.

Let’s say your analysis comes up with a savings of $200 a month in labor costs. 10X is the industry standard for value created vs price charged, so a $20/month tier sounds perfect!

Can You Rely on Freemium?

Here is a great case study.

Zoom gives away free meetings limited by total time, host numbers, and participant numbers. 55% of Zoom’s current customers generating more than six figures in annual revenue started as free members.

And as it happens, they’re one of only a handful of companies successfully closing enterprise contracts with a free product tier.

Businesses who like a certain product are going to tend to try to shape their own needs around the limitations of the free tier and end up costing you money over time. If the only criteria for Zoom tiers was meeting length, for instance, they might end up actively trying to make their meetings shorter and more frequent instead of longer.

However, what Zoom has done to stand out is create different incentives based on usage, seats, and features so that enterprises are ever so slightly hampered by the limitations on the free product.

In other words, you should think about the paths that your customers have to making an upgrade in real-time. Are there more use cases that could be incentives for making the plunge to a higher tier? That’s the advanced analytics you’ll want to be digging for.

The Effect of Pricing Analysis

PriceIntelligently did a massive survey on SaaS pricing and found that among companies with ARR greater than $5 million, the companies that continually analyzed and refined their pricing tended to be the most efficient by far.

And that makes logical sense. Your industry, whatever it is, probably looks a whole lot different today than it did even ten years ago. Even putting aside dollar amounts, and even for a successful company, failing to develop new product tiers or levels of service is likely to have seriously impacted growth in that time.

By the way, if you’re not disclosing your pricing publicly, there’s no need to stick to a rigid formula. In the enterprise space especially, people tend to have several more pricing tiers than what they advertise for non-enterprise customers. That helps them tweak the plan for a perfect price and value balance for everybody involved.

Improve Your Profitability with Pricing Analytics

There are two main paths that companies tend to follow as they develop price changes that fit their growth and customers better.

In the first scenario, imagine that you’re bleeding money with support costs for customers who just aren’t bringing enough value in to the business. At that point, you can either triple the price point to shed customers at the low end, or shut out support to customers at lower product tiers.

Your logo churn will rise as your revenue churn lowers, counteracting the costs of dropping so many accounts.

Or the opposite could be your problem: your price point is high enough that you can stay solid with only a few customers, but it’s too high to even get those. By lowering the price point and moving downmarket, you can decrease logo churn at the expense of increasing revenue churn slightly.

Analytics Solutions: The #1 Pricing Analytics Tool

To get started with your strategic pricing plan, you might want to take Salesforce for a spin. It’s the #1 go-to CRM tool for SaaS businesses looking for an all-in-one data dashboard. You can take advantage of their free trial and talk to their support team to discuss which features you can leverage for your specific pricing analytics goals.

Ways to Optimize Pricing Value

It’s always easier to increase revenues from existing customers than it is to acquire new ones. People know your product and, ideally, they’ve got a good relationship with your client services team.

But if the growth they’re able to experience because of your product has been exploding, then you’re undercharging them. That’s why it’s dangerous to offer unlimited-scaling plans – always scale with usage to match the demands on your backend. Arpit Rai wrote more about value metrics in a Medium post here.

If you’re looking for data sources for better price optimization, we compiled pricing analytics from 53 SaaS companies…

53 Examples of Pricing Analytics Data From Private SaaS Businesses

Conclusion

The first step you can take for your next pricing analysis is to gather and organize every metric you can. Willingness to pay by demographic group. Customer lifetime value vs Customer Acquisition Cost. Average revenue per user.

And the first time you gather this data all in one place, you probably won’t see many patterns. You’ll need to pull historical trends over time too.

The landmarks that you can identify – a peak in demand for small businesses with three-month subscriptions, for instance – can let you know if you’re accidentally offering something for way under market value (at a cost to your bottom line) or overcharging and bleeding out logos who hit that tier.

Whichever it is, even solving one of those problems is enough to justify strong pricing analytics.

Author:

Yassir Sahnoun is the founder of YassirSahnoun.com. He helps SaaS companies like Castbox and FluentU attract sales using content strategy, copywriting, blogging, email marketing, & more. If you want to up your content marketing game, you can schedule a free discovery call with Yassir by clicking here.