Software expert Josh Melick has written a fantastic article on his blog detailing the issues which so many software providers have with their pricing structure. The issue which it seems that most companies have is that their original pricing structure is not fit for purpose in terms of raising prices. Additionally they are in a position whereby they now don’t want to raise prices in case it results in customers leaving and going with the competition.
The reason why this is a problem for those selling SaaS is that they are then not able to bring in the necessary revenue which they will need to continue to cover their costs. Providing software comes with a wide range of costs and it is critical that the revenue meets the outlay. In Josh’s article he details what the problems are for these providers and what solutions they should be looking to use, in order to increase prices without betraying the customer.
The Core Issue
Almost all providers will offer a number of pricing structures for their software, usually something like bronze, silver and gold packages. Josh discusses the fact however that most providers only offer two dimensions which differentiate these packages, when three is in fact the requirement. The first dimension which is offered is the number of users and the second is the range of usage, with each structure of course offering a higher amount of each.
The key here however is the third dimension, and that is the amount of time which you will have the software. In limiting the amount of time, SaaS providers will be able to increase prices at the end of the year without losing their customer base.
The reason why price hikes may put a customer off is that they are often unexpected, and customers can feel as though the rug has been pulled from under them. The key therefore to ensure that this isn’t the case is to be up front and transparent with the customer from the outset. Customers should be notified when they first sign up that at the end of the year those costs will be rising by a certain percentage.
The promotional approach which Josh speaks about the article is a great way of increasing the prices and offering customers the chance to upgrade their package. In order to do this you can offer the chance of an upgrade with perhaps a 5% increase on last year’s price rather than the 7% which was originally planned. This is a great way of trying to get customers up to a higher package and increase price without providing any surprises and whilst still maintaining a customer’s trust in the business.
As Josh states, this is tough to do if you are already established, which is why some positive PR and some promotions for your existing clients may be the best way for you to hitch up the prices without losing those customers who you have already got.
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