The pricing strategy followed by a company can make or break its business. Creating a profitable pricing strategy for SaaS companies especially proves to be a great challenge for entrepreneurs. Only a well-thought-out pricing strategy can help people to achieve their short and long-term revenue goals along with customer satisfaction. Joshua Melick especially points out that pricing strategy followed by SaaS companies directly impacts their revenue, and ultimately the future of their company. Hence, all SaaS companies must take into consideration their future prospects as well, when planning their price strategy.
Most of the SaaS companies today have a similar prize strategy, featuring some version of bronze, silver, or gold plans. New features get added in each price tier with an increase in price. Joshua Melick calls them two-dimensional plans, with one dimension being the tier and usage being the second one. Several companies also oversimplify the process and use just one dimension. Another common strategy used by SaaS startups is “grandfathering”. In this system, early customers are provided with the benefit of availing all-inclusive package without any up-sells. Owing to this, however, the companies end up creating a legacy of no price increases, and ultimately are unable to charge for the increased features they may develop in the future. A lot of companies are even apprehensive of adding a “pricing gate” , as they believe that it might deter their current customers from using the new features added. It essentially is vital that the customers try out the new features and provide their feedback, so that the company knows how they improve their platform and create better experiences.
While underlining the problems of the 2D model, Joshua Melick stresses upon the need to add a third dimension to it, which is the price. The prices of almost every aspect of the society rise over time, and hence so should that of the offerings of a SaaS company. These firms can simply rely on market changes, software upgrades and inflation to grow their share of wallet over time. Furthermore, increasing the pricing structure solely as per the inflation rates might even cost a company more in the long run.
A company should increase their price over time to remain competitive in the current market, as well as adjust for inflation. One of the easiest ways to maintain a progressive price structure would be to just increase it by 5-10%, every year. This can also prove to be a great way to get valuable feedback from the customers, no matter whether it is good or bad. If the customers like the products of the company, it is highly likely that they would stay loyal to the firm, no matter the price increase. Raising the product pricing is a standard practice coming under private equity takeover playbook, and works for several types of businesses.