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The public vs. private conundrum
The 'cost of unfairness' in vendor-customer relationships
Going beyond open pricing to gain an advantage
Challenges with subscription pricing (and how to solve them)
3 pricing strategies to succeed in a dynamic market
Hidden costs, confusing payment terms, rigid pricing, or unexpected price hikes will only alienate your SaaS customers – jeopardizing contract renewal and new customer acquisition. So, it is recommended that you steer clear of them.
And, choose to be transparent, straight-forward, and flexible with subscription pricing. In today’s competitive SaaS market, open pricing is what will help you bag new customers, reduce churn, and grow revenue and customer lifetime value.
Read on, as Nick Riley, Global Head of Purchasing at Vertice and Eric Künzel, Account Executive at Younium, share pricing best practices for your SaaS business.
The public vs. private conundrum
SaaS businesses usually fall into one of these two camps: public or private subscription pricing. The table below highlights features of both:
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Public or Open Pricing |
Private Pricing |
|
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Pros |
Attracts self-service customers |
Supports greater personalization in deals |
|
Works better for products with online sales |
May work better for SaaS companies with lower average revenue per account (ARPA) |
|
|
Adds customer confidence in the vendor |
||
|
Helps you retain control over the subscription pricing narrative when customers are looking to switch vendors |
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Cons |
Discourages inquiries for certain customers |
Requires more sales effort |
|
May not want to work for SaaS companies with a big sales team |
Leads to price inconsistencies or difficulty convincing the customer of price hikes based on customized solutions |
|
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Customers may leverage third party SaaS purchasing platforms, like Vertice, to offer (SaaS contract) pricing benchmarks, which gives them a leg up in price negotiations. |
Clearly, both options have their pros and cons. That said, Eric stressed the logical fallacy of
putting potential customers through hours and hours of demos before offering them access to the pricing/quote. This secretive approach to subscription pricing ends up being a massive (and avoidable) drain on time for vendors and customers alike.
Interestingly, most of the time, the customers don’t even need a 100% accurate price upfront. All they need is a rough idea of the packages and tiers available.
To explain this point further, he offered up the example of Younium that doesn’t publicly publish its subscription pricing but helpfully offers an indicative price post initial customer contact. Then, once the customer’s requirements are clearly stated, a more accurate quote (for the value offered) is shared.
To support customers in making educated purchasing decisions, Nick said that SaaS companies should offer access to the approximate software cost for the first 12 months. The potential buyers should also be equipped with enough information to estimate the expected costs for 10% more or 10% less usage.
This sort of transparency in subscription pricing would help customers understand how their IT budgets will be affected should their platform usage grow or shrink.
The 'cost of unfairness' in vendor-customer relationships
A whopping 39% of B2B clients switch to competitors when handed a bill with hidden charges.
Nick shares that this is not a surprising statistic, as he has seen relationships gone to ruin owing to sudden price increases, the introduction of new subscription pricing tiers, or bills with costs that the customer wasn't aware of.
“What customers want to understand is: Is the pricing fair? Is the platform priced similarly to other players in the market? Is the pricing in my best interest? And is it going to help me achieve something in my business, instead of just helping the salesperson achieve what they want?” he added.
To ensure subscription pricing fairness, you need to be upfront and transparent about the cost of the service, automatic renewals, available tiers, software training costs, installation costs, etc. Leave no room for surprises. This helps buyers have an apple-to-apple comparison of your pricing with that of competitors.
And if your subscription pricing model is different from that of other suppliers, make sure you let the customer know how the unique pricing benefits them.
Going beyond open pricing to gain an advantage
In keeping with the spirit of fairness, it is important to get all the details relating to fees and payment terms out in the open and into the sales contract. Do not wait for the customer to ask.
Nick believes that once you give the customers certainty regarding subscription pricing, you stand to improve sales process efficiency, save the customers’ time, and build brand credibility.
He also recommends adding these terms to your contract to gain a strategic advantage:
- True up/true down terms: This gives customers the option to scale up or scale down, on the platform’s features (and therefore the pricing), as per their actual needs. Such flexibility allows your relationship to grow with the customer.
- Exit fees and timeframes: It helps to have a few clauses that lay out what happens should either party want to end the SaaS contract. It should answer the following questions: How does the contract end legally? What will the exit fees be? When and how do customers get their data back? What format will they get the data back in? And so on.
- Renewal terms: This is where you must be honest about whether you will have price uplifts at renewal. And if you do, answer questions like: Will the contract prices increase with renewal every year? By what percentage does the billing increase? And when will it be communicated?
- Billing and payment terms: Be explicit about your standard billing cycle and payment terms. And offer bespoke subscription billing options, for it is likely to help build strong and profitable relationships with potential customers.
“Ideally, put together a contract that will adapt to changes of the customer. e.g. more usage, more users, less volume, adaptive/negotiable billing cycles,” said Eric.
Challenges with flexible subscription pricing (and how to solve them)
Flexible pricing is shown to deliver a 25% higher increase in ARR.
Unfortunately, most businesses continue to have rigid pricing, limiting their chances of winning, retaining, and growing with customers.
Eric, drawing from his many years of working with SaaS businesses, shared that adopting flexible pricing and subscription billing puts vendors face-to-face with a host of challenges such as:
|
# |
Challenges of flexible pricing |
Solution |
|
1 |
Too many complexities in the management of contracts |
Have too many pricing tiers and bespoke pricing and payment terms? It must be difficult to manage the unique subscriptions for each customer. But with a subscription management solution like Younium, that connects different legacy systems, you can create reliable and scalable processes: whether it is for securing insights to make better pricing decisions or automating billing. |
|
2 |
Tough to create unique pricing for corner cases |
Arrive at a strategy for special markets/prospects that will turn your pricing into a reason to choose your services. You can even combine different models to arrive at the perfect pricing for unique customer needs. To build such bespoke pricing models, speak to your sales prospects and get a thorough understanding of their needs. |
|
3 |
Trouble keeping track of complex subscription pricing models |
It's not possible to keep track of the many pricing nuances in complex spreadsheets. Instead, create sales material with straightforward and easy-to-grasp pricing information so that sales prospects don't get confused about the pricing options available. |
3 pricing strategies to succeed in a dynamic market
Pricing models vary from business to business and often there are different approaches for direct sales models vs online sales models. But, a general rule of thumb is to:
- Adapt your subscription billing and pricing to evolving market situations: Strategically base SaaS pricing changes on customer feedback and market changes and communicate them with customers as soon as possible.
- Focus on value-based core offering: Identify your target segments and create unique subscription pricing models for them. As Eric says, “Only if you deeply understand who you are selling to can you understand what they value in your product.” And, from thereon, you may share pricing models that are most attractive to them.
- Create upsell opportunities: Offer to your customers add-ons, structured into functional groups. This makes it possible for the vendor-customer relationship to scale with the customer.
The bottom line is: Don't be secretive about your SaaS pricing changes or pricing tiers.
Eric suggests committing to openly sharing and tweaking pricing with customers. It may take a lot of effort and time, but it is guaranteed to be well worth it.
Click here to request a demo and see how Younium supports contract management and improves product pricing and subscription billing.
