Pricing is complex. Pricing is also dynamic. It’s hard to write about pricing because every product needs a different type of pricing model.
You will need to test different price points to figure out what your customers are willing to pay. The good thing is if you lead with value and your offer is good, you can pretty much get away with most price points, especially if you’re in the B2B market.
One thing is for sure, freemium reigns supreme.
When your product is free it gives users the chance to truly try it, without constraints. Your goal should be to get them to the ah-ha moment as quickly as possible anyway. So if they need 14-days to get to that point, you’re doing it wrong.
Once they find the value and their pain point was alleviated they’ll upgrade regardless.
This tweet is from Chris Frantz of loops.so explains why it works below.
When your product is free and has features that your competitors charge for, it makes it easier to get customers to the value your product holds.
More readings on this here:
- https://sixteenventures.com/saas-free-trial-credit-card
- https://sixteenventures.com/free-trial-metrics
- https://sixteenventures.com/saas-free-trial-engagement
- https://sixteenventures.com/saas-free-trial-length
If you decide to offer your product for free or not, it's important that PLA (Product Led Acquisition) plays a part.
This means turning your product's customers into marketers. Think “Powered by” mechanics.
PLA:
- Encourage users to invite other users
- Turn your product into a billboard
- Encourage users to make shareable content
- Triggers WOM
Julian Shapiro wrote about this topic in detail (It’s an amazing read): https://www.julian.com/guide/startup/product-led-acquisition
When you combine Freemium + PLA you get a hyper-growth loop.
When thinking about pricing you should also be thinking about ascension models. Meaning, what else can your customers purchase once they find the true value of your product.
By having an ascension model you can scale vertically quickly. This is called NRR (Net Revenue Retention).
HubSpot does this well. They offer their CRM for free but to use their more robust features customers have to upgrade.
Some more thoughts from Casey Hill of Growth Corner regarding pricing
How an Event Changed Our Business- If you sell to enterprise, you want to target 100%+ NRR (Net Revenue Retention) and if you sell to SMBs you want to target 75%+ NRR (Hubspot pre-IPO had 83% NRR). To do this, you need to have the following: high investment in onboarding and CS, land and expand product model with upsell opportunities, ideally several product offerings, strong NPS/CSAT.
- Quarterly and annual contracts are highly impactful for scaleable growth. CLTV is 100-300% vs. MoM. Also, you need to ask for annual upgrades beyond sign-up. 2-10 months is the sweet spot when they are experiencing value.
- Always offer maintenance/pause plans for people looking to leave. Charge $10-50 to just hold their data
- Localization, if you have more than 20% of your user base outside your home region, increases revenue by 10-20%.
- Retention for users that upgraded to paid from a freemium plan, is over 10% higher.
- Offer add-ons in your SaaS pricing. CLTV is 18-54% higher for customers who buy add-ons.
- SaaS brands that have usage-based pricing, have baked in expansion revenue potential, vs. having to “re-sell” the customer on additional upgrades.
- You should be able to recover 60-80% of defaulted credit cards. If you aren’t, you need to put systems into place to catch that. Try in-app messages and SMS. Localization can help. Don’t make the user log in to update CC. Just take them straight from a link to form and make it easy.