The common expectation from a customer that is paying for a as-a-service model is simplicity in payment options. You could be losing potential revenue by trying to customize an as-a-service offering to every customer. They are expecting to pay for a package or bundle and will use what they need, and not use what they don’t.

So you are moving to SaaS pricing structure and you have an idea of where to begin.

 

How do you package? How do you bundle? Will you charge by usage? Will you charge by user?

 

I can tell you that how you package your products will drive customer adoption. When done properly, packaging accelerates land and expand business strategies and improves the customer experience. Customer experience or CX is the new industry buzzword that is having lasting effects both in the consumer and B2B world because of its direct correlation to LOYALTY.

 

Beyond loyalty, your pricing and packaging as a SaaS company have a direct effect on customer lifetime value and win rates as well. Pricing is as much a part of your win strategy as any product feature that you create. One big miss we see is that pricing is not viewed as a part of your innovation when indeed it can be used as an innovate way to attract new customers and reward loyal ones – keeping your top-line growing.

 

Download the SaaS Tool to align your packaging to your customer’s preferences, and to learn how to determine your packaging.

 

Pricing Changes can be Innovative not Damaging

 

We will get into how you should construct your packaging, but first let’s discuss pricing changes. Moving to bundles or packages will cause a change or shift from your current pricing strategy. This causes uneasiness – it should not.

 

As I mentioned before, pricing is a transformational tactic that can be as innovative as it is strategic. The fear is that pricing changes may lead to a decline in growth rate. That was disproven by OpenView Labs in 2018.  In a study of more than 400 SaaS companies, OpenView found that of the companies that changed their pricing strategies in 2017, only 2% said that pricing changes led to a decrease in their growth rate. I though that was staggering. In the field, I hear this as a primary concern from pricing and product leaders. In fact, the pricing changes have had a 25% or higher positive impact on growth for 2 of 5 of the companies surveyed.

 

Knowing that SaaS packaging is essential to your growth, don’t be afraid to pull the trigger to add the right packaging and bundles because of price changes. The additional pricing options will drive adoption.

 

Here are a few examples:

 

  1. In 2017 Netflix changed pricing. The change led to a 10% increase in growth and a soring stock price.
  2. Chief Strategy Officer of HubSpot, Brad Coffey stated that contract-based pricing helped improve net dollar retention from 75% to nearly 100%
  3. Companies like Slack, DocuSign, and InsideSales.com have attributed recent growth and adoption to a Good/Better/Best pricing model.

     

Create Packages That You Customers Didn’t Know They Needed

 

Now that you understand that pricing changes are not damaging, let’s look at how we can create the right packaging for your customers. Notice that I did not say the right packaging for your business. EVERYTHING starts with the customer in packaging.  I have debated this. You can make a great argument that the corporate strategy or growth initiatives should be the start of any packaging option, however I will counter that thought by acknowledging that customer perception of your product is true reality and customer preference is key to acquisition.

 

It ties back to the notion of the customer experience and its direct connection to customer loyalty. If the customer perceives your product to be superior to the competition for the attributes that drive their decision-making process, they will be willing to pay more for your product.  The same translates to packaging.  If you are packaging and bundling the right attributes, products, and offerings that align to customer preference you will win.  To take it a step further you can package the offerings that customers know they need with things that they do not yet know they want.  This is an underlying principle in Good/Better/Best pricing and in bundling.

 

Your customer knows how they want to purchase your products, you just need to ask them.

 

In elementary school we had a saying, “Good, Better, Best…I will not rest until my good is better and my better is best”.  This should be the mentality of your salesforce and your customer success team.  Hence good, better, best packaging. 70% of SaaS companies employ some type of Good, Better, Best strategy – because of the upsell possibilities.  The key to a good Good, Better, Best strategy is to dangle the carrot while giving the customer offerings that match what the deem as important.  Survey analysis and competitive intelligence will allow for you to understand what they customer deems as important.

 

The other packaging options in order of popularity for SaaS companies are:

 

  • All-in Bundling – When a company leads the market in its breadth of products not necessarily the depth of one. A real-world example is Apple. The Mac Book is regarded as the best laptop on the market and the iPhone as the best phone – yet Samsung and other Android devices prove to be more innovative, tablets like the Microsoft Surface have more capabilities, the Roku outpaces the AppleTV in the number of features and compatibility, and Alexa is far better than Siri yet Apple’s breadth of services allow for the consumer to package all of their devices.

     

  • Category Bundles – When the same product aligns with different budget categories and compete against different alternatives. A perfect example of this is movie theater pricing.  There are categories for Seniors, Adults, Youth, Students, and Matinee all with different pricing to see the same movie.  Movie Theaters are competing with Netflix and TV and other forms of entertainment. In B2B no one does category bundling better than Salesforce.com.

     

  • Use Case – When a company offers a platform that can serve a varity of use cases. Think Tom Tom or HERE Technologies.  They provide map data for automobiles, trucking companies, cities, traffic patterns, etc.  The use case will determine the willingness-to-pay.

     

Now that you know how to package the next step is to ask your customers how they prefer to buy.

 

Download the SaaS Tool to align your packaging to your customer’s preferences, and to learn how to determine your packaging.

 


 

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ABOUT THE AUTHOR

Chris Jenkins

Beyond the numbers, there lies a story. Let’s make it a Best Seller!

Prior to joining SBI, Chris has been an IT Strategy Consultant, Business Analytics Consultant, Sales and Solutions Engineering.  At IBM, Chris delivered high-level IT analytical analysis through for major IT strategy engagements which enabled his client’s c-suite executives to make business decisions based on the KPI tracks, component business modeling, and predictive analytics that he provided in order to drive growth and stability. Chris partnered with clients to create unique features using IBM BlueMix and IBM Watson integration into high-growth and high-priority enterprise and commercial product offerings. He conceptualized and implemented new marketing tools for sales enablement around Mobility Consulting for IBM that led to a 30% increase in engagement sales in 2015. Chris managed 27 customer accounts and grew sales by 14% to $1.3M in Sales at Kyocera by crafting a strategy to enter the internal medical device market.  He also streamlined work processes and created work instruction documentation for Westinghouse Engineers that led to annual savings of $400,000 in wasted productivity.

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