Most SaaS Brands Get Their Pricing Wrong

You’re a scaredy cat, and it’s costing you an obscene amount of revenue, growth, and promotions.

That’s how Patrick Campbell—the Founder and CEO of Profitwell, which recently sold to Paddle—started his Hot Take Live talk, where he came to talk about how most SaaS brands get their pricing dead wrong.

Pricing sits at the intersection of important and uncomfortable, which is why so many brands get it wrong and choose the path of least resistance. Unfortunately, this costs you too much money.

It doesn’t matter if your business is doing amazing and you think your pricing is fine. Campbell insists that you’ve probably got it wrong, and that’s because the market is very good at giving your brand a punch right in the face. (Direct quote). 

One reason why is the onslaught of competition. If you start a business today, you’re going to have 15.8x more competitors than you would if you had started your business ten years ago.

Customer acquisition costs have also gone up by 128% over the past decade, while team tenure has decreased by 34% despite a 28% increase in tech wages. 

We’re paying people more, have higher turnover, and all while acquisition costs have skyrocketed. 

You need to do more than just acquire customers to dig yourself out of the hole. And for most successful companies, that comes from monetization and retention. 

Campbell argues that it’s crucial to invest more in monetization and retention of existing customers compared to just acquisition alone. And that’s why you need to look at increasing your pricing, even if it’s intimidating.

So how do you get the pricing right?

The first thing is to remember that we don’t live in a world where we’re exchanging goats for wheat. We put price tags on things, and your price is the exchange rate on the value that you’ve created. Your price is directly tied to the value that you’re offering, and this brings us to the fact that the audience you’re targeting (and the value you can offer them) becomes essential.

What features are you offering to higher value customers (either up marketing or in new verticals if needed), and how are you packaging them in pricing tiers and potentially with feature add-ons?

Many brands, understandably, end up with different pricing tiers that are designed to target different tiers of customers and their needs, with high-level enterprise plans that offer scale and customization options. This is where most brands end up stopping. 

Instead of doing this, however, Campbell said that being strategic and using a value metric model is crucial, which comes down to how you charge. Examples might include charging by usage instead of just features, which bakes growth into their pricing because customers are paying for what they need and may upgrade very quickly.

And if you’re worried about changing your existing prices and what will happen when customers hear about pricing shifts, there’s good news: As long as you communicate it well, most customers are okay with price changes. This means you don’t have to bake existing users into “legacy” pricing unless you choose to; either way, do an impact analysis so that you’re ensuring that you only have to raise pricing on a single customer at least once per year.

When notifying customers of pricing changes, don’t forget to do the following:

• Remind them of the value that you offer them 
• Tell them about the features they love or the new feature that you’ve launched
• Inform them that to keep the product great and future development, you need to raise prices
• Thank them for their loyalty; tell them all new customers are getting new pricing today, but you’ll keep them on their old pricing for six months 

At the end of the day, pricing isn’t hard. It’s just a process. It just takes some time and effort and a lot of data and research. 

Want to check out the full video? Watch the full Hot Take Live here!