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30% increased MRR for SON (System Obsługi Najmu)

by
Maciej Wilczyński
in
Managing Partner, Founder Valueships
September 6, 2023

Client

SON (System Obsługi Najmu) is a SaaS that makes life easier for property owners and managers by automating lease agreements, invoicing, and tenant bill settlements. 

It’s one of the best and easiest-to-use tools on the market, which, acting as a mix of CRM and ERP, is chopping administrative tasks to almost nothing.

One thing is to increase the prices for existing customers; something entirely different is to transition them to the revenue model. Valueships experts helped us with doing so, and we have managed to move from the old property value metric to the entirely new revenue-based model. Considering the overall communication with my customer group, it is important that they have also assisted me when it was tough. Despite the initial backlash, we received positive ROI from the project. And in general, I’m satisfied with the cooperation with the Valueships team

Rafał Paluch, CEO System Obsługi Najmu (SON)

Situation

Rafał Paluch, the owner of SON, has built a stable position in the Polish property management tool market over seven years. However, while he developed the tool regarding user needs and features impeccably, its billing model had been static. SON charged a flat fee depending on the number of tenants per property or the number of properties. It relied heavily on the type of property you rent, making it vulnerable to inflation. Without regular price bumps, SON's been losing money every year.

Furthermore, the existing pricing structure didn't consider the nature of the properties or the income they generate. So some users, who were significantly profiting from their properties and leveraging the full capabilities of SON, were paying the same or even less than other users who were generating substantially less rental income.

Goal

Rafał sensed that the model wasn't optimal, and it was high time for a change. 

Our challenge was to increase the tool's revenue by developing an inflation-resistant billing model which accurately reflects the value customers receive and ensures SON captures a fair share of that value.

It’s also important to notice that Rafal wanted to create a long-lasting model which wouldn’t require changing in the future. It had to be inflation-proof.

Approach

Our collaboration with Rafał started with workshops, in which we discussed many pricing options, such as charging a flat fee or focusing on properties only. But during the conversation, Rafal mentioned:


“I always wanted to charge for the overall revenue generated”. 

This was game-changing for us, as we immediately realized that many users needed to pay more compared to the value and revenue the system generated for them. On top, we knew that Rafal allowed us to run a whole transformation, not a quick win optimization. 

So we began with performing a value-sharing exercise to determine the actual worth of SON. We analyzed users' portfolios and calculated the percentage of the tool's cost against the revenue it generated.

The results were eye-opening: SON's cost averaged a mere 0.034% of the transaction value. You don't need to be a pricing expert to know that's lowballing, as the standard payment processing fee is usually 1 to 3%.

Therefore, right from the start, we followed a simple logic: if SON is sorting and automating landlords' work, saving them a significant amount of time each week, the tool is an essential part of their value creation. And it should cost more than it currently does.

In the meantime, we also interviewed several SON users and found that they genuinely saw the tool as vital for their daily work. They believed it was the best on the market, and no alternative solutions came close. 

Backed with data and strong user value claims, we were confident that a price hike was justified and needed.

SON (System Obsługi Najmu). Source: Valueships

But how to do it? With the vast income differences among SON's users, using a one-size-fits-all 1% fee wouldn't make it fair. We were dealing with a classic Pareto income distribution, and a flat fee would still create a massive disparity between users with big and small revenues.

So, to hit that sweet spot, we called in our data analytics team. Using users' revenue data, they drew up a power law graph – the go-to pricing tool when a few occurrences are enormous and a ton of them are small, which was spot-on in our case.

Our data specialists created a graph showing users' income and tried out different commission models on it. They finally came up with two pricing models: one with a flat rate, originating from the current price, and another with a commission based on income size.

We presented them to Rafał and got the green light to roll out the new pricing to the users.

New pricing SON (System Obsługi Najmu). Source: Valueships.

When the storm comes – brace yourself!

Before pushing the new pricing, we informed the users and explained why the prices were increasing.

However, this stirred up quite a storm, and many heated words poured in through Facebook groups for landlords and our company mailbox. Some users grumbled loudly, while others threatened to leave. 

This was a tough time for Rafał. Naturally, in such times, it's normal for the owner to question if they did the right thing. In the end, we were the ones to blame. Should he reverse the decision to avoid losing customers? Maybe the upset clients had a point? These doubts were creeping in.

But thanks to our in-depth analysis, we were absolutely sure that raising prices was the right call. We even created a churn prediction model showing that we'd still come out financially better even if 30% of clients left.

So instead of backing off, we helped Rafał manage the fallout, but also we listened to the customer feedback because even the most advanced modeling can’t handle everything. We reassured him that the upset voices were just normal noise, not signs of impending crisis. 

We proactively did problem-solve sessions on how to respond to clients, so they could understand the real value of the tool and why it was worth paying more than before. We also decided to let a few clients stick with the old plan, but we raised prices by 30%.

We didn't let emotions cloud our judgment and stood firm.

The result? We had some casualties (Out of 565 clients, we lost 80, mostly free riders who never paid a cent for the tool or paid virtually nothing), but the monthly MRR… rose by 30%! :)

Quick summary

+ 30% increased MRR

No longer tied to inflation

New pricing model taking into account the diverse client structure

A scalable billing method for years to come

Increased overall confidence in the value of a product

Interested in creating a lasting impact for your company, too?

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