Decreasing customer Willingness to Pay, increasing inflation
These 2 are the absolute pricing “asSaaSsins”.
The Willingness To Pay (WTP) of a SaaS customer decreases about 20 p.p. every year. This means that if five years ago, you purchased a Salesforce account for $100, today it’s worth only 20% in the equivalent of its value.
Now combine it with inflation. For example, in Europe, you’re constantly fighting a five to six per cent inflation rate in the services sector. What does that mean?
It means that without raising your price, your company is losing 1/5 of the value of the product every year. By not submitting prices to at least the inflation level, you effectively lose money and don’t even notice it at the first glimpse.
The frequent increase doesn’t hurt users that much
Let’s say you’ve been running your SaaS for two years now, and it came to you that it’s just about time to raise the price. What will your customers say, though? Won’t they get mad that after so many months of using your products, you’re asking them to pay more?
You might have heard about the boiling frog syndrome; if you put a frog into a pot of boiling water, it will immediately jump out to avoid the inevitable death. But if you put it in the warm water and start raising the temperature slowly, the frog will continuously adjust to the changing temperature.
Having my sensitive readers in mind, I’m not telling the other frog’s fate, but the moral of the story is clear:
a gradual change in price is way more acceptable and causes less friction than a sudden increase.
And it would be best if you did not harm frogs or any other animals whatsoever, even if that proves your point.
Btw. Price Intelligently, which I recommend following, did research on that as well here.
And here you can read about Weber's law, according to which a 10% price increase is an acceptable margin for an average customer.
How do I know if we charge enough for our products?
There are a couple of signals that may indicate your company is not charging enough for the software. Some of them reveal directly, while others don’t happen, which happens to be the problem.
Let’s begin with the most common one: If you haven’t reviewed your pricing in the past six months, you probably charge too low. You can’t charge your users optimally if you don’t test your pricing, interview your clients, or research your competition and products.
Another common indicator of charging too low is having most of your customers stuck on the lowest plan. Weak penetration of middle and high plans usually means they provide too little value than the cheap one.
You can probably charge more for it, or at least manoeuvre the price among all plans.
Sometimes it’s enough to read reviews of your product or simply ask your customers what they like about it. If you notice a pattern of people saying that you’re cheap, then you probably are. If they say that your service is a good value for the money, you probably give them too much for what they pay.
And if they say that it’s worth the price — then you might have just hit the sweet pricing spot.
Still not sure if the price is correct?
No worries, you’re not alone. Developing a pricing strategy that fits your target audience and precisely translates your product’s value requires knowledge, time, and much research.
I’m confident that this article about pricing strategy will help you with the “knowledge” part.
And if this is not enough, and you’re looking for more in-depth touch and practical bits of advice, don’t hesitate to reach out to me at email@example.com