As we are writing this, the average inflation in the US is 8%, the EU average is around 10%, and we are reaching 15% in Poland, and the shadow of recession is slowly but surely approaching Western lands.
If you run SaaS, these two macroeconomic trends mean that your business costs rise by about 1/10 each year, and your revenues... Well, they're likely to start falling hard shortly.
So what should you do about pricing when the economy is fragile, costs rise, and demand falls?
How to manage pricing during the recession?
During the recession, people buy smaller amounts of the same thing, buy the same thing in a cheaper version, or give up a given product or service for good.
In such scenarios, the general pricing trend is to lower prices; companies sacrifice their margin for customer retention. And while in many SaaS cases, it will be a necessity, you don’t have to follow the stream, or at least not too soon.
Your ultimate goal is not to lower prices at all, or at least reduce them as little as possible, as late as possible. And not permanently.
Start with the basics of your pricing
Anytime is a good time to work on the company’s business basics, except when it's too late. The pre-crisis months are the last call to lay a solid pricing foundation. So when you feel the first effects of a recession, go back to the basics of your pricing strategy before lowering any prices and murdering your margins.
We know this may now sound too exciting, but the golden bullet solution to recession doesn’t exist. Instead, a good pricing foundation is what allows companies to walk smoothly through the crisis.
Nail the niche of recession-immune users
Not all of your users will be cutting costs because there are industries resistant to the winds of recession. For example, if you sell a booking system, there is a good chance that no dental clinic will stop using your services because people won’t stop treating their teeth.
Before the recession hits, find a user segment that most likely won’t limit their spending during the crisis. Perhaps this segment accounts for 10% of the number of customers but brings 50% of the total revenue.
If you find this segment, make sure you have the right up-sell and cross-sell offer for it. If you don't, prepare it and use it well when other users leave.
Use temporary discounts
When the market shrinks, many of your competitors will lower prices, and you have to react to it because you will lose part of the market share if you don’t. However, reacting doesn’t mean lowering prices, or at least not permanently. Because when the market starts to break back, you will have to raise them again, and your users won’t like it much.
You don't want to pay off one debt with another one.
What can you do then? Take advantage of temporary discounts, promo codes, and seasonal sales. This way, you will maintain some customers that would likely go away without the discount while not anchoring them lower in terms of your usual, regular price.