How SaaS leaders can use pricing to ride out the challenges of 2023
In this guest article, Griffin Parry, CEO and Co-Founder of metering and pricing engine m3ter, discusses how SaaS leaders can use pricing to ride out the challenges of 2023.
As the economic climate encourages buyers to tighten their belts and makes funding more difficult to access, 2023 will kick off in ‘hard mode’ for many SaaS companies.
But although market conditions will be challenging, vendors that can successfully pivot their focus towards demonstrating value, efficiency, and flexibility will not just survive the challenges of the next 12 months, but also continue to grow.
Adjusting your company’s pricing strategy is an underestimated lever for growth and an effective way to combat the difficult macro-environment. The right pricing model can mean the difference between high churn and strong retention. And, on top of that, it can also deliver untapped value from existing customers.
So how can SaaS leaders use pricing to ride out the challenges of 2023? Here are some insights from experts from across the industry:
Be led by your customers’ needs
Identifying the best pricing strategy for your business starts with understanding your customers and their needs. Use data to present a clear picture of your customers’ usage and spend to have open conversations about their priorities and how they are using your product. With this awareness, it is easier to hone in on a pricing model that will work best for all parties.
Christian Owens, Founder and CEO of Paddle, commented: “With the increase in usage-based and private pricing, there will be demand from customers for better pricing visibility and predictability – which needs to be reflected in the tools they use.”
Usage-based pricing (UBP) is a popular option, but businesses that prefer to have a clear forecast of their outgoing costs may find it challenging if you do not take them on the journey of understanding how it can benefit them. Transparent, data-driven communication around billing is essential, as UBP can otherwise trigger concerns around control and predictability.
Choose a pricing metric that is strongly linked to value, so the cost of your service is linked to successful customer outcomes. This helps make the cost of your service predictable, and also helps you build trust and loyalty.
Seek insights from across your business
James Wood, SVP at Insight Partners observes: “For any pricing project, you’re going to have a ton of people who are interested. When people work together and stress test and use the stakeholder concerns, they have a better, more structured, and higher potential project at the end of it.”
Engage with multiple teams to develop and execute the best pricing strategy. Avoid working in a silo and seek insights from across your business to bring more people and functions into the process.
For example, work with your product teams to identify the features customers value the most highly and would therefore be willing to pay a premium for, and which usage metrics you should choose for UBP to best align customer growth with product value.
Customer success teams can also play a key role in evaluating customer needs and communicating the new pricing model, allowing you to solidify relationships by demonstrating flexibility and adaptability as you go.
Think creatively and stay flexible
Combined pricing models are likely to grow in popularity across the SaaS ecosystem in 2023.
“In the past, people got scared that it was one or the other – usage-based pricing or legacy pricing – or that it required a ton of changes to make the switch. Now it’s clear that isn’t true, especially with hybrid models,” says Kyle Poyar of OpenView Partners.
Exploring hybrid or combined models allows you to test new strategies in controlled and creative ways. 2023 will not be straightforward, but staying flexible with customers gives you the best chance of retaining their business, either through loyalty discounts or tailored pricing, while also growing revenue.
You may even find that a hybrid solution is the ideal lasting pricing strategy for your business!
Innovate through your pricing
For many SaaS companies, there is an untapped opportunity to innovate with pricing. Until now, many pricing strategies have just had to be ‘good enough,’ leaving a lot of scope for experimentation and improvement.
James Wood, SVP at Insight Partners, recommends taking a look at how much pricing power you have as a company.“If you haven’t touched your pricing for three or four years – and you’ve built up a large amount of pricing power through product improvements, delivering value to customers, having some really successful use cases, etc. – then it’s time to review how to completely change the game on your pricing.”
As SaaS businesses enter a tough year, the fundamentals will become more important than ever.
Pricing is an overlooked but powerful tool that can not only protect your business from the challenges of the next year but also help you identify new routes to growth. If you’re not already reviewing it, there’s never been a better time to do so.