The Nuances of Changing Pricing to Increase Opportunities
Collin Stewart, CEO
16 January 2019
Companies do a lot of things to increase revenue: build new products, hire more salespeople, and devise new and exciting marketing campaigns to drive awareness and (hopefully!) qualified opportunities.
These methods are tried and tested – and so long as leadership teams everywhere care to grow their business, we’ll see companies execute these the plans.
Of course, these aren’t the only ways to make more money. You can also raise your prices. I know, I know, it feels risky, right? You’re going to start losing deals – deals you’re closing easily – if you start asking for more. Why mess up a good thing?
Well, that’s because you’re probably leaving money on the table. It might not feel like it (scaling a company is hard!), but you probably are.
So…how do you know? Well, you have to start with your clients. If your clients understand the value of your product, they will understand that your pricing reflects that.
“And if you offer, like we do, ongoing support, as well as coaching and consulting services, those types of offerings are a very fair way to describe and acknowledge your pricing decisions.”
Another, and potentially more subtle example is listening to the feedback your customers give you throughout the sales cycle. If they routinely tell your team that you’re offering a great deal, it may be time to hike your price. This type of feedback can happen quickly, and when you’re trying to close a deal (a tricky proposition at the best of times), this kind of feedback can slip by if your team isn’t looking out for it.
I don’t want people to be angry about price,” says Fraser.
“But when people tell you how great a deal you have, you need to reflect on what you are charging.”
Understanding your deals
Once Fraser embarked on the journey of changing SaaSquatch’s pricing, he and his team started by examining the deals they already closed. And what they found was illuminating: about 90% of their closes were done at full price and any discounts they were conceding were happening at their lowest tier of pricing.
With that knowledge in tow, they started modeling a modest price increase – 25% on all of its pricing packages.
“We started with that increase in pricing just to get an analysis going. And we realized that if we increased our lowest cost plan, we probably weren’t going to sell it. If people are already needing discounts to get that tier, the increasing price won’t help,” says Fraser.
“But, if we raised our other packages by 25%, that meant more money. We would have been up 4% – 5% if we just sold our more expensive tiers, even if we didn’t sell our lower tier. It also allowed us to save money because we didn’t have to maintain clients at that lower tier. There are savings to be had with this arrangement as well.”
Ultimately, the SaaSquatch team settled on a 25% increase to their middle tier, an 80% increase to their top tier, and a 30% increase to their bottom tier. But if they hadn’t done that analysis of their existing deals, coming to those numbers – numbers that would work in their market – would have been much more difficult.
Positioning in the market
In addition to adding extra dollars to a company’s coffers, raising pricing can have another positive effect: strengthening the perception of an organization in its market. For example, being viewed as a “great deal” can have its benefits, but it can also diminish a company’s standing against premium competitors.
“We came to increasing our pricing for a few different reasons: our market is continuing to grow, and we are getting more low-cost providers, and premium providers. Pricing is big indication of where you sit in that pool,” says Fraser.
“Of course, we are continuing to offer premium services: consulting, professional services, and launch support. Those are things you aren’t getting with lower cost providers. So, we wanted to send a signal early of where we felt we belonged in our market, and the price is definitely a way to do that.”
(Editor’s note: we chatted with Profitwell’s Patrick Campbell on the challenges of determining
Including the sales team early…and often
Successful pricing discussions – and, ultimately, increases – cannot be done in leadership silos. After all, it’s the sales team that has to sell the price hike to new prospects, so they should be included in the process as soon as possible.
At SaaSquatch, Fraser took their suggested price increases (the ones they ended up settling on) to gauge the interest of their sales team. At first, admits Fraser, they were hesitant. The team, he says, had gotten used to their sales pitch…and it was effective.
“I wanted to hear from our Account Executives about any fears they had. We didn’t want it to feel like it was shoved down their throats. And I was prepared as to why we should increase the price,” says Fraser.
“Our sales team liked our original pricing because it gave them the ability to position us as the more affordable version of our direct competitor. It was a major differentiator for them. And they enjoyed using it. They were used to using the tactic of being the same, but more affordable. Now they had to position us as more powerful and with more value, but at the same price, or more.”
They also learned a valuable element to their pricing project from their sales team: they could also increase their renewal and upsell charges because clients were so happy they overwhelmingly renewed. The team had only considered initially raising their upfront subscription costs, but raising their these other critical charges meant more revenue than they had planned.
“Our AEs were very quick to point out how we could make more money. They were the ones that suggested increasing our upsell process – and we ended up doubling it. This was
“In fairness, they didn’t love increasing the subscription costs, of course. But this was a very powerful suggestion.”
Even though the company decided to change multiple variables at the same time – their subscription costs, as well as their upsell and renewal charges – they saw an immediate uptick in opportunities.
According to Fraser,
“As we lift pricing, customers have a better perception of where we are in the market. And that has changed the tenor of the conversations we are having. We have always had customers in the Fortune 500, but that is going up as well. And that is exciting,” says Fraser.
“And, it has had an effect on the rest of the team: it is an outward signifier that what we do is of value, and increasing in value.”
“A nice sales conversation to have is to discuss what the market offers, and how we are different. Price can be a nice way to have those conversations,” says Fraser.
“We know what our direct competitors offer, and while we don’t focus on it, people objecting to our pricing can be a great way to do that.”
For more on Fraser’s thoughts on pricing – including tips on how to alleviate the pricing fears of a sales team – check out the rest of his interview on The Predictable Revenue Podcast.