8 lessons learned optimizing B2B SaaS pricing
I’ve been around the block a few times. Here’s what I’ve learned about optimizing pricing for B2B SaaS companies.
1. The offer is most important
As a business, you have to figure out 2 things:
In my experience, the first one is the harder part. Establishing a unique selling proposition that resonates is the foundation.
If you figure out what they want to pay for, you can spend the rest of the years working on figuring out how to best deliver it.
However, if you figure out the “how” but don't have demand for it, you're wasting your time. There are too many companies out there offering a solution in search of a problem.
2. Whether they want it or not is mostly determined by the offer
Price elasticity is how much people want something after its price changes. The classic theory will tell you that if the price goes down, demand goes up.
So if a SaaS company raises its price by 10% and then sells 20% fewer licenses, that's because of price elasticity. It means people are really watching the price.
A lesson I’ve learned from running lots of pricing experiments is that whether people want your thing or not is far more important than the price.
As an example, at CXL we ran an experiment of dropping prices by 50% (extending a sale campaign), but the demand only went up 17%. As a result we lost a bunch of money and had to raise the prices up to where they were.
Most are ready to pay a lot more than you think - if they only want what you promise.
3. ‘What is it’ determines the price
Among other things, positioning answers 'what is it?'
What something is determines its price point.
HOP WTR positions its bubbly water as a 'beer alternative' and also prices it like beer, not water.
They wouldn’t get away with positioning this as “flavored sparkling water”.
4. You can increase perceived value by making them feel the pain
Sometimes, people don't value your product enough because they haven't felt the pain. A way to make them happy to pay higher prices: make them feel a pain point you’re solving.
Take flour. What if it wasn't widely available, and you had to grow your own grain and grind it to make flour?
We'd gladly pay more if we experienced the pain firsthand.
Can you offer a freemium (or basic) version of your product/service that includes some pain before they get to the value?
Like having to do some part manually, so they'd be happier to pay more for the automation or done-for-you option.
In the case of Wynter, it’s free to use if you bring your own audience. However, less than 5% of people are successful in recruiting a sufficient panel for their tests and surveys. They need to send out invites, offer incentives, make sure to pay them later, and so on. This takes energy, time (weeks!) and effort. It’s a hassle.
48 hours after they launch a “bring your own audience test”, we offer them to upgrade to our premium audiences, which are guaranteed to be delivered in 12-48 hours. After they have felt the pain of recruiting an audience, they are much happier to pay for us to handle this.
5. Optimizing your pricing page will increase demand
A thing you should constantly be refining and optimizing is your pricing page.
The specific price points matter a lot, but the way you COMMUNICATE your pricing is equally important.
The beautiful thing about optimizing price communication is that it requires no strategic shifts - you don't need to go through the C-level. It's about making the existing pricing more compelling and clear.
People who are checking out your pricing page are mostly high-intent, so improvements made there tend to have a high impact on the bottom-of-the-funnel metrics.
If you have the signup volume to run actual A/B tests, go for it. Most B2B businesses don't - so qualitative research is the tool to use.
2 key ways to go about optimizing your pricing page:
1. Run message tests on your pricing page, and ask these 2 key questions from your target customers:
2. Preference tests
Mock up various variations of the pricing page and put them in front of the target customers. See if one version or another does a clearly better job at communicating the pricing and addressing the friction.
The screenshot here shows one such preference test we ran at Wynter. No version was clearly better in terms of votes, but the qualitative comments explaining why they preferred a particular version are gold. It helped us create the next iteration, combining the best ideas from various variants.
Your approach for the pricing page should be continuous improvement, just like refining the messaging on your home page or other key landing pages.
6. Order of the the pricing plans matters
Your product likely has different price points and versions - like Starter, Business, and Enterprise plan type of stuff.
What's the best way to get more people to get on more expensive plans?
You should present your product in the best-to-good order (as opposed to good-to-best). Read the study with the findings here.
When you pitch the product - either in a demo call or on your website - focus on the value-add and features your product delivers that are only included with the more premium plans.
Your prospect imagines having these capabilities. You ask them questions about the value these things would add.
Now you show them the pricing options - and the lowest plan doesn't have those things. The loss of the feature typically feels larger than the gain of savings from a cheaper plan.
Essentially, loss aversion makes them now consider more expensive plans.
The key to making this work is to cement the product and the price in the buyer’s mind before offering a lesser product for a lower price. The buyer needs to feel the loss of a feature.
If you’re an upmarket product with complicated prices, still show “starting from” pricing. The research is overwhelming that buyers want to see pricing info before getting on any demo.
It's also a good idea to name starting from pricing in your ads if you're expensive. It makes unqualified folks not click, and you get better leads. Wasting attention and money on the wrong people is costly.
7. Cheap pricing is a poor approach
The price does not determine the demand, it determines who the buyer will be.
You can start with lower pricing as your competitive advantage and differentiation, but without structural advantage, it's not sustainable. Somebody can and will be cheaper.
When you're the low-cost option, not only will you have terrible margins, but you will also attract the worst type of customer. Most SaaS companies realize that they need to move upmarket eventually.
As the team and overhead grow, the operational efficiency goes down.
That's when a lot of teams realize that you need better margins to grow and compete, and starting cheap was part naiveté of youth, part a temporary necessity to land those first customers.
8. Discounts kill profits
You might feel an urge to lower your prices to win deals. However, typically this is short-sighted.
If you're not competing on price, cutting prices is likely to harm your brand and profits.
Studies have shown that in many cases, the more people pay, the more value they ascribe to their purchase. Price anchors perceived value. If you discount prices significantly, customers may begin to question the original value.
The last financial crisis showed that lots of consumers who got “recession deals” never wanted to go back to paying real prices.
Instead, create new downmarket offerings. New products/services that cost less but have no comparison to your existing products. That way you can avoid discounts but still offer folks the price cuts they might need to tip them over.