April 27

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A SAAS Pricing Strategy That Guarantees No Loss

By Guru Lwanga

April 27, 2020


You’re toiling through the Software development lifecycle. Maybe the boss has told you to price the SAAS. Maybe you’re the boss. Maybe you aren’t good with numbers. You don’t want to overprice, and at the same time, underprice.

The main point is, there are pricing models and pricing strategies.

SAAS Pricing models: Models allow you to meet your marketing goals. Whether it’s recovering customer acquisition cost, making profit, scaling etc. It involves tactics.

SAAS pricing strategy: Strategies are a general overview of how models fit in the whole picture. For example, I could have a free eBook, The eBook sells free trial, free trial sells limited features, and this sells enterprise unlimited features. A strategy would make the eBook very good, because doubling book downloads could double enterprise subscriptions.

Let’s explore various strategies, and how they fit the overall process:

Freemium Model: Let’s say you own an SEO software. You don't want to give premium features for free. Instead, you can make a course on blogging. This course will be FREE for one week. The tactic is to get a lot of traction during the first few weeks as users test drive the course. Inside the course, you’ll have demos on how your SEO software helps these bloggers meet their goal. If you make premium information scarce, and the course material excellent, this should be the best go-to-market strategy.

Free Trial With A Price Tag: Most SAAS don’t go into the details of limiting access. They provide a flat free trial. They forget it’s difficult to pay for something that was once free. The fact that many people do it doesn’t mean it’s right. Customers will keep using different email addresses to sign for free trials. They’ll use credit cards and even VPNs.

How do you limit this? Put a price tag. It doesn’t have to be expensive. Think about seminars. A marketer once had free seminars. All street kids and pickpockets came in. He then raised the price. Entry level people came. He kept raising the price, he got ideal clients. He raised even further...nobody would afford him. So he settled on the price that works. What does this mean for you? Test your free trials with a price.


Flat Rate Strategy: Most marketers use a pricing table to sell, typically 3 packages. Small, medium, large or baby, fledgeling, squab...you get the idea. Marketers then put a bunch of product features. What’s up with you people nowadays? They try to make every column as interesting as possible. Nonsense.

You see, when this strategy was developed, back then in the mesozoic era, persuasion experts wanted to use it as a decoy. Let me explain. You’ve got options A, B and C. You make A intentionally bad. You also make C intentionally bad. Then make B the best offer ever. So any logical person would choose B.

I see this affect my decisions everyday. When I’m looking for web hosting, Option A costs $40 with 3 domains, 5 subdomains, limited bandwidth. Option C costs $200 with all nice features, but I have to pay $90 for migration and support. Option B costs $99 a year with a 40% discount. It has 6 domains, unlimited bandwidth, something custom for a target audience. You understand they don’t need one domain. They don’t need 100 either. They need 6.

In addition, it costs $49,95 Not $50, not $50.00. That’s pure psychology. If you don’t understand I recommend reading: Why Things costs $19.95 by Wray Herbert.

BAD PRICING TRICKS OF THE TRADE

  • Usage-based pricing — allows users to pay based on the amount of usage. It’s bad when you can’t track usage. In neuro-marketing, we call it selling like a sushi chef. It's a bad strategy for both the vendor and the user. You're selling like a cyber cafe. Charging cents for every minute. A dollar for every sushi. So someone uses the product panicking, with the intention of minimizing usage.
  • Pricing per user — It involves charging more for more people and less for less people. What are the assumptions? You assume a company with less than 10 people is small, so you bill them $19. This company depends on your SAAS. They’re happy they downsized. On the other side, a company needs 50 licences, but doesn’t bring in as much revenue as the “small” company. You bill them more. It’s an exponential curve that has already crossed an elastic limit. Guess what? You’ll lose all of them. It will soon be uneconomical for the company with many employees. The small company will also achieve their goal faster and leave you hanging. You’re a doctor. You want to relieve pain, but at the same time, you want the customer back. You’re like a dentist. The more you drill n fill the more you bill. Think.
  • Pricing per feature — You’re obviously selling like a sushi chef. How do you prioritize features? On what scale are you using to rank important and useless features? Why should you have useless or less pricey features in the first place? Nobody cares about things they miss. I believe in giving customers everything they need. People tend to run away from limited things. It’s how you present it. Saying ⅔ will survive is much better than saying ⅓ will die. Pricing per feature = death. Choose life.

What's the appropriate discount rate? Customers who can really afford your SAAS don’t need a discount. You know 99% of discounts are scam. When you think of real discounts and free trials, you have to decide whether you’re in business or charity. That’s up to you.

Your Second Master,

Guru Lwanga

Direct Response Copywriting For Software

About the author

Guru Lwanga

Direct Response Copywriting For Software

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