Pricing based on how your customers use your product

Yesterday I published a guest post on SaaS pricing on the Kissmetrics blog on a pricing experiment we did at Planio.

A couple takeaways that I think could be useful here for fellow bootstrapped companies:

  1. Your pricing is your conversion rate on the value you create for your customers. It’s tempting to “set it and forget it” and focus on product and acquisition instead. But the returns on your time to do some digging can be astounding. You can see the figures and details in the article above.

  2. Average monthly recurring revenue per new customer is crucial to your business. It’s really, really hard to get 65,738 customers like Buffer at an average MMR of about 16 dollars. I’d prefer to get 650 customers like Baremetrics at $100/customer.

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I think you gave your post a disservice with this title. It reads like you’re about to talk of usage-based pricing (i.e. “2 hours CPU + 20G of disk = N dollars”).

For those who did not read the article:

In short, these folks took the existing customer base, computed their statistics (in this case the number of users per account) and then come up with price plans that maximize the revenue for this users distribution.

Of course it requires that you have some users already. But you can run this exercise say annually and make your prices better and better fitting your customer base. Presumably it should make you more attractive to future similar users, too.

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Yes, thanks for pointing that out!

I read the article and found it confusing; not sure what point it was trying to make. Charge more, I guess?

Sorry you found it confusing!

I suppose the point I was trying to make is that in SaaS you usually have a metric you price against (number of users, number of email addresses, monthly revenue, amount of $foo).

Secondly, many SaaS companies create “buckets” of those metrics for various plans - i.e. the silver plan has 5 seats, the gold plan has 10 seats, etc.

After a while, you might find that if you analyze your customer base, that your scale is miscalibrated to how your customers actually use your product.

Maybe your customer base ranges from 1,000 seats to 10,000 seats, or maybe your customers typically have between 1 and 10 seats.

Therefore, by adjusting your scale to your current customer base, you can effectively bring in more revenue without even raising the price for each plan.

Ok. Ian also talked about this, I remember, about how they had to rejig the plans for Helpspot to make them more relevant, can’t remember the details.

On a second thought it is not as simple.

Suppose I have a plan for up to 10 users, and I found that the majority of my customers have only 2-3 users. So I redo the planning where I now have a plan for up to 3 users and a plan for up to 10 users. Profit.

However, it may turn out that my customers have, say, a seasonal activity where they temporarily hire 5-6 workers who also need access, and that’s why they bought 10 users plan. I however is not aware of this. I grandfathered the old plan, so no existing customers complain - but the new customers of the same kind are not signing up anymore.

Tread cautiously.