How to Change SaaS Pricing and Communicate the Change

To change your SaaS pricing, start by analyzing your current pricing model and it’s performance. By reviewing the data, you can identify areas for improvement and make future decision-making processes better.

The guide presents a structured framework for examining and revising pricing strategies, with potential implications for revenue and customer perceptions.

Before making a pricing overhaul, ask yourself these key questions:

• Have your expenses been increasing? Server upgrades, software licenses, and other expenses sometimes make a price adjustment necessary to maintain profitability.
• Have you added significant new features or value?  If you’ve launched new features or functionality, your pricing should reflect the new value you’re offering.
• Are you targeting a new market segment? Entering a new market may require adjusting your pricing to appeal to different customer needs and budgets.
• Are you concerned about customers choosing competitors who offer more value? If your offering seems less attractive in the market, a price decrease or new tiers could regain competitiveness.
• Are your churn rates or CAC higher than you’d like? Provided that your metrics are favorable, it might be best to uphold your existing pricing strategy.
• Are you meeting your revenue goals? Reaching your revenue growth targets may mean an adjustment to your current pricing approach.

If you answered “yes” to any of these questions, it’s likely that your SaaS pricing model could benefit from a review and change. This guide explores steps to assess your current performance, create strategic objectives, set an appropriate pricing model, and engage your customers during the transition to the new pricing strategy.

Take a close look at your existing pricing data. Start with an analysis to gather information and assess the current state of performance. Understanding this is the foundation of a successful pricing change. 

Gather Your Data: Collect data on key metrics for the past 6-12 months (or longer, if available). Start by pulling information from your billing/subscription system.  How many customers are on each plan? These metrics are the basis of your analysis:

• Customer Acquisition Cost (CAC): The average cost of acquiring a new customer.
• Customer Lifetime Value (CLTV): The average revenue a customer generates over their entire relationship with your company.
• Customer Churn: This metric quantifies the rate at which subscribers cease to utilize a particular service..
• Average Revenue Per User (ARPU): The average revenue generated per user/customer.
• Pricing Model: What is your current model (e.g., freemium, flat-rate, tiered, usage-based, etc.)? How many tiers do you have, how many customers are on each tier and what are the price points? 

Example: 

Identify Patterns and Trends: Look for patterns or correlations within your data.

• Are certain pricing tiers more popular than others?
• Is there a correlation between pricing and churn?
• Which features are most valued by your customers?
• Are specific customer segments more profitable than others?

Self-Assessment Questions: Ask yourself the following questions to gain further insights:

• Is our pricing model aligned with our overall business goals?
• Are we capturing the full value of our product with our current pricing?
• Are our customers satisfied with our pricing model?
• Are we leaving money on the table by underpricing?
• Are we pricing ourselves out of the market?
• Is our pricing easy for customers to understand?

Outline your goals with your pricing change. They serve as a reference point for outlininb your strategy and determining its effectiveness.  

Consider the fundamental reasons why you’re considering a pricing change. Motivation plays a prominent role in goal selection and aligning strategies according to your overall business vision. Common reasons for SaaS pricing optimization:

• Financial Performance: You might be struggling to cover costs or achieve desired profit margins. Raising prices or optimizing your pricing model can contribute to improved profitability.
• Pricing Consideration: Analyze whether your current pricing represents the value your product offers after recent upgrades.
• Competitive Pressure: If competitors offer similar products at different price points, you might need to adjust to remain competitive.
• New Market Entry: If you’re expanding into a new market segment, you might need to adjust your pricing to appeal to different customer groups.
• Changing Customer Needs: As your target market evolves, so do their needs and willingness to pay. A pricing change can help you cater to these shifts.
• Mature Stage: As your product matures, you might need to re-evaluate your pricing to maximize value and sustain growth.
• Operational Factors: Market and cost management issues, such as inflation, rising labor expenses, or technology improvements, may require businesses to adjust their pricing.

Typical objectives include increasing revenue, improving profitability, or attracting a specific customer segment. Be specific and set measurable targets (e.g., “Increase ARPU by 10% in Q4”).

Brainstorm Potential Objectives: Start by listing all possible objectives you might want to achieve with a pricing change. Consider these categories:

• Revenue Growth: Increase overall revenue, ARPU,  or customer lifetime value (CLTV).
• Profitability: Improve gross margins, reduce customer acquisition cost (CAC) or churn rate.
• Market Positioning: Attract a new customer segment or increase market share.
• Other Objectives like improving customer satisfaction or encouraging specific product usage patterns.

Prioritize Your Objectives: Not all objectives are created equal. Rank them based on their importance and relevance to your current business needs. What are the top 3 objectives you want to focus on?

Set SMART Goals: For each prioritized objective, turn it into a Specific, Measurable, Achievable, Relevant, and Time-bound (SMART) goal.

Example: Instead of “Increase revenue,” set a goal like “Increase ARPU by 10% within the next 6 months.”

“Attract a new customer segment” -> Acquire 50 new enterprise customers by the end of the year.

Align with Overall Strategy: Ensure your pricing objectives align with your company’s overall strategic vision and mission.

Choose the model that fits with your goals and customer needs. The right pricing model requires some analysis to decide the strategy that will suit your business needs and customer profiles. This will depend on your product, target market, objectives, and value proposition.

Determine what pain points your product resolves for your customers and how it compares to your competition in terms of features, usability, and overall value. Understanding your product’s strengths and weaknesses will allow you to determine which model works best for you.

Identify common SaaS pricing strategies and how well they work for your business. For detailed steps on how to determine the right pricing strategy for your SaaS, refer to our companion article: How to Price Your SaaS. Consider these popular pricing strategies for SaaS price optimization:

• Transition Plan: Existing customers remain on their current plans, while new subscribers pay the new price. This will ease the transition and encourage customer loyalty.
• Tiered Pricing: Offer pricing plans with different features and cost options that appeal to  different customer profiles and preferences, enabling a variety of approaches for different customer segments.
• Usage-Based Pricing: Charge based on customer usage, knowing that the perception of fairness often leads to increased usage.
• Value-Based Pricing: Set your pricing with the perceived value your product delivers in mind. Then use it as a rationale for premium pricing.

Tell your customers about the changes openly and honestly. Transparency builds trust. When customers understand the reasons for a price change, they’re more likely to accept it. And how this is communicated makes a difference.

4.1. Craft Your Message. Explain the changes in simple terms.

Highlight the value proposition for customers affected by the revised pricing model. Emphasize new features, better performance, and increased support.

Acknowledge concerns upfront and offer solutions (e.g., grandfathering existing customers, discounts, or flexible payment options).

Explain the reason for the price change (e.g., increased costs, new features, market adjustments).

4.2. To effectively communicate with all your customers, consider using various channels.:

• Email Announcements: Consider using personalized emails to directly communicate with customers. Send targeted emails based on their current plan or usage.
• Blog Posts: Publish a detailed blog post explaining the changes and the reasoning behind them. Present evidence of product effectiveness by including customer testimonials and case studies.
• In-app messaging: Deliver pertinent information to users within the application interface.
• Social Media Updates: Share news about the pricing change on your social media channels and engage with customers’ comments and questions.
• Webinars: Host webinar and QA sessions to provide insights and address questions.

4.3. Develop a communication timeline:

• Early Announcement: Provide customers with advance warning about the changes, aiming for a minimum of 30-60 days.
• Reminder Emails: Use follow-up emails when the implementation date is near.
• Post-Change Communication: Following changes, communicate updates about the transition with the specific impact they will experience.
• Proactive Outreach: Be sure to speak to high-value customers or any most affected by the price change to personalize your support.

Implement your new SaaS pricing strategy and then monitor its effects on metrics such as customer acquisition, churn, and revenue. Then think of your pricing as a living, breathing entity that requires attention to thrive. Continuously monitor performance metrics, gathering customer feedback to inform adjustments.

Track Key Metrics: Create a dashboard that illustrates pertinent metrics like revenue, churn rate, ARPU (average revenue per user), CLTV (customer lifetime value), and conversion rates. Regularly review this data, checking weekly or monthly, to monitor progress toward your pricing goals. Be aware of fluctuations and investigate spikes or drops to understand whether they’re linked to your pricing changes or other factors.

Seek Customer Feedback: Collecting feedback from customers helps in acquiring a more complete understanding of their needs and preferences. Reach out through surveys, interviews, feedback forms, and monitor social media and review sites. Ask them about their satisfaction with the new pricing, whether they feel the value aligns with the cost, and what improvements they’d like to see. It’s possible their observations could offer a different perspective on your current strategy.

Analyze and Iterate: While a price increase could impact churn, it’s crucial to analyze changes and re-evaluate if needed. Look into how each customer segment reacts to the increase to determine if some are more sensitive than others. Experiment with various pricing options, discounts, and promotions to understand your customer base’s preferences. After using A/B testing, compare options and determine the most effective approach.