Published on Jul 26, 2021
Businesses across all industries have evolved significantly over the course of the 21st century. But the evolution of SaaS has moved at an even greater speed.
Case in point — SaaS pricing. In recent years, there’s been a growing trend where more and more companies are using dynamic pricing, which, simply put “means that your customers see prices that are relevant to market and channel conditions at any given point in time.”
Rather than offering fixed pricing that never changes, dynamic pricing fluctuates and is tailored to each unique situation, allowing you to maximize revenue, while at the same time delivering value to your customers.
For this post, I’m going to explain why this SaaS pricing strategy can be so effective and unpack the full logic behind it. I’ll also point you to helpful resources so you can make it work for your company.
As always, one of the best ways to gain perspective is to look at concrete data. At the end of the day, what’s the true impact of using dynamic pricing?
A recent piece of research made some very promising findings.
“Studies have shown that 98% of SaaS businesses earned positive results from making core changes to their pricing policy,” explains Phil Alves, CEO of DevSquad. “With tough competition, industry saturation, and the rapid evolution of SaaS platforms, many are starting to reinvent their pricing models according to the needs of their clients or customers.”
It’s hard to argue with 98%, and this stat clearly proves that, when done correctly, implementing a flexible SaaS pricing model like this helps the vast majority of brands capitalize on leads and land more deals.
Alves also notes that an integral part of making effective pricing changes is basing decisions on business intelligence and analytics. “Responsive pricing methods based on analytical reports are the most successful models in SaaS companies,” he adds.
In other words, this isn’t something that should be done on a hunch. Rather, you should continuously be capturing robust data to see:
In turn, you can make smarter decisions that allow you to choose the optimal price point for each customer, helping maximize your revenue, while at the same time providing a positive customer experience.
At first glance, it may seem like this pricing strategy is only used by a handful of uber innovative, adventurous SaaS companies. But it’s more common than you may think.
Subscription management expert Anne Egdal makes a great point in this quote.
“Think about it. How often do you look for a SaaS program, and when you reach the ‘Enterprise’ or ‘Corporate’ tier, you see a “Contact Us’ call to action rather than price? These businesses are likely to be using dynamic pricing, tailoring what they charge depending on the size of the client and the services they need.”
HubSpot is a great example. If you browse through the pricing page for their sales software, you’ll see their Enterprise plan “starts at” $1,200 per month, and their CTA says “Talk to Sales.”
And it’s the same story with marketing automation software Marketo. In fact, the first three options on their pricing page prompt leads to contact sales, and the “Enterprise” plan prompts them to “Request Information.”
So, they’re not featuring any static pricing, and instead funnel leads to a sales rep that can discuss pricing on an individual level. And if big name, ultra successful SaaS companies like these are using this type of pricing strategy, there’s probably something to it.
There’s one other massively important benefit of dynamic pricing to mention. By design, it provides a seamless framework for raising your SaaS prices without creating a lot of unnecessary friction.
According to financing lender Lighter Capital, most large-scale SaaS companies increase their prices 5-7% each year. And if you’re not increasing your prices somewhere in this ballpark, you’re essentially leaving money on the table.
While you obviously don’t want to use deceptive techniques to deliberately shroud how much your products cost, using dynamic pricing in a similar way as HubSpot and Marketo, where you direct leads to a sales rep to discuss deals, is a highly effective way to continually bump up costs up without rubbing leads the wrong way.
On top of that, you don’t run the risk of alienating your existing customer base.
Earlier I mentioned a quote from subscription management expert Anne Egdal. If you’re interested in learning more about the nuts and bolts of dynamic pricing, I highly recommend reading this post by her.
In it, she discusses:
Dynamic pricing is an emerging trend in the SaaS world that a growing number of brands have chosen to adopt. Although it won’t necessarily make sense 100% of the time, it’s definitely a pricing strategy to consider, especially if you’re selling to enterprise level customers.
Doing so allows you to routinely make pricing changes based on market conditions, competition, trends, and general inflation. And with a staggering 98% of SaaS brands seeing positive results from dynamic pricing, there’s a good chance it can have an impact on your company as well.
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