SaaS pricing: You're too cheap if you never lose customers because of pricing

by Steli Efti
cash-money

Dare to charge more and then live up to the challenge. It’s not about becoming so affordable that everybody can get some value out of you. It’s about creating so much value that the right customers are happy to pay you a fair price in exchange.  

We often advise SaaS startups to raise their prices. The one thing we always get is resistance. 

Founders always argue: “But that’ll increase churn and lower new signups!” And they might be right.

No founder wants to risk the relationship with their customers and prospects. We’re all afraid of overpricing our product and losing all our customers and our chances for future success.

If your pricing isn't cheap, a certain amount of paying customers will eventually cancel and tell you things like:
  • “Too expensive for what it does for us.”
  • “It’s a good product, but at that price it simply doesn’t provide enough value.”
  • “We weren’t using it enough.”

When you get feedback like this, your instinctive response is to retreat. Even for us at Close.io, every time when we get this kind of response (and we occasionally do!), we have that urge to lower prices.

It’s important that you fight that urge!

Don't lower your prices

Why? Because lowering prices might be solving the wrong problem. With many SaaS products, the problem isn’t that prices are too high (quite the opposite), it's that you’re not providing enough value.

By lowering prices, you’re just being lazy. Sure, you can lower your prices so far that anyone would get value out of your one dollar 10-year plan with unlimited 24/7 phone support.

But it’s still not solving the problem you, as a business, should be taking on. Lower prices just allow you to close your eyes awhile longer and live in the land of wishful thinking. Don't try to become the cheapest vendor in your vertical. The Walmart model rarely works for SaaS companies, and if you can make it work for your business, you'd probably not even be reading this post but already be running a multi-billion dollar SaaS company.

Provide more value instead

Change the way you think about SaaS pricing: Instead of lowering prices, aim to constantly provide more value. Think of every customer who cancels as a kick in the butt that propels you to improve your product faster.

Add more features (or take away overkill features). Make it more powerful/faster/more reliable. Make it easier to use. Onboard, train and support your customers better. Solve their problems and challenges better. Help them achieve their goals faster.

Focus fanatically on this: offering more value to every single customer than you extract from them with your pricing.

Do that by constantly adding more value to your customers life instead of lowering your prices and discounting your product heavily.

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