Subscription pricing strategy is frequently neglected in many organizations, and large “pricing refresh” projects can be challenging because you don’t know where to start.
The first step to refreshing your pricing strategy? Identify what’s not working. Sometimes you’ll find signals of dysfunction such as: excessive discounts across your sales team, the need to constantly run promotions, and static price rates that haven’t increased in years.
A thorough review of these red flags is the first step to identifying the goal of your pricing refresh. Have a clear picture of what metric you are trying to move:
You can’t land new customers: Do you need to change pricing to increase customers in a particular segment?
Your upsell path is broken: Do you need to change pricing to increase Average Revenue Per Account by creating more upsells / cross-sells?
Your pricing is static and hasn’t kept up: Should you simplify your pricing strategy so that customers can more easily leverage new features?
After the initial analysis stage, lots of companies find themselves in a state of paralysis — they have a huge amount of new information, but are still afraid to pull the trigger on a new pricing plan in case something goes wrong. That’s a mistake.
The lesson here is to be cautious with your existing customers, but there is no time like the present to apply new pricing to new customers. Set a timeline for when your new subscription pricing will be available to new customers, and work backwards from there.
It’s imperative to pilot your new pricing with both new and existing customers. Make sure that your catalog lets you support both your old and new pricing, so that you can test, iterate, and repeat.
For new customers: Test for the right price point and packaging strategy, then start rolling it out to all new customers after the “launch” date.
For existing customers: Find existing customers that you know will benefit from your new pricing strategy (e.g. they’ll receive a lower ACV price or an increase in available features), and start with them.
Put practices in place to ensure that your new pricing is adopted and maintained. Simplicity is key here. For example, a smaller catalog is often a good thing. The revenues of higher-growth companies are typically concentrated in a smaller, more highly curated set of products.
When it comes to product catalogs, less is more. Our research shows that on average, the fastest-growing companies have the lowest number of products (and product versions) when adjusted for the amount of company revenue. The fastest-growing companies have less than one product per million dollars of revenue, growing at an average rate of 31%. Companies that have more than five products per million dollars of revenue grow at an average rate of just 12% (Source here)
At the same time, active management of your product catalog gives you the agility you need to to respond to your customer needs in real-time. Keep your catalog updated: mark outdated rate plans as inactive, and stay on top of your grandfathered products. If you maintain your catalog on a relatively frequent basis (twice a year versus every two years, for example), you’ll be able to avoid huge pricing cleanup projects in the future.
B2B companies with the highest growth rates strategically use flexible pricing to align price with customer value. Zuora collaborated with McKinsey & Company to analyze our Subscription Economy Benchmark data and develop guidance on the three core pricing elements common to the fastest growing B2B subscription companies.
Earlier this year, GitLab got rid of a paid starter offering, trimming its product catalog from four subscription tiers to three: Free, Premium, and Ultimate. Why? Too many of their subscribers were housed in the starter tier, causing a customer/product mismatch that was costing them money.
As they explain in this excellent video, GitLab solicited lots of feedback (on a confidential basis) from customers and internal team members alike before the launch. GitLab then invited its customers to offer feedback in a special section of their community forum on launch day. Gitlab was generous with how they transitioned existing customers – not only could their customers on the canceled plan choose to remain on the same tier until the end of their subscription period, but they could also renew at the current price for an additional year or upgrade at a discount.