How To Change Pricing For Greater Customer Acquisition & LTV: Key Lab TakeawaysFebruary 2nd, 2021
We invited three B2B tech startups in the Venture Lane community to participate in our SaaS Pricing Lab. Participants worked directly with a Mentor Committee of seasoned pricing experts in Boston tech to optimize their pricing strategies for more effective customer acquisition and higher lifetime value.
On the Committee, we had Mark Burton (Pricing Expert Partner @ Bain & Company) and Brad Coffey (Chief Strategy Officer @ HubSpot). Check out their key takeaways below!
How to put multiples on customer lifetime value (LTV)…
Volume based discounts aren't a given. A lot of startups offer volume based discounts, because it's such a common practice. If customers get more value from your product the more they use it, there's no need to discount. Cost to the customer should increase along with product value.
Bundling helps customers upgrade. Too many individually priced products makes customers fearful of upgrading, because they can't easily forecast future cost. Bundle products together and allow customers to upgrade based on increased usage of those bundles.
- Get on the value train early. If your product delivers increasing value over time, adopt a value-based pricing model early on to ensure the same upward slope in your revenue curve. It gets exponentially harder to change pricing models as your customer base grows.
When (and when not) to offer user based pricing…
- Product value scales along the user axis. If a customer gets more value from your product as more of their users join, then user based pricing is a fit - e.g. the customer gets more value from your CRM product if 100 sales reps use it rather than 10.
Your product doesn't replace bodies. An obvious point, but don't adopt user based pricing if your customer will make huge efficiency gains and reduce headcount. You don't need product and revenue working against each other.
- Supplement user based pricing. Churn will take a bigger bite out of your revenue curve, if your pricing is based on number of users. Introduce non-user based sources of expansion revenue across your customer base to fortify the curve.
How to optimize pricing for customer acquisition…
Offer monthly contracts. If annual contracts are keeping your prospects from signing, don't hesitate to switch to monthly. Churn is obviously the concern, but only if 80% of your product value is delivered upfront.
- If you give something, get something. It's okay to make pricing concessions to close a deal. Just make sure to get something in return - e.g. working together on a case study, using them as a customer reference for other prospects, etc.
- Different ROI calculations, same price. For larger enterprise prospects, you may need to convince multiple economic buyers who each calculate ROI differently. It's okay to build unique ROI models for each buyer persona. Just make sure all models lead back to the same price.
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