4 Pricing Strategies for SaaS startup to increase conversion rate

  • October 27, 2015
  • SaaS
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I recently got a chance to deal with a few SaaS startups and almost all of them are very serious about their product, website and how they present themselves to the market. Oddly enough, they didn’t seem too bothered about investing time in ‘pricing’. Maybe because they believe it’s a waste of time.

Towards the last stage of their journey buyers tend to visit the pricing page and move from there onto conversions. I believe that they should spend time on a few significant pages that really matter. If they manage to come up with better pricing strategies, the conversions can increase tremendously.

In the remainder of the post I’m going to discuss elements to be taken into consideration when setting the packages and pricing for your SaaS startup. I’ll try my best to come up with current examples of brands that actually got it right. Their revenue numbers will help decide if you should try using the same strategies on your website’s pricing page or not.

Magic of Number 9:

There are so many theories flying around and according to one, there are certain prices that have a physiological impact on the human mind! Think of retail prices that you see in the market and all you will come up with are numbers like $6.99, $5.45 and more.

Actually, prices such as $1.99 are associated with spending $1 rather than $2. According to a 1997 study published in the Marketing Bulletin, approximately 60% of prices in advertising material ended in the digit 9, 30% ended in the digit 5, 7% ended in the digit 0 and the remaining seven digits combined accounted for only 3%.

Surprisingly, when it comes to SaaS businesses cognitive lode believe that round pricing and round numbers are more trust worthy and represent higher quality. If you look in to some of the most respectable tools within the marketing industry like Moz.com, Cloud9 and few more they all have a round number ending at number 9.

Moz Pricing Page

Are you still confused whether to go with magic number 9 or not? Checkout this post from Sarah Bird about the Moz’s 2014 annual revenue, it will help you make a decision.

Pro Tip: This idea usually works with multiple startups under different niches, but its best to see what kind of customers you have and take decisions accordingly.

Position your best plan in the middle:

The idea is to position your best plan in the middle. So let’s say if you have 3 packages, try to place the best-selling package in the middle and others on the right and left side of the page.

Why? The answer is human physiology. According to research, regardless if the products are placed vertically or horizontally, human minds prefer the one that is placed in the middle.

There are some SaaS tools particularly in the digital marketing industry that not only place their best selling products in the middle, but they highlight it so the user finds it different from the rest. KissMetrics is one of them who play this really well.

KissMetrics Pricing Page

There are others BuzzSumo, Brief Metrics who also nailed it beautifully on their pricing page.

If you are still confused about whether or not you should go for it? Check this post to get an idea of how big KissMetrics.com is when it comes to money.

Pro Tip: It’s a safe bet so I would highly recommend testing it. Try different placements and see what is working best for you when it comes to conversions.

 

Offer Annual Discounts:

I guess almost all SaaS businesses I know are doing this because it’s a win win situation for users and the business. Users get a beneficial discount upfront and businesses tend to retain customers for the rest of the year.

If you are a SaaS startup and not planning this, you probably should because people tend to opt for (and place higher value on) a small gain upfront.

I think Buzz Sumo and Moz.com are worth mentioning here as they are offering great deals for people who are willing to pay for a whole year.

Buzzsumo annual pricing page

Moz on the other hand allow their users to save up-to $1437 on annual subscription.

Honestly as a new SaaS startup in the market this is not really a choice because chances are that many of your competitors will already be doing this. Not providing discounts on annual subscription will only make you less of an ideal choice in the eyes of a customer.

Pro Tip: If others in the market are doing this, you really don’t have a choice. The idea is to cut your profits a bit and offer higher than average discounts in order to become eye candy for a potential client.

 

Use Principle of Scarcity:

I explained scarcity back in 2014 on my blog and how SEOs can use them. Scarcity technique really works and many people (especially hotels and airline businesses) earn a hell lot of revenue using this!

Airline pricing strategy

The idea is to integrate a sense of urgency on your pricing page in order to increase the conversions. Neil Patel gets it right and this image from Quick Sprout is the perfect example of it!

Quick Sprout

Here’s a thought, provide “exclusive discount to early adopters” for a limited time period that can be from few hours to few days. The reason why this will work is because the human mind places high value on objects that scare it. When a customer buys a product, they win because they avail discount and you win because you have a customer onboard who could have chosen competitors by a slim margin.

Not sure if you should go for it or not? Billion dollar businesses like Expedia, Trip Advisor and American Airlines are doing this for years to get customers onboard. It’s worth a try!

Pro Tip: You are a new startup in the market; if you play around with this tactic (regardless of whom else is doing this) you will be able to get those few customers in the early stage that also can help you survive and stay in the market for a longer period of time.

There are quite a few more ideas that are related to pricing strategies but I tried to focus on ideas that you can implement right away on your pricing page. Apply these tips and measure the difference within days or weeks.

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    • AvatarKimi
    • November 5, 2015
    Reply

    Thanks for the article.
    Can these advices be useful for desktop startups?

    • Reply

      I don’t have a data to support my statement but my feeling says no! I mean there are desktop software’s like Screaming Frog who are using the magic of no.9 formula but I don’t think it will work for all especially if you model is one-time cost with monthly maintenance.

      I personally believe when a user is convinced for desktop software the mental level is different as compared to when buying a cloud-based startup. I mean I don’t really have to care about my system configuration when buying a cloud-based tool but for desktop based software I have to make sure that my machine is up-to-date for this tool and more…
      I will still dive more into few desktop tools and if there will enough data in my hand I will write a followup post on this.

      But thank you for the interesting question.

    • AvatarKimi
    • November 5, 2015
    Reply

    Thanks for the article.
    Can these advices be useful for desktop startups?

    • Reply

      I don’t have a data to support my statement but my feeling says no! I mean there are desktop software’s like Screaming Frog who are using the magic of no.9 formula but I don’t think it will work for all especially if you model is one-time cost with monthly maintenance.

      I personally believe when a user is convinced for desktop software the mental level is different as compared to when buying a cloud-based startup. I mean I don’t really have to care about my system configuration when buying a cloud-based tool but for desktop based software I have to make sure that my machine is up-to-date for this tool and more…
      I will still dive more into few desktop tools and if there will enough data in my hand I will write a followup post on this.

      But thank you for the interesting question.

    • AvatarKimi
    • November 5, 2015
    Reply

    Thanks for the article.
    Can these advices be useful for desktop startups?

    • Reply

      I don’t have a data to support my statement but my feeling says no! I mean there are desktop software’s like Screaming Frog who are using the magic of no.9 formula but I don’t think it will work for all especially if you model is one-time cost with monthly maintenance.

      I personally believe when a user is convinced for desktop software the mental level is different as compared to when buying a cloud-based startup. I mean I don’t really have to care about my system configuration when buying a cloud-based tool but for desktop based software I have to make sure that my machine is up-to-date for this tool and more…
      I will still dive more into few desktop tools and if there will enough data in my hand I will write a followup post on this.

      But thank you for the interesting question.

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