In the context of selling software or offering any other service via SaaS, you’re often faced with the question of whether you should change the plans and prices you offer for your services or not. These price changes are mainly motivated, although there are other reasons, to achieve more revenue. An increase in revenue can be achieved not only by increasing prices, but also by lowering them and getting more volume as a result.
A price change can be driven by many reasons, like increases and/or decreases in costs or changes made by your competitors. Or you are simply looking to simplify the excess of plans that you offer when in practice there are not so many substantial differences between them. Or you have been integrating many new features to your products and you think this should be reflected in the price. Or because you were selling two or more products separately and you think it’s time to merge them and sell them as a single service. Or, on the contrary, you think it’s time to sell a set of functionalities of your current service separately as an add-on. And surely there are many other reasons.
Before I tell you what to consider before making a change in the pricing structure, let me tell you about a couple of examples that we have seen recently.
WordPress.com Plan Changes
WPtavern recently reported that the WordPress.com hosting company was ending its recent pricing experiment reverting to the previous model. In other words, it has had to backtrack on a change of plans and prices it made at the end of March.
In short, and in case you didn’t know the story, WordPress.com previously offered 5 types of hosting plans for WordPress websites: the free one (without custom domain and 3 GB of space) and 4 other plans.
At the end of March, without prior notice, they replaced the 4 paid plans with a single “Pro” plan with an annual payment of $180 (equivalent to $15/month) with 50GB of storage and a maximum of 100,000 visits per month. The conditions of the free plan also changed: storage was reduced from 3GB to 500MB and the number of visits was limited to a maximum of 10,000.
The change generated quite a lot of controversy: whether the change affected existing websites that were already over 500MB (WordPress.com said that it was a bug and they quickly fixed it), and whether the price of the “Pro” plan was too high for small startups or bloggers, as they had also eliminated the option to pay monthly. In April, Sarah Gooding wrote an article commenting on the issue.
Three months later, after several user and customer complaints, WordPress.com reversed “its recent experiment”. So, on the current plans and pricing page, we can see again what we used to have. In addition, those customers who had already made the change could continue in the one that they were maintaining the same conditions in future renewals.
I do not have data on how many clients they have lost during these three months, but I suspect it’s not a pleasant figure.
Freshdesk Plan Changes
At the beginning of July, Freshworks, the company that provides us with the ticketing software we use to support our users and customers, contacted us explaining that they had developed new products with more features than the current ones and offered us different alternatives of changes and prices so that we could upgrade the plan we are subscribed to.
We believe that the Freshdesk software we use has the functionality we need to provide a good service to our customers. I don’t doubt that some of the changes and new features built into the new plans will solve problems that some of their customers may have had. But with the new plans, the plan we’re currently using fell in between two of the proposed new plans: we could switch to a cheaper one and lose some of the features we rely on, or opt for a more expensive plan with new features that we were not looking for.
Freshworks also gave us the option to stay on the current plan but did not guarantee future maintenance. Although we are not enthusiastic about the proposed changes, the service and treatment we have received from Freshworks has been impeccable at all times and that is why we continue to use the same Freshdesk service. We will continue with the old plan for now and will make some changes to our current configuration to make the change to one of the new plans later.
I also have no data on the impact these changes (will) have on their company, but we are sticking with them.
How to Change Your Plan and Pricing Structure
At Nelio, over the years we have also made changes to the plans and prices of our Nelio A/B Testing and Nelio Content services. Some with more success than others. Although in Nelio we have achieved more income with price increases than with decreases, I don’t think these data can be extrapolated to any product. And the fact is that each product and its clients have their own particularities.
Changing the plans and prices of your plans is most often determined by the costs you have and the margin you want to make. But there are more points to consider when implementing a new plan and pricing structure.
Try to Anticipate the Trend in the Markets
Don’t live in a world parallel to reality. Markets go through business cycles. In times of recession, economic activity slows down, and consumption and investment decline. Consumer behavior changes depending on how essential they perceive a product to be.
Do not make changes to the prices of your services without analyzing the market trend and taking into account what is coming and how you should deal with it. For example, in this article you can learn about different tactics to follow when a crisis period is coming.
Determine the Proactive or Reactive Disposition of Clients
Not all businesses have the same degree of “price-setting power”. This is determined by the concentration of customers and competitors, the margin structure of the sector, the degree of differentiation among competitors and the availability of product substitutes, among others.
It is not the same to change prices in a hosting company than in a company that offers software for managing customer support. It is not the same to change the prices of a plugin that allows you to create A/B tests of any element of your website than to change the prices of a plugin that helps you create content and promote it on social media.
On the one hand, you must understand your customers: although there may be a large majority who may be interested in promotions and better conditions, others are happy with the services they are getting for the price they are paying. On the other hand, analyze your competitors, their prices, and how easy it would be for your customers to switch to them.
Define How the Change Affects Your Current Customers
Before applying any price changes, define well what to do with the prices of your current clients. If your new structure implies a price increase, what do you do with the customers who are paying less? If you think that the amount you lose for those who leave you is going to be compensated by the price increase of those who stay, you can consider upgrading your prices for everyone. But if you fear that the change will not only mean losing a lot of customers but it will also mean having a lot of disgruntled people who will speak ill of you on social networks, be careful, you may have to close your business!
If your new structure involves a price drop, what do you do with your current customers who are paying a higher amount? Maybe they won’t even notice and you won’t lose any money. But as before, assess the risk that there be customers who will be outraged and not only abandon you, but also show their discontent and give you a bad reputation.
It is not only a matter of money, but also of priorities, values, and the reputation you want to earn.
Establish How to Communicate Changes
Communication of any changes, especially in subscription plans, is critical. It is advisable to communicate by phone or email. Keep in mind that, regardless of the change you make, there will be a percentage of customers who may not even have been using your service at that moment and will take the opportunity to unsubscribe.
Leaving aside these laggard or absent-minded customers:
- Contact customers well in advance so that they have time to analyze the new reality and make the appropriate decision.
- Make sure that customers have received this information by asking for their acceptance of the changes or whatever you think is necessary. If necessary, try to contact them more than once.
- Explain well the reasons for the price change: if there has been a cost increase, new functionalities, etc.
- Guarantee them the same or better quality with the price change.
- Be open to answer any additional questions they may have with such changes.
In this regard, I must commend Freshworks for the communication they have maintained with us to discuss the proposed change in plans and pricing.
Update the Website, the Product, and the Contracts
Apart from the pricing page, you may have other pages and/or ads on your website, on your own products, or on third-party products or websites, or even customized contracts somewhere else, that include information regarding prices. So make sure, before making any price changes, you have identified all possible locations where any reference to the price is made. And that you have the new versions of pages, contracts, etc., ready, so that there can be no inconsistency in the information found by your clients or even your own team. Our recommendation, however, is to have the pricing information exclusively in one place so that any other pages, products, or contracts need just a link to said page when necessary.
Oh, and, don’t forget to also update names if pricing is accompanied by plan name changes.
Revert the Change if Necessary
If the impact of your price change is not even close to the desired one, don’t be afraid to reverse the change made. WordPress.com must have made its calculations and estimates and surely the proposed change was not what they expected. We all make mistakes and we don’t always get it right. But they have been able to listen to criticism and reverse the change to return to its original prices.
There is a lot of merit in being able to recognize that an initiative has not worked and go back to the proposed plans and prices they had before. Don’t be afraid to do the same.
Plan price changes can either grow your company or, on the contrary, sink your business. Before any change, don’t be too hasty with the calculations you have set up in your spreadsheets and KPIs. Analyze the context well and the implications for your customers and your reputation. And, above all, be prepared for the change to be made as smoothly as possible so that the customer feels that your priority is that they are satisfied with the service you offer.