How Your SaaS Pricing Affects Your Target Audience

Why aligning perceived value with your target audience is so important.

We’ve been noodling around with different pricing strategies for the past several years here at Re:amaze. Lots of options and strategies have come and gone since then but pricing continues to be an integral part of all conversations. This is more or less true at any SaaS business. Pricing needs to be an alignment of incentives between what your customers need and what you need. Both are necessary.

Pricing Goals

The prerequisite of an effective pricing strategy is goal alignment. — Tom Tunguz

Small clients want everything under the sun because well, they’re cost-conscious and would rather have one product do everything.

Large clients want very specific things because well, they can afford to be demanding and want you to solve for a specific problem they have.

The evolution of Re:amaze’s pricing over the years looks like this:

• Alpha: Free
• Beta: $5 per user per month
• Post-Beta: $15 per user per month
• 2015: $15 per user per month + $5 add-on
• 2016: $20 per user per month + $5 add-on and additional considerations for larger accounts
• 2017: Tiered $20 per user per month or $40 per user per month and additional considerations for even larger accounts

In the grand scheme of things, we’ve kept things relatively simple for our customers compared to most SaaS platforms. No usage limits, no contact limits, no limits on the number of channels you can add, things that most helpdesk and customer messaging platforms would nickel and dime for.

Interestingly, this pricing structure has allowed us to cater toward the long tail for greater market penetration (which worked). Accounts ranging between 2 to 10 staff users now dominate the majority of our paid conversions, 57% to be exact. 36% range from 11 to 20 staff users. The rest are enterprise businesses with a strong commitment to maintaining a high staff count in order to keep their customer service, sales, and marketing personnel on the same platform.

We also found that over 44% of time spent on helping our customers succeed were going toward account sizes that range between 1 to 5 staff users, 38% on accounts ranging from 6 to 10 staff users, and 12% on accounts with more than 10 staff users. Further analysis indicated a widespread seat-sharing phenomenon among users. Re:amaze is better when each staff member has an account, but due to way certain businesses are structured, our current pricing causes businesses to have a negative incentive to adding their team members to the platform.

Even during sales conversations, we realized a few pain points with certain types of businesses. The per-user pricing model is a very simplistic one-size fits all model, but it incentivizes some behavior for our long-tail users that we believe is causing pain for them while not allowing us to realize the full potential ARPA (average revenue per account) of such accounts. At the same time, it‘s simplicity also causes rigidity for some our larger customers who are large enough that need tailored pricing.

Aligning our pricing to cater to different business types is in the interest of both our customers and our business. This requires us to rethink how we and our customers perceive value. This also means reconfiguring our pricing structure to prioritize our customers’ needs while also boosting our own ARPA. Each customer segment’s willingness to pay must ultimately be aligned with immediate value perception and long term growth.

What about the competition?

When asked, Re:amaze always comes up as an alternative to Intercom. And while Intercom’s pricing structure is complicated enough to confuse even the most brilliant mathematician, they’re certainly “more” up-market than we are. In addition, the value perception of customers that switch from Intercom to Re:amaze is a clear indication that our pricing attracts a different breed of customers than Intercom’s. Over the past year however, our understanding of which segments of the market we can service effectively has evolved enough to a point where we can make adjustments to our product pricing that more accurately reflect the budget capabilities of the types of businesses we attract:

• Their level of “willingness” to pay for our product is based off of business priorities more than anything else.
• They’re mostly comfortable with our competitors’ pricing but is confident we can offer a similar, or better, experience.
• They’re confident we can serve the medium sized business community well.
• They perceive our Enterprise tier product to be high end.

Price is always tied to the market’s willingness to pay. Nobody cares what sales model you need to support internally, nobody cares what your costs are, all they care about is what is in it for them. The better you understand your market the easier it will be to create an offering that they perceive to be high value. — Lincoln Murphy

There are countless ways to determine how to price a SaaS product like Re:amaze in a competitive industry like Helpdesk. We started doing competitive pricing analysis many years ago and have tracked how our competitors like Intercom, Zendesk, and Freshdesk have evolved. This serves as our benchmark. We’ve also gauged our product position (features, quality, industry, etc) within our vertical and understand how our pricing disparity continues to be an asset relative to our current position. The next step is to determine:

• Do our product differentiators incur significantly higher/lower operating costs for us?
• What kind of margins are our competitors operating on? Are they venture funded? Bootstrapped? Profitable?
• Can our future pricing structure sustain our business margins in light of the above?

What we know about ourselves so far

Let’s summarize:

1. We’d like to continue offering our long tail customers great pricing, but align it so their not incentivized toward negative behavior, like avoiding creating user accounts to avoid per-user pricing.
2. We’d like to be able to cater to large teams with specific needs but represent higher ARPA.
3. We know our features are already highly competitive even compared to Intercom or Zendesk or Freshdesk.
4. The perceived value of Re:amaze from new customers is still in line with penetration pricing but not revenue growth pricing (ie. we attract smaller accounts looking for a great value but not enough accounts looking to solve for a particular problem).
5. We need to create a new pricing structure tailored for 3 distinct customer segments: one for maximizing happiness among existing paying customers, one for our smaller clients to ensure they can utilize Re:amaze to grow their business, and one for our larger clients so we can focus on delivering a curated solution to solve their more complex needs.

The Game Plan

We haven’t made a firm commitment yet as to how we’ll change Re:amaze’s pricing but we do have some ideas floating around. We’ll list them out here for clarity:

Free Trial

We will most likely continue to offer a full-featured free trial because we’ve had massive success in accelerating ARPA growth, conversions, as well as up-selling to our Plus plans. Our trial period is 14 days with every feature included.

Free Plan

Re:amaze has never had a free plan even though we get requests for one almost every day. It’s been agreed upon that the introductory of a free plan must not simply be a dumbed down version of a paid product. The free plan must offer a core feature to help businesses succeed in one aspect of their customer service or engagement process. Because most products with a free plan are able to quickly capture a large long tail, our primary goal should be focused on acclimating customers quickly to the various other benefits of Re:amaze once perceived value has been established.

Should we advertise the free plan? That is a decision we have yet to make but we’d like to avoid a situation where we’re only actively promoting or sending people to free rather than paid plans. While most freemium SaaS products want to ensure that all customers can at least sign up for a future up-sell, we’d like to focus on educating customers no matter what plan they’re on.

Keeping Pricing Simple

Everything we do, from sales and product marketing to product development and support should either drive our customers to a purchasing decision because they enjoy what we do or at least justify the value of the price we’re asking for. The last thing we want to do is be known (or go back on our word) for absolutely dreadful pricing, and not because of magnitude but because of complexity. We do not want to treat monetization like an exact science and obsess over cost per acquisition or diversified revenue channels.

Whatever pricing structure we go with should remain simple to the customer (no per-product pricing like Intercom) but we may introduce alternative structures to experiment to see how we can fit to different business types.

Moving Up-Market with Team Focused Pricing

As mentioned earlier, Re:amaze is designed for teams and it’s our job to ensure customers don’t end up seat-sharing just to avoid costs. It’s our job to help businesses see the value of Re:amaze through the right lens. Moving to more team-focused pricing plans will hopefully give incentives to sign-up without having to worry about head-counting, an exercise many of our customers currently go through. This also helps drive more consistent and more predictable ARPAs while simultaneously boosting LTV (lifetime value) and overall app stickiness. This is an important change we need to make because it helps align our goals to how we want to change value perceptions.

Offering Tailored Plans for Specific Verticals

As much as we want to believe that a few pricing plan options will be good enough to fit businesses of all shapes and sizes, it may not be true. Re:amaze attracts businesses of all types and different industries have different usage patterns. For example, SaaS businesses might prefer to pay per user and keep usage unlimited while eCommerce businesses might prefer not to have to think about the number of users they have and pay based on conversational volume. In either case, offering vertical-specific pricing can help customers become comfortable with their respective pricing plans and realize the value of Re:amaze faster.

What next?

It is always challenging to provide advice and benchmarks for the perfect SaaS pricing strategy because 1) every SaaS business is different, which makes it almost impossible to find an equivalent even among competitors and 2) because every SaaS product is different, pricing is almost always a result of how your customers react. We’re still experimenting and we encourage you to do the same and to take a step back and analyze your audience when thinking about strategy. We’ll be sure to continue sharing our thoughts as we evolve as a business.

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You can also find our multi-brand, multi-channel customer service platform at https://www.reamaze.com. Follow @reamaze.