SaaS, how do you find the right price?

SaaS, how do you find the right price?

As businesses and consumers alike see their purchasing power under pressure, companies with a subscription-based model need to be vigilant and resourceful to properly calibrate their prices. What lessons from the past can be used when modifying your offer?

Netflix is not strictly speaking a SaaS company, and yet its history is not without teaching for the actors of the software. If there is one company in the world that we know has mastered the subscription, it is Netflix. And yet, in 2011, she made a nearly fatal mistake, dividing her $ 10 plan into two plans at $ 8 each, an effective 60% increase for access to the same content. The reaction was immediate: 800,000 lost subscribers and a plummeting stock price. We can therefore see that a price error can be dangerous, and we might think that it was enough for Netflix to cancel this increase to start again, but the problem was elsewhere.

The subscription is based on a mutual relationship, and Netflix had in reality shattered the confidence of its subscribers by unilaterally deciding to increase its rates in the midst of a recession. However, Netflix has become the world champion of streaming. To get back on its feet, the company had to deliver one of the most important lessons for all subscription companies: how to correct oneself after making a mistake.

The lesson of Netflix: to correct your mistakes, listen to your customer!

First, subscribers wanted anytime, anywhere access. Netflix quickly realized that consumption patterns in general were changing drastically and adapted accordingly. Next, their customers wanted simplicity, which is why they created a user interface that was transparent, personalized, and fueled by millions of daily uses. Finally, Netflix cleverly leveraged its data to understand that their subscribers wanted original creations, and particularly liked David Fincher, Kevin Spacey and Robin Wright. At the same time, a British series was hit in England, named House of Cards… Netflix has been able to listen to its customers, identify a major trend, leverage data and restore the relationship of trust, to achieve its success today.

Putting relationships at the heart of the change process

But how do you avoid making a mistake in the first place? A great example of smart change comes from GitLab, a very popular and rapidly growing IT development platform. GitLab was facing a problem: their entry-level product (the Bronze tier), aimed at small teams, had ended up attracting more established companies for which this product was unsuitable. Because of this mismatch between the product and the customer, GitLab was losing money in customer support and found itself forced to change its offering, including killing its lead product.

GitLab implemented the change gradually:

  • By proposing a transition plan : GitLab customers could not only keep their Bronze subscription until the end of the contract, but also subscribe again for a year, or switch to a premium plan with a price reduction.
  • By highlighting their free offer: and for good reason, most of the features of the Bronze plan were already free. However, the free plan converted free customers into paying customers efficiently, while the bronze plan cost more than it earned.
  • By encouraging feedback: the day of the launch of the new offer, GitLab invited its customers to give their opinion in a special section of their community forum.
  • By favoring simplicity: GitLab has correctly highlighted its three offerings so that everyone can quickly decide which plan is right for them, rather than getting lost in extraneous options and features.

GitLab has therefore perfectly mastered its change of offer. Either it’s about Netflix or from GitLab, the lesson is similar. The flexibility allowed by the subscription is not a guarantee of success. Listening to your customers and nurturing the relationship with them, on the other hand, is an essential ingredient for success – something that too many companies, subscription or not, seem to forget.

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