Subscription pricing and plan structure have a profound impact on subscriber acquisition and retention. Nail the formula, and you’ll see revenue increase. For the essential SaaS benchmarks and best practices that will maximize revenue, improve acquisition, and spur adoption, don’t miss this VB Live event.
Because SaaS businesses have been using the subscription model for longer than newer entrants (like box subscriptions), they’re a bit more sophisticated, says Emma Clark, chief of staff at Recurly.
“It doesn’t mean that you can set up and stay static with the way you’re structuring your plans,” she adds. “There are a lot of opportunities for improvement — to iterate and to identify where user behaviors or prospect behaviors change the nature and the way that you’re setting up your plans. We’re starting to see some changes in the way that the model is being implemented across a lot of different industries.”
How B2B SaaS companies can scale like Slack
In SaaS, a huge incentive is for companies to price and set up plans to acquire new customers — and then grow the customer’s revenue once they’re on board.
The majority of SaaS businesses are B2B, Clark says, and when it comes to selling to businesses, the challenge is not necessarily in the types of offerings, but who they’re selling to, how that’s changed, and how this impacts the level of flexibility they need, and the types of plans they offer.
She offers Slack as a good example of a SaaS company that has demonstrated that it needed flexibility in the way it sells its product.
“They found that going direct to the buyer was a great way to create product loyalty, and that helped them move into the enterprise market,” she says. The company started out with freemium plans, then evolved to sell to small and medium business, and now have leveled up into enterprise B-to-B.
What does that mean for subscription plan setups? Slack needed the flexibility to offer a basic, free plan, then give people incentives and additional functionality to upgrade, basing plans on active users, with options to bill monthly or annually. They also needed a custom offering for enterprise clients.
“The trend we’re seeing is that SaaS businesses span more broadly in who they’re selling to, which means they have to have a wide variety in the way they structure their plans depending on the end buyer, and then provide flexibility when they want to make changes,” Clark says. “If the company starts out with one Slack user using a free product who then wants to get others in their organization to use it, Slack needs to incentivize that.”
How SaaS companies can fail
The biggest mistake she sees SaaS companies making is not testing enough, despite the flexibility SaaS companies have.
“We see folks a little scared of testing in the way they structure their subscription plans and the way they charge,” she says.
Changing from a seat-based to a usage-based model can be scary, because you might have a dip in your revenue, and you might be unsure at first about how that’s going to impact your top revenue line.
“You don’t want to go to the board and say, we made this pricing change and it was a mistake,” Clark says. “But the down side of not testing is that you don’t know what you’re leaving on the table. Not making any changes at all really is a large opportunity loss.”
The reality is, it’s pretty unrealistic to believe that subscription businesses can nail down the best plan and pricing in one go, she explains. The agile principle of iteration needs to be applied to how you package your subscription products and services, not just how you build your products themselves.
“The idea that we would iterate on a product, but not on the way we sell it, just seems silly to me,” Clark says. “You’re leaving one piece of the puzzle, a large one, when you’re not looking at both of those dynamics.”
Key SaaS benchmarks for success
Because Recurly has such a plethora of data points across more than 2.300 customers, the company is able to get a nice slice of what the subscription commerce market looks like. Recurly Research produces benchmarks that are objective-based, reporting on what it is seeing in the market in terms of key performance indicators.
The latest Recurly Research study focuses primarily on monthly and annual plans, as well as how offering trials and discounts to incentivize to longer commitments made a change in companies’ businesses, and it has uncovered some actionable results.
For instance, their research found that the plan length itself — whether you offer a monthly plan or an annual plan — didn’t have any significant impact on a trial conversion rate, Clark says. With both, the median conversion rate from a free trial to a paid customer was still around 60 percent. However, with annual plans, there’s a larger spread in the conversion rates.
They saw a higher trial conversion rate for the best performers, in that quartile above 75 percent, and a lower trial conversion rate from the worst performers in the first quartile — and the key takeaway is that it’s essential for companies to test their trial lengths, or risk leaving money on the table.
The market dynamics of the subscription commerce space are changing, Clark says, and in SaaS there are so many ways you can price, whether that’s by consumption, how many features people are using, the size of a company, the company’s revenue, the number of seats its using, or a combination of all of those. There’s so much flexibility for SaaS companies to test out pricing — and industry benchmarks are a crucial foundation for those tests.
For an in-depth look at these industry benchmarks, plus a look at how successful SaaS companies are optimizing revenue and maximizing LTV, don’t miss this VB Live event.
Don’t miss out!
Attendees will learn:
- Important SaaS benchmarks by industry segment
- How to structure your SaaS subscription plans and pricing to maximize revenue and retention
- How successful SaaS companies use a test, learn and iterate framework to optimize revenue
- The key metrics — and reports — to monitor for success and maximum LTV
- The results of an in-depth case study on SaaS testing and pricing
- Panelist: Emma Clark, Chief of Staff, Recurly
- Moderator/Analyst: Sean Joyce, Recurring Revenue Technologies, Navint
Sponsored by Recurly