By Shawn McKee, WebPT
A product pricing change is a complicated minefield for any software vendor to navigate—especially when it involves a price increase. While heavy hitters like Salesforce can mandate bumps as high as 7 percent without worrying too much about churn, the average SaaS provider doesn’t have this luxury. For most of us, increasing our subscription pricing rates comes with significant internal and external challenges.
So, what if I told you there’s a different way to approach a pricing change—one that looks beyond revenue growth and considers how a pricing overhaul can positively affect your customers, your future products, and your bottom line? What if I told you that this approach alleviates most of the fear associated with a pricing change—and helps make the whole process smoother for both your company and your customers? Sound appealing? Well, at WebPT, we developed a strategy that did just that. What started as a price increase challenge from our board of directors turned into a new, successful chapter for our company. In the end, we improved our revenue and increased customer retention beyond what we ever thought possible. Here’s how we did it.
View From The Top
Over nearly ten years, WebPT grew from a small startup into one of the most trusted providers of outpatient rehab therapy software. We were helping single practitioners, small and midsized therapy clinics, and even enterprise organizations maximize their performance, revenue, and patient outcomes. Business was good because we were servicing an underserved segment of the healthcare industry. More importantly, though, we fostered fierce loyalty within our community of Members (a.k.a. our customers) by making a concerted effort to listen to and understand their pain points through initiatives like:
- customer advisory groups,
- an in-app “Idea Portal” where Members could offer product suggestions, and
- “Member Moonwalks” where employees spent time in our customers’ clinics.
Although we had achieved 30 percent year-over-year revenue growth and secured approximately 28 percent market share, we eventually reached a tipping point. We hadn’t optimized our profitability equation, and we were experiencing significant cost increases. We realized that, at some point during our growth and amid the evolution of the fast-paced SaaS world, our pricing model had become stale—and we needed to take action. It was time to do something we hadn’t done at all during our first ten years of business: review and overhaul our pricing model.
Rules Of The Game
As you can imagine, we were hesitant about disrupting what had worked well up to this point—but as an ambitious, enterprising, customer-centric company, we didn’t let that stop us. We asked the marketing team to lead the charge because they were the most familiar with our customers and our market. They took on the task of communicating—internally as well as externally—why this change was occurring. Additionally, we defined the following set of rules and action items, which supported our eventual success.
1. Do Your Homework And Understand Your Customers.
During the planning phase, it’s critical that you:
- Invest in and conduct the right kind of high-quality market, competitor, customer, and pricing research;
- Understand how your customers create revenue; and
- Develop comprehensive personas and customer segmentation.
Don’t be like the average SaaS company, which—according to SaaSX—spends only six hours evaluating and determining its entire pricing strategy. That said, you have to understand that your new model or strategy will not please every customer—which means that yes, there will be churn. It’s an inevitable part of this process. That’s why it’s so valuable to measure your plan by the 80/20 rule. Ask yourself: “Is this price change and strategy good for the bulk (80 percent) of our customers?” At WebPT, we also leaned heavily on the results of our meticulously tracked Net Promoter Score (NPS). Through these surveys, we learned that many Members were open to some type of pricing model change—and that others would be much less flexible.
2. Build A Guiding Set Of Principles And Adhere To Them
Once you understand the current state of affairs within your organization, market, and customer base, it’s time to outline your guiding set of principles (i.e., the “should dos” and “must nots”). These serve as your North Star, guiding your implementation process and keeping you on the path to success. At WebPT, our overarching goal was to implement a 20 percent increase to our target list price and a 15 percent net increase to our revenue run rate. We also wanted to simplify our pricing structure and make it more transparent, because, during our initial research phase, we uncovered pricing-related issues that were frustrating our customers. Accomplishing this goal meant we had to make certain pricing structure improvements—such as simplifying one-time discounts and enabling more automation and self-service. We also wanted to make pricing a core competency within our organization, which required us to create more segment-focused product packages and incorporate more flexibility into our product framework. These changes would help us accommodate price adjustments, future add-ons, and other developments that could move customers to the next tier—something we struggled to do under our previous pricing structure.
3. Build The Plan
Once you have your data and principles in hand, it’s time to:
- Define the new pricing structure based on comprehensive price impact modeling;
- Identify the impact on current customers;
- Divide these customers into risk-level groupings; and
- Dig into your outliers.
You must also acknowledge that some customers will need a little more hand-holding and potential discounting than others. But, the more you can reduce these special cases, the less lift this pricing shift will require overall.
4. Prep The Team
With your plan in place, the next critical step is to find and rally the customer advocates within your organization. It’s impossible to successfully roll out any significant change if you don’t have internal buy-in—which is why we found it helpful to create a cross-functional team that included representatives from customer success, marketing, finance, sales, and operations. Ensure these advocates have a complete understanding of the pricing change—the purpose, the details, and of course, the value it will bring the organization. Then, gather up (or create) the tools you will provide your advocates—including talking points, scripts, and answers to objections that may potentially arise. We took that a step further by role-playing to practice handling objections and further increase our employees’ comfort discussing this topic.
5. Deliver The Messaging—And Keep Your Promises
It’s time for the rubber to meet the road: you must begin delivering what you’ve planned and prepared. As you do, you must be clear, genuine, and transparent with your customers about why this change is happening. Keep in mind that you don’t have to transition everyone to the new pricing model overnight. You probably shouldn’t. Instead, test your plan with a select cohort of customers so you can find your footing and address any gaps. We started by walking a small initial group through the pricing transition, clearly communicating what we were updating and how the changes would benefit our customers. During this stage, we gauged the overall response to our messaging and identified unforeseen challenges. We were then able to address those challenges before we introduced the change to the rest of our customer base, which made the broader rollout that much more effective. Furthermore, we never hesitated to pull back our rollout speed when we learned something new or when we realized it would benefit us to do so. But, whatever we messaged, we remained true to our word, and that is the key. To preserve customer trust, you must deliver on your promises and back up what you tell your customers. Otherwise, you’ll run into problems down the road.
The Price Is Right
So, how did we do? Well, the following year, we met our goal of increasing recognized revenue by 20 percent and net revenue run rate by 15 percent. We also observed a lower churn rate than we initially anticipated, and we began to see new success in upselling and cross-selling. These achievements were only possible because we adjusted our perspective and overcame our initial fear of increasing prices. This, in turn, helped us realize that we had an opportunity to do more for our customers in an area we had previously neglected. We were also able to build a much more flexible foundation for future products and revenue opportunities. This simple pricing change managed to transform our entire company into an even more competitive player that’s now fully prepared for continuous growth—regardless of future market shifts.
Rinse And Repeat
A single challenge from our board of directors helped us see how much our pricing structure impacts our ability to realize our full potential as a company. Now, we re-evaluate our pricing—from top to bottom—every couple of years; it’s one of our organization’s core competencies. We’re always asking ourselves how we can use pricing changes to reach new heights. What opportunities exist? How do we measure up to the competition? How can we cater to different customer segments? We’re always looking at the bigger picture because—as we learned firsthand—SaaS pricing increases don’t have to be as painful as they may appear.
About The Author
Shawn McKee is the senior vice president of marketing at WebPT, where his responsibilities include positioning WebPT as an innovator and thought leader in the healthcare technology industry as well as driving company growth through demand generation, Member marketing, and advocacy initiatives. He leads a team of award-winning marketing and design experts to deliver a superior customer experience for both WebPT members and prospects.