Stormpulse adjusted their SaaS pricing model by raising their prices 10x… and getting happier customers in the process.
So I just had a Progress Check and Planning meeting with a retainer client, Matt from Stormpulse, who told me since they moved away from Freemium just 4 months ago to a Premium-only SaaS offering with a Free Trial they are now profitable and are on track to do $100,000 in revenue this month!
That is absolutely amazing for a company with just a couple of employees.
Interestingly, I was looking through some older emails after my conversation with Matt and I found this one he sent me after they had made a massive change to their pricing.
Like many SaaS companies, Stormpulse seriously under-priced their offering… where they differ from most is that they realized they under-priced and decided to do something about it!
Raising prices was the step before they dropped Freemium altogether and this email is super-interesting to read, especially with the additional context of where they’re at today, and it gives insights into how the founder and CEO of a SaaS company should think about Pricing Model (though earlier in the company lifecycle is ideal, but better late than never, right?)
This is from Matt…
“Lincoln – You mentioned raising prices recently.
Just wanted to tell you that Stormpulsehas raised its base price from $8.95/mo / $24.95 for 6 months / $49.95 per year to $499 per year with no monthly option… a 10x increase!
We are seeing businesses renewing no questions asked at even higher prices (alt. configurations) like $690 per year or $990 per year when they paid us only $24.95 or $49.95 last year. Amazing, eh?
That’s how much we were leaving on the table by being consumer focused instead of B2B.
I would clarify that by saying that we were focused on a low-stakes versus high-stakes segment … i.e. for some of our buyers, Stormpulse was like Sunday NFL Ticket, nice to have and fun and entertaining, but how much is that worth versus alternatives? Can’t you find entertainment for $0.99 on your iPhone these days?
For other buyers, Stormpulse was helping them determine when to fly and when to ground multi-million dollar aircraft, when to shut down operations at a manufacturing plant, etc. Much bigger deal with much bigger consequences if you are going to use an inferior alternative.
This is basically restating my latest realization–there are different kinds of value: entertainment is one kind, security is another, etc. You need to know which kind you are dishing out, and price accordingly. But you know that already. 🙂
This shift also required us killing off our personal edition. We did this by making almost all of the personal edition features free (the ones that most consumers were after) and then taking away the beloved full-screen view option, which is what businesses can’t live without.
Sure, we’re getting some consumer backlash but we are looking forward to a much more stable business model with happier customers that have even fewer needs (support issues) than the individual consumers.”
Pretty interesting stuff, right?
To me, there are a number of amazing take-aways from Matt in that email.
1. I know that Matt and the rest of Stormpulse didn’t come to this conclusion from their own assumptions. They took a deep look at the VALUE that the big (MASSIVE) companies who were using their product derive from that use and knew that even if they raised their prices 10x, their customers would STILL derive AT LEAST another 10x value from it.
How many HUGE companies are using your product right now and paying you $8/mo?
2. By not recognizing the value the customers are getting from their product, Stormpulse would have left HUGE amounts of money on the table and put their business in jeopardy in the process. If you aren’t in business anymore, you can’t help anyone, right?
3. Stormpulse made a strategic decision to alienate the low-end users of their product in an effort to save – and grow – their business. Sometimes you have to FIRE your low-end customers that are too burdensome for your company to continue to support.
4. They had to acknowledge the actual size of their company now, but also where they wanted to be in the future. Is supporting low-end customers keeping you from focusing on the big picture and moving the company forward?
Do you want to be an organization that must support low-end users of your product or do you want to focus on larger, more profitable customers? It might be time to FIRE the low-end customers. If you doubled your prices and lost 50% of your customers, you’d be at the same revenue level with less headaches and better customers, right?
5. Let me be clear… you will get pushback from the firing of low-end customers (in fact, they are often the loudest), but done properly it is manageable. Don’t keep from making a strategic decision that is required to take your business to the next level – or save it – because you don’t want to make some people mad.
People will get mad anyway. So just be up front, as transparent as possible, communicate well (for example, you probably shoulnd’t state publicly that you’re firing your low-end customers), and manage expectations.
Remember, in everything you do – including raising pricies – it is ALL ABOUT THE CUSTOMER and when you announce it, it has to be framed that way.
Changing your SaaS pricing model is not something to do on a whim, but if you’ve done a value-based assessment of your model – with the customer at the center of that analysis – and feel you’re leaving money on the table and could still deliver 10x the value if you raised your prices, it might be time to look at doing that.
If you’ve been in-market at least 6 months and are curious how we could Accelerate your Profitable Growth – perhaps by optimizing your Pricing Strategy – contact me and we’ll setup a time to discuss your options for improving and accelerating customer acquisition and profitability.