For Better Subscription Sales Price Your Services Like a Mobile Plan

Most SaaS companies sell their software as yearly or multi-year subscriptions, and often they want all the cash upfront. Although it's good for the vendor to get their cash upfront and eliminate some of the billing administration, it is not how their prospective customers will want to buy in a cash-strapped economy or perhaps ever.

A few months ago I was trying to purchase (or should I say subscribe to) marketing automation software for my business. Every vendor I talked to wanted a large annual fee paid in advance. To make matters worse, they were asking for an entry-level fee that assumed 10 times more usage of their service than I could justify, and included modules I don't need at this stage in our growth.

So I asked the question: why not sell me a plan that suits my consumption of the services at a price point that makes sense for me, so you can capture my business and let me grow with you? In other words, remove the barriers that are stopping me from making the decision to buy.

I received a number of responses from the sales staff I asked which ranged from "That is just the way our pricing works" to "Oh how I wish I could." I received one call from a senior sales manager of one of the better-known providers to explain his point of view, which was they had priced their services to hit a specific size and maturity of organization. He further indicated they had made a conscious decision not to serve the smaller market because many of the features and capabilities would not deliver the value to a small organization. His argument and approach was well articulated and intelligently presented (much better than I did here), but he did not convince me -- and here is why!

Personally I like to think about the classic mobile phone plan as the standard to which we might all compare ourselves to. A mobile phone plan, although rather complex in its execution, is actually pretty easy to understand. Mobile phone companies have demonstrated that a single product can be the basis of a wide range of value bundles at a wide range of prices for a wide range of customers, and they have incorporated three significant strategies that are absolutely brilliant.

Number 1: Mobile phone plans virtually eliminate all barriers to adoption, by providing a pricing plan for every size of potential user.

• For the very smallest customer there is the prepaid card plan. You put as little or as much as you want on a card, use your phone and when you have used up what you paid for you can choose to add more funds to the card or not.
• With creative bundling and the use of a la carte menus there is a plan that will fit in to every users need and budget.
• As a result mobile phone adoption is amazingly high with some countries having adoption rates higher than 1 phone plan per capita.

Number 2: Mobile phone plans capture every penny of revenue by employing complex yet easy to understand and fair pricing strategies.

• You can choose from any number of bundles designed to target different user requirements and size of need. In addition you can select service upgrades from an a la carte menu, to get exactly what you want instead of being forced to pay for services you don't want or need.
• Most of the services come with a set amount of included usage (phone minutes, data plan, # of txt msg's), however you are never limited to how much you can use (exception being prepaid). You simply use what you want and get billed for the overage, maximizing revenue from customers who opt for lower cost plans as an entry point (remember with a higher entry point you might never have gained that customer in the first place).
• Mobile phone companies offer incentives (or is it higher prices) depending on the time of day or day of week you use the services. You pay a monthly fee for free evenings and weekends. This seems like a great deal to you but at the same time it is enabling the mobile service provider to shape usage patterns in order to spread the load out over their systems thereby saving them on infrastructure costs while still charging you for time that would otherwise have much less usage.

Number 3: By using almost unlimited flexibility in their pricing strategies and removing cost as a barrier to entry, they have closed the gaps that competitors can use to launch attacks on their market.

So my message to the SaaS marketing automation software providers or any SaaS company is you can choose to emulate the highly successful mobile phone model of pricing or continue turning away customers with high-cost, paid-in-advance, bloated features pricing. The customers you turn away because they don't "fit your target market" will become someone's customer, and that someone is a competitor of yours.

Traditional software marketing thinking segments the market and targets some segments at the exclusion of others. Courtesy of the mobile companies, your customers are already trained on picking a value package that suits their needs, so why not leverage it?

To be the mobile phone company all you need is a little subscription billing and payments automation, and some good customer feedback on how they want to buy!

About the author

Kevin Lennox is the Vice President of Sales for Monexa (formerly IP Applications), a company with 11 years experience in the subscription services billing and payments industry. The company's SaaS billing platform provides a complete subscription services commerce platform which includes product catalog functionality which allows for complex billing rules, customer interfaces for purchasing and self servicing, automated provisioning of services, payments processing and dunning automation as well as a complete set of reseller power tools to empower channel sales.

See the article on this topic published on EbizQ

Comments

[Darcy Edwards]

Billing has always been a challenge. We are getting along using PayPal but there is no room for growth or flexibility. As we grow I am going to be seeking a billing company that will provide me with ultimate flexibility. As the market changes and the vertical segments we target change, we are going to have to change our pricing model. As Kevin points out cell phone provides have a certain model, but let’s take a look back at cell phone providers. They have changed their pricing model over the years due to competition and consumer demand. So, to recap, the single most important word in billing (next to security) is flexibility.

Darcy

[Peter Laird]

Subscription pricing alone leads to "compete on price"

Good points Kevin.

I agree that subscription pricing can be good, but used alone it might lead to problems in the sales cycle. Offering just a subscription plan could cause the sale to focus on price.

For example, if you offer a set of subscription plans, like:

Up to 50 transactions per month = $35
50 - 150 transactions per month = $70
300+ transactions per month = $140

Your competitor could offer the same plans at lower prices ($25, $50, $100). It would then be natural for the customer to focus on price, even if your service offers better features. I think the way to guard against this is to mix it with some amount of usage based pricing.

For example, match your competitors on the subscription prices. But then add usage based pricing terms that charge extra for differentiated features. This will hopefully change the focus from price to the enhanced value offered by your solution. Like:

add $1 per transaction that requires less than 1 hour response
add $4 per transaction outside of business hours
add $10 per transaction that requires human intervention

Peter

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I agree that subscription pricing can be good, but used alone it might lead to problems in the sales cycle. Offering just a subscription plan could cause the sale to focus on price.