Pricing Growth Hacks for SaaS
The good, the bad, and the ugly truths of pricing for SaaS.
Pricing can be “hacked” to provide faster growth in SaaS.
And… it works!
That’s why pricing hacks are dangerous.
They become addictive.
In this newsletter, I will be talking about one of my most proud moments that I ended to regret…
The Discount Trap - How LearnWorlds Almost Became A Discount Brand
At LearnWorlds, we were running shy discounts.
10% off (monthly).
Sometimes 20% off (monthly).
They didn’t work well.
The yearly plan came with a 20% discount baked in.
That worked.
But the buying decision was heavy.
You’re asking someone mid-trial to commit 12 months upfront based on a feeling.
The Hack
I pitched Panos, our CEO, on a different test.
Take the monthly plan:
Slash it 50% for 3 months.
The customer pays less upfront than two months at full price.
We collect 50% revenue for 3 months, it’s a lower discount than 20% yearly, but looks much bigger.
Emotionally the barrier to entry dropped.
It worked. VERY WELL.
So we ran it again. And again.
Every time the numbers dipped, we ran the promo.
Every other month, like clockwork.
The dashboard looked beautiful. Stable, growing MRR. Investors happy. The board happy. The team happy.
The Downside
What changed was how customers perceived the brand. Users became educated to the lower price, and looked to purchase when the discount was there.
LearnWorlds became, in the eyes of a meaningful chunk of new customers, a discount brand (kind of). In reality, this kept us from increasing the price.
Value for money, is often a discount brand positioning.
Would you do it again?
Yes! Discounts are part of marketing tactics.
But, they should be done carefully, feel special and rare.
A recurring discount becomes your SaaS’ real price into the eyes of the customers, and blocks you from increasing prices over time.
Freemium
Freemium is the most PLG motion you can have.
Most SaaS categories come with Freemium, the loss-maker to create an addiction to the buyer.
But, if you can’t convert those free users into paid, then you are burned 🔥
For a $0M to $10M ARR company copying that playbook without those underlying engines, freemium is a support tax with a vague payoff.
When freemium works:
Freemium works when you:
have low costs and need to attract huge crowds.
can build funnels and conversion mechanisms.
can lock users for the long-term.
can burn money to grow
Lifetime Deals
The AppSumo-style lifetime deal is the most efficient cash injection in early-stage SaaS.
Run a campaign.
Collect $200k in a week.
Book six figures of “revenue” without a single sales call.
The danger
Then live with the consequences:
Every LTD customer is on your platform forever.
Support costs.
Server costs.
Gross margin on that cohort approaches zero by year three.
The upside
LTDs can bring money in, but you need to be smart with it and include hard limits.
You need to study your costs and what platforms like AppSumo will ask.
You need to consider how this virality will pay off.
You need to promote well…
Lifetime deals are great to get a quick cash injection and increase customer base to grow faster, but come with many traps along the way.
The Annual Prepay Lock-In
The holy grail of SaaS may be yearly and multi-year deals.
Most SaaS offer a 20%-30% discount for annual prepayments.
The upseides
It’s a value for money for both you and your customers.
Better retention.
Better forecasting.
Better planning.
The downside
Your whole revenue depends on yearly renewals.
And, you have less engaged users that are more likely to churn on renewal.
Price increases after the first year are harder.
Grandfathering, Done Right
Grandfathering is the one pricing hack on this list I love.
Loyalty pays off, both ways
When you raise prices, your loyal customers shouldn’t get hit with a 20% increase the next morning.
They bought the product at a price.
They built a business on it.
They might be loyal, or got the promise of the price.
You have to give users at least one year since they bought for grandfathering.
I recommend up to two years for your first / loyal customers is enough to show some loyalty back.
The challenge
Most SaaS teams make is treating grandfathering as a permanent shield or upgrade everyone regardless.
Both practices are destructive.
On permanent grandfathering, you are potentially losing money.
On upgrading everyone shows lack of loyalty to early customers, and that might create negative word of mouth and high churn.
What to do instead
The clean version of grandfathering looks like this:
Hold the old price for 12 to 24 months after a price change.
Tell the customer at the moment of the change, in writing, that the protection has an end date.
Stage the migration so by month 24 they’re on current pricing without a renegotiation circus.
You’re offering more now.
The pricing should reflect it.
What This Is Really About
When you try to “hack” pricing, you are opening yourself to big challenges.
The question isn’t whether a pricing hack moves the metrics.
It can also backfire wonderfully.
Pricing is positioning.
Every hack repositions you in the market, whether you intended it or not.
A discount once is a test.
A discount every other month is a brand positioning.
The teams that win the pricing game aren’t the ones who never run hacks. They’re the ones who know when to stop.
Final Words: A/B Test
And, remember…
Pricing is fluid not stable.
You should change prices and A/B test them every now and then.
It might sound dangerous, and you are “locked” by competitors.
It’s also essential.
If you test, you might lose some revenue.
If you don’t test, you leave money on the table.
Choose your poison!