Not only does Josh Melick think that too many software developers get their pricing structure wrong when they firs set up, he has also warned SaaS providers that their fear of annoying customers is doing more harm than good. This is essentially what he has discussed in his new article on his personal blog, which is there to inspire and encourage more developers to change the way in which they are structuring their pricing options.
Most software developers worry greatly that an increase in price will send customers for the hills, but there is in fact a smart way of doing this which will increase trust and confidence from your customers, the key is getting the basics right.
The Main Problem
As Josh outlines, the main problem which most companies have is that they have not planned for price increases in the future. This of course is a bad idea given the many moving parts of a software developer, and the increase in costs which is bound to take place. Josh talks mainly about the need for a three dimensional approach when it comes to the pricing structure of the business. Most will include users and usage at each stage of their pricing level, yet they will forget about the time frame completely.
In offering a time frame you are giving yourself the perfect opportunity to increase the price prior to the customer renewing.
The notion that customers will get annoyed at a price hike is absurd, what will annoy them is not knowing about it, and hikes which are simply too large. This is why Josh rightly points out that a business can actually notify the customer prior to them signing up for the year, that at the end of it they will see a price hitch of 5% or 7%, or even 10%, whatever your business deems necessary. Now of course this may put some off renewing but in all likelihood they will be able to better plan for it and therefore will not have a problem looking at an increase in price in the coming year, especially if they are able to plan for it, and especially if they love the product.
If companies are smart they can actually use his price hike to get customers to upgrade, and save themselves money on a higher package. For example instead of offering a silver customer a gold membership for the same price hike of 7%, they can drop that to 5% if they decide to upgrade. This keeps the customer happy and it may well see the business count on more gold memberships in the coming year, or sever if those clients on bronze wished to upgrade.
Software developers have to get out of the mindset that an upgrade in price is going to annoy the customers. It is in fact the way that the price is increased which will determine how they feel about it.