We’re in a market of severe adjustment for tech. We are pushing a series of articles to help tech companies navigate the market adjustment. Defensive pricing is one means to #defaultthrive.
In a market downturn, a lot falls out of your control. Corporates slow down decision making in the face of uncertainty and banks double-down on ROI. The rule of 40 may have just been blasted across your boardroom in a quest for profit.
But you can control your pricing. Reaching efficient growth of ARR and profit at speed is how you will survive. Pricing is the ultimate weapon to take control in the face of volatility and give you a protective armour. It is a lever to pull for profitability, a stable foundation in the eye of a storm but also a springboard to launch you as soon as the market turns for the better.
If you:
- Have a bullish growth rate to sustain
- Have a pricing model in place – that has long since been optimised.
- Are making the shift to focus on profit, not just growth.
Then read on.
1% pricing improvement = 11% profit boost.
Defensive moves such as price reductions or meeting the competition are short sighted. There is a better way.
3 pricing moves to see you through a downturn:
- Slice up your product to the MVP – minimal valuable product
- This is a buyer’s market bullish on ROI. Slice up your product to the bare minimum solution (not a feature). Don’t water down your offer or provide negotiation leverage. Package the bare minimum up as a solution they can’t live without and maximise your R&D return.
- For us, we use our engine to slice won and loss data to find the real MVP. In this example, bundling two features together into a solution for “Company X” clearly increased conversion.
One of Cruxy’s clients saw a 2.9x $ revenue opportunity for one of their solutions if they bundled 2 products together.
COMPANY X WON LOSS DATA REVEALS HOW PRICING
THE MVP DRIVES MAXIMUM RETURN
Add protection
Usage or volume pricing can be a strong metric to tie pricing to value. But in this environment adding a fixed element such as an engine or a platform fee is a win-win. For the buyer it gives an element of predictability. For you, it gives a guaranteed revenue stream.
You are where you are because of your current customers – look after them
Now, profit is king. It’s time to take care of your most efficient customers to acquire – the ones who already buy from you. They’re also hit by the current conditions – make this about them, not you. Pricing can be the fuel to achieve this (and it doesn’t mean limiting your top-line either).
There are immediate ways to protect the profit and commitment of current customers:
- Immediately remove ‘stings’ such as overages
- Drive adoption and usage – expand your usage bands such as volumes or users to give them more room to grow
- Incentivise growth – add discount incentives for adopting new products or features, or find ways to ‘freeze’ current pricing if they agree to adopt new solutions
Average CAC for SaaS firms is $1.13, but up-sell or cross-sell is just $0.27 (Bessemer). The top 20% of Saas firms have net retention scores of 120%.
-Bessemer
You shouldn’t wait to make pricing changes. So what can you do tomorrow?
- Act fast. Give yourself a 3-week deadline to make a validated change (a timeline we often hold ourselves to with clients). Pricing is not a slow burner – one client saw +30% revenue through one pricing change in one month.
- 3x the time you spend on modelling and negotiating ROI before and during every deal.
- Start a pricing task force – weekly live feedback on what is and isn’t hitting home and how you can optimise.
