Estd 4.22.2023
SaaS Pricing
Should ROI Define Your SaaS Pricing Strategy?
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SaaS Packaging
When customers churn from a product, companies often feel it is a problem with the quality of service and/or product. But in many cases, churn is often caused by a poor offer<>customer fit rather than a product<>customer fit.
In this blog post, we’ll explore why poor SaaS packaging (rather than a bad service) is a key reason why customers leave and how fixing it can make all the difference to your churn issues.
Churn often has less to do with the quality of your product and more to do with how it’s packaged. Packaging is the bridge between what you build and how customers get a usage service tailored to their needs.
If that bridge feels unstable or unclear, customers lose trust, even if the product itself is great. They start to question whether they’re getting what they need, and once doubt sets in, it’s only a matter of time before they leave.
Based on an interview with Johnny Cheng, published in our book Price To Scale.
A perfect example is Gainsight, a leader in Customer Success (CS) software. Just as Salesforce revolutionized CRM, Gainsight spearheaded the CS movement, even elevating roles like the Chief Customer Officer (CCO). Their software is known for its flexibility, designed to adapt to each client’s needs. Yet, despite their leadership in the space, Gainsight faced a major challenge with their earlier packaging and pricing strategy.
Gainsight initially used a Good-Better-Best (GBB) model, offering three fixed plans. While this seemed simple, it created significant issues for their mid-market customers:
To fix this, Gainsight transitioned to modular packaging, combining predefined packages with à la carte options. Here’s how it worked:
Instead of listing “Advanced Reporting” as just another feature in a premium plan, Gainsight positioned it as a separate module that enterprise teams could add based on their specific needs. This shift made upselling feel natural rather than forced and removed the frustration of paying for unnecessary features.
This Lego-style modularity simplified the pricing process and also empowered sales teams to focus on delivering outcomes. Customers could now see how adding more modules would directly address their challenges, making upselling feel collaborative rather than forced.
The results were transformative for Gainsight:
To fix this, Gainsight moved toward a more flexible packaging model that allowed for customization. This shift helped align their product with customer needs, leading to better upselling and retention.
Poor packaging creates friction in the buying process, slows down sales cycles, and erodes trust. Here are the three most common packaging problems that lead to churn:
Poor packaging creates friction in the buying process, slows down sales cycles, and erodes trust. Here are the three most common packaging problems that lead to churn:
Customers get frustrated when they pay for features they don’t use or when packaging feels overly complex.
The best packaging is simple, clear, and directly relevant to customer needs.
For large enterprise customers offering modular plans allows customers to tailor their choices to their unique needs, making them feel that the product is designed for them. When customers see flexibility, they're less likely to churn because they know they can adapt the product to fit as their needs evolve.
For SMB customers offering just-right tailored plans are essential so that they get the swiss army knife they needed to get their job done, not a 10,000 lbs farming tractor.
Many SaaS businesses build packaging tiers based on feature count rather than value delivered. They list tons of features, but don’t make the leap on the key capabilities/use cases/jobs-to-be-done the package helps customers with.
Good packaging should emphasize use cases,business outcomes, jobs-to-done not just feature lists.
Oftentimes packages can work in acquiring new customers, but they are too constrained in helping customers grow easily.
Customers are often forced to upgrade plans for 30-80% greater ACVs when they just needed a couple of additional capabilities or needed to go over their pricing metric consumption by 15-20%.
Oftentimes a separate price book for existing customers can mean the difference between happy customer or churned customer.
When customers feel boxed into plans that don’t fit their needs, frustration builds, and churn follows. Tailored, modular packaging prevents this by allowing customers to pick and choose only what they need, ensuring they never feel like they’re overpaying or locked into unnecessary features.
Instead of bundling an entire suite of features into rigid plans, modular packaging breaks a product into logical, outcome-driven modules that align with customer use cases. This approach solves two key problems:
To ensure modular packaging aligns with customer expectations and prevents churn, companies should follow a structured approach:
Customers churn when they feel a product doesn’t meet their specific needs. Modular packaging starts by mapping features to clear use cases, ensuring customers can see exactly how each module addresses their unique challenges.
For example, a CRM platform might include capabilities like:
As you can see in Figure 1, these features are organized based on the value they deliver to different customer segments:
By mapping features this way, companies can group them into use-case-driven modules that solve specific problems for distinct customer types, eliminating the risk of overloading customers with irrelevant features.
Not all features are equally valuable to all customers. SMBs and enterprises have vastly different priorities, so it’s essential to evaluate customer needs and willingness to pay (WTP) for each feature.
Looking at Figure 1 again, you’ll notice how features are assessed based on their value for SMBs versus enterprises.
This analysis helps SaaS companies identify:
This segmentation ensures that SaaS packaging reflects real customer priorities, preventing frustration from paying for unnecessary features or missing out on essential tools.
Once features are mapped and segmented, the final step is to structure modular packaging so that it meets the needs of all customer types without adding unnecessary complexity.
In Figure 2, you can see an example of a finalized modular CRM packaging model.
This structure allows:
By using this approach, SaaS companies can create a flexible yet clear packaging structure that keeps customers engaged while reducing churn caused by rigid, one-size-fits-all plans.
“Unlike modular packaging, which simplifies the base product for broad appeal, add-ons offer a way to cater to unique, less common use cases”.
Add-ons are a simple way to let customers personalize their subscriptions. Instead of cramming all features into one big plan, you keep the base product simple and allow customers to add extra features only when needed. This flexibility helps customers feel like they’re in control and keeps them happy by giving them exactly what they want: no more, no less.
Not all features are suitable as add-ons. To determine this, companies should evaluate two factors:
Add-ons work best when they provide customers with the ability to:
By carefully aligning your packaging strategy to actual customer usage and desired outcomes, you’ll reduce churn, smooth out the buying experience, and make upselling a natural extension of your product relationship.