Estd 4.22.2023
Sales Enablement
Deprioritize Sales Enablement During Price Changes at Your Own Peril
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SaaS Pricing
A well-thought-out pricing strategy aligns your business with market needs and creates a foundation for sustainable growth. Yet, many SaaS companies stick with outdated SaaS pricing models that fail to resonate with evolving customer expectations or competitive realities, leading to churn, lost revenue, and missed opportunities. Outdated pricing can make retention a challenge, even for technically excellent products. Now, let’s look at the clear signs that it’s time to rethink your SaaS pricing strategy.
The decision to overhaul your pricing isn’t always obvious. Many SaaS companies delay change, losing revenue and customers in the process. Recognizing these key signs early can help you pivot effectively and align your SaaS pricing with market realities.
When customers question what they’re paying for, it’s often because they don’t see the connection between price and value. Interestingly, this doesn’t always mean the price feels too high. Sometimes, a price that’s too low can create just as much hesitation.
Why? Because customers often view price as a reflection of quality. When a product’s price feels unexpectedly low—especially for higher-stakes use cases like enterprise software—it can trigger doubts. They may wonder, “Is this really built for my needs?” or “What’s missing here?” Instead of signaling affordability, a low price can undermine trust, making the product feel unfit for more demanding requirements.
A Zendesk example:
Zendesk, a leading customer service platform, provides a perfect example of this phenomenon. Initially successful in the SMB (small-and-medium business) market with affordable, easy-to-adopt plans, Zendesk struggled when it entered the enterprise segment. The company introduced its enterprise offerings at only a slight premium over its SMB plans. This strategy, while effective for SMBs, did not translate well to the enterprise market. Enterprise customers, seeing the modest price increase, doubted whether the solutions were truly designed for large-scale operations. They perceived the low price as a sign that the product might just be a repackaged SMB tool, lacking in enterprise-grade features and scalability.
To address these concerns, Zendesk strategically increased the prices of its enterprise plans. This price adjustment aligned the perceived value of their offerings with enterprise expectations. As the price increased, so did the demand, reflecting a change in perception. Buyers now associated the higher price with increased scalability, reliability, and performance—key attributes for enterprise software.
Today, Zendesk’s enterprise plans are priced nearly 10x higher than its standard offerings. This significant pricing adjustment has not only helped to clearly position Zendesk in the enterprise market but also demonstrated that different market segments may require distinct pricing strategies. By aligning its prices with the perceived value of enterprise customers, Zendesk has redefined its market presence, moving beyond just selling features to selling trust, outcomes, and essential solutions that meet the specific needs of enterprise customers.
Source: https://tomtunguz.com/obscure-economic-concept-behind-saas-pricing-challenges/
When churn rates increase or renewal conversations revolve around cost rather than satisfaction, it shows that customers no longer see the value in continuing to use the product. Pricing based on metrics that don’t align with customer priorities, such as inputs like events tracked instead of outcomes like ROI, feels arbitrary and reduces trust. Misaligned pricing structures create friction, making customers question the fairness of what they’re paying. If the model doesn’t scale with customer growth or changing needs, customers may feel overcharged or outgrow the product. Discussions focused on cost instead of benefits signal a disconnect with the value being delivered.
This disconnect is evident in cases like Mixpanel, a leading product analytics platform. In 2019, Pranav Kashyap, Head of Pricing at Mixpanel, shared insights with us (that you can read in our Price to Scale Vol2 attached later in the conclusion) on how the company tackled a growing issue with its pricing model that led to customer dissatisfaction.
Initially, Mixpanel’s pricing was based on the number of events—each user interaction tracked on its platform. This metric worked effectively for smaller clients, where usage levels were manageable. However, as the company expanded into the enterprise market, this approach began to create significant challenges.
Enterprise customers, who generated millions of events, saw their costs rise dramatically. These rising bills were difficult to justify, especially when additional events didn’t directly deliver meaningful business outcomes. This disconnect in the pricing structure caused frustration among customers, leading to frequent plan upgrades, friction during renewal conversations, and increased churn rates.
To address these challenges, Mixpanel transitioned to a Monthly Tracked Users (MTU) model. Under this new pricing system, costs were tied to the number of unique users tracked each month, aligning pricing more closely with the value customers derived. This shift brought greater fairness and predictability to the SaaS pricing model, helping customers understand how costs related to their outcomes. It also allowed sales discussions to focus on customer results instead of technical details. The change improved trust in the SaaS pricing structure, reduced churn, and provided a stronger foundation for long-term customer retention and growth.
When competitors offer more flexible, transparent, or modern SaaS pricing models—such as usage-based or value-tiered options—customers may see your pricing as rigid or outdated. Sticking with traditional models like per-seat pricing can put you at a disadvantage if competitors are innovating with metrics that better align with customer needs. Why? Because customers now expect pricing that is simple, outcome-driven, and adaptable to their growth.
A prime example of this can be seen in SendGrid’s response to Mandrill, a product offered by MailChimp. SendGrid, a cloud-based email service provider, initially used a freemium model to attract individual developers and small businesses by offering a limited number of free emails per month. Mandrill, which is part of MailChimp, introduced a more generous free tier, offering more than double the number of free monthly email credits compared to SendGrid’s plan. This competitive move placed pressure on SendGrid to adjust its pricing.
In a conversation with Scott Williamson, former Chief Product Officer at SendGrid, he shared valuable insights into how SendGrid adapted to Mandrill’s competitive pricing model.
Scott explained that:
This move from Mandrill created considerable competitive pressure on SendGrid. The free plan was a critical part of SendGrid’s strategy to capture new users, particularly developers, and the competitive advantage they once had was at risk. So,
The key goal was not only to respond to Mandrill’s immediate move but to retain market leadership and ensure that SendGrid continued to grow its user base and conversion rates. This move allowed SendGrid to stay competitive, especially with developers who were critical for driving growth and long-term revenue.
If customers find it hard to understand your pricing tiers or struggle to choose a plan, it’s a sign that your packaging might be overly complex or poorly structured. Bundling too many features into high-end packages often leads to "shelfware," where customers pay for features they don’t use. On the other hand, excessive segmentation with too many tiers overwhelms customers and creates confusion. Both scenarios slow the sales process and lead to more discount requests.
Let me walk you through a real case involving Gainsight and how their poorly fitted package impacted their sales motion.
Gainsight, a leader in the Customer Success software space, helps businesses retain customers and grow revenue. Often referred to as the "Salesforce of Customer Success," Gainsight has played a key role in establishing Customer Success as a formal business function.
Gainsight faced challenges with its Good-Better-Best (GBB) pricing model. The intent was to make it easier for customers to select and upgrade plans, but the model didn’t work well for mid-market clients. The middle tier often didn’t meet customer needs—being either too simple or too complex—pushing buyers toward the lowest tier or the highest one. This resulted in pricing inefficiencies. The top tier often included features customers didn’t use, leading to "shelfware" and frustration. To make the top tier appealing, Gainsight had to offer steep discounts, which diluted its average selling price (ASP).
To address this, Gainsight replaced its fixed tiers with a modular pricing system. This new approach allowed customers to select only the features they needed, avoiding unnecessary costs and improving overall satisfaction.
The change improved their SaaS pricing model by:
A well-structured SaaS pricing strategy is crucial for aligning your business with customer expectations and market demands. Outdated pricing models often lead to churn, lost revenue, and missed opportunities. When customers question the value they’re receiving or when pricing feels misaligned with their needs, it’s time to make adjustments. Recognizing these signs early allows you to realign your pricing with customer value, enhancing satisfaction and retention.
Here are key strategies for optimizing your SaaS pricing:
The right SaaS pricing strategy is constantly evolving, just like your product, market, and customers. So, recognizing when your pricing is out of sync with market expectations is key. Instead of viewing a pricing overhaul as a challenge, SaaS companies should see it as an opportunity to strengthen their business and customer relationships.
By aligning your SaaS pricing with the tangible benefits customers gain and communicating that value clearly, you foster trust, encourage upgrades, and lay the foundation for sustained growth. If you’re facing challenges with your SaaS pricing, we’re here to help. At Monetizely, we specialize in creating scalable, customer-aligned pricing models. With over 28 years of experience working with companies like Twilio, Narvar, and Medallia, we make sure your pricing works for you. Book your free demo today with our SaaS pricing experts. Also, feel free to access our latest edition of Price to Scale Vol 2.