Pricing… who cares about that really? I mean, unless you are a statistician or economist hired by a big company to project next year’s profit and sales, NOT YOU! Let’s face it, as a private business owner the only thing you care about is the money coming into your pocket so you can grow your business and make back what you already put out to start this business in the first place! WRONG. Just how important is pricing to your SaaS business? Let’s take a closer look.
Pricing is really a very important part of your every day sales plan. What most people in your shoes don’t realize is: a key factor as to why private businesses end up closing their doors and with major debt is because they neglect to remember what pricing really means for them. All the other reasons sort of just fall under that general category. I mean, it’s not about what you have sitting on your shelf, it’s about if you can sell it off that shelf. Pricing keeps you connected with your clients. It allows you to learn what they want and understand their needs better so when you launch a new product, you know it is going to sell.
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The problem here is that most prices come already assigned to the product. Unless you do the research before you purchase the new merchandise (which, let’s be honest, most business owners do not), you don’t know if it is in line with what the customer’s needs and values are. In the end, the product sits right there on the shelf where you put it and you lose money that you are liable for.
How can we fix this?
Let’s take a look at the basis for pricing and see if we can’t at least get you a better understanding of what is going on behind the numbers.
Pricing: Literally the Center of Your Business
Owning a business (when you break it down) is not a complicated process. Let’s have you think back to when you first decided you wanted to open your business.
The first thing I am sure you thought about was, “what can I sell that people are going to want to buy?” Okay, maybe the first thing you thought was “I am going to open a business!” so that was the second. The third, once you figured all that out was, “where do I want to sell this product and is there a need for it in this area?”
Those are very important questions and the basis to deciding what it is that is going to make you money.
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When it all comes down to it, every business is providing an efficiency or value for a customer, i.e. groceries, fixing the pipe that burst in your basement, providing an app that changes your ‘selfie’ to look like a zombie, etc. Your job, which you laid out for yourself in the first two questions of your business plan, is to align that value with the right customers.
Once that is discovered, the next step is to do some research. See what that value or efficiency is worth for the consumer and make the pricing according to that figure. Sounds like a pretty primitive concept right? For you, the private business owner maybe, but the truth is, this is where most companies go wrong. They try to predict what the consumer wants instead of just going about it the old fashion way… ASK!
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Build rapport with you customer by asking their opinion on what they value, what they want to see, and what you can provide for them. After all, it’s all about the relationship right?! A perfect example of this is shown in Kinnser.com’s landing page:
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Pricing: A Lever That Will Make or Break Your Business
At the end of the month, there is only one number that matters after all this planning: PROFIT. Revenue is important. Product is important. Customer relations and retention is important. But none of that is going to matter if you are not making that cheese, that mullah, that doe-ray-me; you know… MONEY! (Too much?)
So how do we make that money you ask? Well pricing of course! This infographic from Blog Growth provides ultra-valuable information on how to maximize your pricing strategies.
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Here’s a few statistics for you:
If you improve your pricing by let’s say, 1%; that is equivalent to an 11% increase in profit compared to only a 2 or 3% increase from cost and volume improvement.
Doesn’t sound like much?
Let me talk in terms you’ll better understand: If you profit $100,000 in a year, that’s $11,000 more in your pocket! Let that sink in for a second… I don’t know anyone who couldn’t use an extra $11,000. Except maybe Bill Gates, but I don’t know him so he doesn’t count.
On a serious note though, after reading this, why would you be focusing more of your time on a 1% improvement to your cost or your volume when you can enhance you profit so much more by focusing on who you are selling to, what you are selling to them, and what the actual numbers are on the page (prices)? Think about it.
The Moral of the Story: Start Taking Pricing Seriously
I know it all sounds good when it is laid out in front of you, on paper, by someone who isn’t running your business. In reality though, pricing doesn’t have to be as difficult as these ‘PhD in numbers’ make it seem. Let’s face it, pricing is going to make or break your business. I would hope at the end of the day, you would want to succeed in this endeavor you took on.
In summary, what your basic plan should be is to figure out who you are selling to (get to know your customer), know what they want (product you sell), and then find out how much they are willing to pay for the efficiency or value that you are providing for them (PRICING!!!). Start to think of pricing as part of your business plan; make sure it is evolving the way the market trends do or you are going to be left in the dust.
The post Solving the Pricing Problem: The Smart Guide to Proper SaaS Pricing (Part 1 of the Pricing Series) appeared first on Abacus Metrics.