How to optimize strategy, pricing, and value understanding

In this episode of the Tekpon SaaS Podcast, host Cristian Dina sits down with Krzysztof Szyszkiewicz, co-founder at Valueships, to delve into the intricacies of optimizing strategy, pricing, and value understanding in the SaaS industry.

Valueships is a boutique consultancy that specializes in SaaS pricing, although its expertise has expanded to cover e-commerce and service companies within the pricing space. Although its main focus remains SaaS, Valueships helps companies adjust their pricing policies to boost profitability. Notably, Valueships invests significantly in pricing benchmarking research to keep abreast of the market’s evolving dynamics.

Key SaaS pricing issues

Krzysztof identifies several common pricing problems within the SaaS industry. One primary issue is underpricing. Many SaaS companies, particularly those led by technical founders or technology enthusiasts, set prices below what users are willing to pay, which can significantly hinder revenue potential.

Expansion revenue and upselling also pose challenges. Many SaaS companies do not effectively leverage their current user base for expansion revenue. Often, the mechanisms for upselling and expanding are faulty, missing out on considerable revenue streams.

Another significant problem is discounting. For SMB-focused companies, managing and being aware of discounting strategies is often lacking. Enterprise solutions fare no better, frequently missing structured discounting approaches and escalation paths. This leads to under-discounting and ineffective discount policies.

An emerging challenge Krzysztof highlights is cost management, especially given the rising AI-related expenses. This shifting landscape has compelled companies to hire finance managers who specialize in managing costs to sustain profitability.

How to monetize existing customers

Krzysztof provides insights into monetizing existing customers, emphasizing price increases. He suggests a straightforward Excel method for calculating price increases by comparing last month’s revenues with current plan prices. Companies can often raise prices without significant churn, usually under 30-40%, and benefit from hidden discounting strategies and grandfathering methods.

For enterprise-level plans, Krzysztof advocates for a “contact sales” approach, which can increase willingness to pay by demonstrating differentiated pricing structures. Additionally, having a dedicated upselling team can significantly enhance customer understanding and improve pricing structures.

In summation, Krzysztof and Cristian stress the importance of regularly reviewing and updating pricing strategies. As companies scale, especially after hitting the 1 million ARR mark, periodic pricing audits ensure continued relevance and optimization. Regardless of company size, a dedicated pricing role harmonizes strategy with sales efforts, driving home the point that effective and transparent value communication dictates perceived value far more than pricing models like freemium vs. free trials.