How software pricing strategy is evolving Q&A

How software pricing strategy is evolving [Q&A]
Beta News – Ian Barker
We talked to Griff Parry, CEO and co-founder of SaaS metering and pricing engine m3ter, to find out more about how software pricing is changing and whatâs driving that change.

BN: What is going to be different about software pricing in 2023?

GP: 2023 is the year we’ll see an increased strategic focus on software pricing from SaaS leaders as they experiment with different and new pricing models. CFOs are exercising greater diligence over company budgets, and IT teams are under pressure to reduce spend. In order to ride out the challenges of 2023 and continue growing, SaaS companies will have to review their pricing strategies and find room for innovation.

BN: Is raising prices the only option for SaaS companies given the current economic climate?

GP: No, raising prices is not the only option for SaaS companies — and it’s a decision that leaders should think about very carefully. As each customer becomes that much harder to win, increasing prices also increases the risk of logo churn.

raising prices in 2023 is not impossible. Last year, SaaS companies were able to increase their prices four times faster than global inflation, and vendors with solid long-term customer relationships may find this strategy works best for them. What’s important is that SaaS leaders assess key factors such as customer loyalty and build out a strategy that creatively puts the business’ unique characteristics to work. BN: What is usage-based pricing and what are some of the biggest misconceptions about it?

A common misconception about UBP is that it only benefits the company, or makes the customer experience more expensive, but neither of those statements are true. Itâs actually a win-win because customers have lower upfront costs while onboarding, increased operational flexibility because they have better visibility of and can easily limit their spend, and most importantly, it helps both sides realize more value from the relationship.

BN: What advice would you give to a software company considering usage-based pricing?

GP: Implementing usage-based pricing is done best when a diverse range of functions — beyond the finance department — input their perspectives and data into the development and execution of the new pricing strategy.

Customer success and sales teams are also highly valuable to the process. With a clear view of the entire customer journey as new pricing models are rolled out, these departments will be documenting crucial feedback and ensuring successful transitions to the new system.

This year we’re likely to see a greater range of C-suite executives become interested in IT spend and reviewing software usage. BN: Is there anything else to keep in mind when planning new pricing strategies?

Usage-based and subscription-based billing do not have to exist in vacuums, new strategies can be tested in a soft and controlled way. Hybrid models, such as flat-fee subscriptions with usage-based overage costs, present valuable opportunities to explore ways to realize more value from existing customers without sacrificing positive user experiences or spooking them with a brand-new strategy out of nowhere.