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Our Experimentation With A New Pricing Model For SaaS – Core Value Proposition Plan(CVPP)

Plobal apps

Plobal Apps, helps ecommerce businesses to build their mobile apps in under 5 minutes.

We started Plobal Apps with a core principle that our products should help online stores to generate new mobile revenues from their increasingly mobile first customers. Over the past 18 months, our customers have generated a total of USD 3.5Mn+ in revenues with over 60,000 orders placed exclusively via mobile apps built using Plobal Apps.

Whenever you are launching a B2B product you are always faced with the critical decision of what pricing model to choose for your product. There are examples of super successful companies for all types of models viz. Free Trial, Freemium etc.

Before launching our product, we researched extensively on the various SaaS pricing models. We finally decided to go ahead with the Free Trial pricing model for our product. We launched our product with 3 plans at this stage viz. Starter ($29/mo), Growth ($79/mo) and Power ($99/mo)

As soon as you launch, the only factor every startup looks at is growth. As every other startup we have been experimenting with A/B tests, email campaigns, intercom reply rates and various growth hacks to increase our conversion rates. After months of optimization we had started hitting conversion rates of 15% for our landing pages, 60% open and 10% reply rates for our drip email campaigns and a lead to deal conversion rate of 25%.

All our other efforts beyond these were now leading to incremental growth and not exponential. At this time, we were looking at revising our pricing plans and noticed something. A more detailed analysis of our metrics and feedback from our support teams showed that 4 factors seemed to be limiting our growth:

Our analysis said 3 factors were limiting our growth:

  1. Our entry level pricing was too high (now $129)
  2. Our customers didn’t have sufficient time to benefit from the product
  3. We were leaving money on the table with our high performing customers
  4. Churn was around 8%

We had been gradually increasing our pricing over the last couple of quarters to filter out newer businesses as we could take up only limited number of demos + support in the beginning. However, recently, we had developed new features, free tools and customer success processes, which were driving value to even smaller, newer stores. In any case, we didn’t want to move to a low cost plan with limited features again. (We’ll tell you why shortly.)

We noticed that majority of the customers that were churning were fairly newer businesses using our Starter plan and one of the top reasons for churn was low ROI from the mobile app. Now ideally we are not a basic plug and play app that starts showing results immediately. Using our product literally meant adding a new sales channel for your ecommerce store. But we saw a lot of our customers who wouldn’t generate a good ROI from our product would stop using it just after 2 months.

However, we had seen similar stores at a similar stage, start generating revenues post 4 to 5 months and then continue with our platform. So we ideally needed newer stores to stick around for 4 months but that meant an investment of approx. $500 on their part, before they saw any results.

Our discussions with our customer success teams revealed that a lot of features that are required for these newer, smaller businesses to succeed were ideally available for our more established power plan users viz. Facebook SDK integration to run App Install ads, targeted push notifications, abandoned cart push notifications and so on, but not for our Starter plan users.  Now this is something which is standard across most SaaS products with multiple pricing plans, be it B2B or B2C, that you have the best value add features locked for your higher priced plans.

This essentially meant our pricing plans were blocking our customers from making more money and hence resulting in faster churn. We analyzed quite a few companies and saw this was true in most cases.

Let’s take an example of Tinder:

The core value proposition for Tinder is to help their users to get matches. Once the user starts getting matches, his stickiness with the app is very high.

However, all the features that would help Tinder’s users get more matches viz. swipe around the world, unlimited swipes, boost profile etc. are locked for their paid users. This sounds fair right? But we feel this goes against the core value proposition of Tinder.

On thinking more about this we realized that there was a bigger problem. Just like Tinder and thousands of other SaaS companies out there, our pricing plans weren’t aligned with our core value proposition which for us, was to enable businesses to generate new revenues from mobile.

This is when we revisited all the SaaS pricing models again. And we came up with something interesting. We are calling it Freemium 2.0 / (TCVP) The Core Value Proposition pricing model.

Freemium 2.0

What we are essentially doing is giving the fully loaded version of our apps for free to all our customers, with a condition that they starts paying when the product delivers on its core value proposition, which in our case is once they start making revenues from their mobile app.

And as the business makes more money from their mobile app we move them to a higher pricing plan (capped at $299/mo as per our original pricing plan).

This is how our new pricing model looks:

pricingpage

Our hypothesis is that this will result in:

  1. More businesses will sign up as we have removed the high price entry barrier and the pricing is extremely results oriented and based on a very strong value proposition
  2. Churn will reduce drastically, as only the businesses who are making money are becoming paid customers. Our churn for customers who make good ROI is less than 1%
  3. Customers will get more time to activate and optimize their business / apps which in some cases is required for the channel to start working
  4. We will not leave money on the table as pricing is correlated with performance

 

Freemium 2.0  for Tinder:

Now imagine the same pricing model for Tinder. You start paying once you get x matches. But till you get to those X matches you have access to all the features which will help you get more matches. As you have access to features that aid in getting a match, your probability of getting a match is going to be higher. And since Tinder has delivered on its core value proposition, the stickiness for the app is going to be much higher with higher number of paying customers.

Things we are accounting for:

  1. We are expecting a higher number of enquiries and demos for our product with this new plan. We are implementing a lead scoring mechanism to ensure high quality leads aren’t missed.

  2. The onboarding and support volume is going to increase. We have put in a new onboarding flow and a FAQs knowledge base to tackle this with our current team size.

  3. The buy in for businesses is going to be lesser as it is for free products. We are incorporating a few strategies to combat this.

We are running this as a 3-month experiment that was started on 1st of September. We will be publishing a part 2 of this in the coming months with our results.

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