Scalable Sales Models in SaaS – It Starts With Your Pricing!

As a B2B company, you want new customers and increased market share. Salespeople can help you achieve both objectives, as long as you don’t hinder them with poor pricing plans. Here is some advice to help you establish a successful and scalable sales strategy.

1. Get Rid of Free Plans

Don’t hamstring your salespeople with free plans. If you’re selling a product or service with a low cost, consider the freemium model instead. Successful companies can realize up to a 10% customer conversion rate by letting users “try before they buy.”

The freemium model improves the quality of leads and customers. Users with free plans tend to have lots of questions and complaints, so you’ll save yourself money and headaches in customer support. Your salespeople have a big advantage in closing sales: if a customer chooses not to pay, they’ll lose their service.

1-dropdb

Dropbox provides 2GB of free storage

2. Shorten the Free Trial

Most free trials are for 30 days. Some companies go so far as to offer 60 or 90 days of free use, but it’s usually not a good idea.

A user isn’t going to discover something about your service in four weeks that she won’t learn in one week. The longer a potential customer has to delay the buying decision, the harder it will be for your salesperson to close the deal. Remember that the vast majority of free users don’t convert to paid service, so cut your losses early and focus on real business.

14-day trials create the perfect conditions for your salespeople. Your service or product engages the prospect . . . for a finite period. The short window of use tantalizes your customer, adding a greater sense of urgency to the buying decision. Also, offering active users an extension to their trials can be an excellent way for your salespeople to keep the selling process moving forward.

2-kissmetrics-free-trial-cta

Well, you know this one ;)

3. Raise the Price

In a misguided attempt to make a splash, B2B startups often set prices too low. Have confidence in your services and charge for value. An active sales team can help educate your prospects and sell at non-discount rates.

Customers buy results and performance. Focus on quality and charge appropriately. If you undervalue your offerings, you’ll find yourself cash-strapped and dealing with hordes of problematic low-budget customers.

3-marketo-plan

Marketo’s cheapest plan starts at $895 per month

4. Establish an Enterprise Plan

Attract bigger clients by offering a custom enterprise plan. Armed with this tool, your salespeople can pursue the “whale” businesses that can bring your business massive amounts of revenue and prestige.

Ask companies that identify themselves as large enterprises to contact you for a custom quote. Then the pricing and packaging of services can be established consciously, giving you greater margins and the customer better value.

4-hubspot-Enterprise-plan

HubSpot’s Enterprise plan starts at $2,400 per year

5. Offer Prepaid Annual Contracts

Give your customers the ability to pay up front for an annual contract. They’ll get a better price and you’ll get a spike in revenues. With prepaid sales, you can pay full sales commissions out of cash, which is a tasty incentive for your selling team. You also lock the customer into a year of service, helping to establish longer-lasting client relationships.

5-Zendesk-offers-annual-prepaid-plans

Zendesk offers annual prepaid plans by default

6. Don’t Give Away Customer Support

In SaaS markets, you’re likely to have customers who require extra training and support. B2B startups often make the mistake of offering that support for free in an attempt to build clientele.

Be smart. Offer your clients great customer support, but charge them for it. Savvy clients will understand that, in order for you to provide quality service, they have to be able and willing to pay the costs associated with it. You’ll eliminate time and resource-wasting users that never provide you with actual revenues. Charging for service also helps rein in overly enthusiastic salespeople who sometimes overpromise in an attempt to close sales.

6-HubSpot-requires-1-training-program

HubSpot requires prospects to choose a training program to become their customer

7. Avoid the Discount Trap

A startup that lacks confidence is apt to offer huge discounts to attract customers. Whatever you do, avoid the temptation.

Tie customer incentives to prepayment: one free month for a one-year contract, two free months for a two-year contract, and so on. Keep it simple.

Remember, there are only two reasons customers will balk at your price. Either you’re doing a bad job of selling your value, or you’re trying to sell to the wrong audience.

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Close.io’s annual prepaid plan gives a 10% discount

You’ll increase your business and lower your support problems by charging properly for your services. Avoid the urge to give away the shop; instead, create a value-based pricing model that’s fair for you and your customer. With the increased revenues, you will be able to support a sales staff and invest in improving your service offerings.

Additional Resources

About the Author: Steli Efti is the CEO of Close.io, sales software that helps SaaS companies close more deals and make more sales. He has worked with over 150 venture-backed startups, helping them scale their sales models. You can follow him on Twitter here.

  1. This is great stuff Steli! We’ve done a lot of this: reduced free trial from 30 -> 7 days (we’ll give more if we need it), just use “free” tools as lead generation, and built a strong enterprise tier. All these have had great positive impacts on the business. One thing we found the hardest was A/B testing price: “How will sales know which price the lead saw?” was the big question but there were others too. That’s why we built an integration with Salesforce and Optimizely that I thought you may be interested in learning more about: http://techcrunch.com/2014/03/25/bizible-partners-with-optimizely-to-improve-ab-testing-for-sales-teams/

  2. Barry Graubart May 03, 2014 at 10:18 am

    Good overall post, but you are misunderstanding the Freemium model.
    Freemium is NOT about a free trial. It’s about offering a free version that has limited capabilities.
    The freemium model was originally described by Union Square Venture’s Fred Wilson http://avc.com/2006/03/the_freemium_bu/
    As Fred put it:
    Give your service away for free, possibly ad supported but maybe not,
    acquire a lot of customers very efficiently through word of mouth,
    referral networks, organic search marketing, etc, then offer premium
    priced value added services or an enhanced version of your service to
    your customer base.

    The whole idea of Freemium is that 75-80% of your users will use the free version and never upgrade, but they’ll love it. But, 20-25% of the users will find value in your upgraded services. Examples of the freemium model are Spotify, Flickr, Dropbox, Evernote.
    The challenges with freemium are: a) making sure the free version isn’t good enough for 95% of your users (see Spotify); and b) coming out with enough value-added features that users will want to upgrade.

    That said, I agree that for most b2b offerings, free trials are a more appropriate way to go – and that the shorter the better. Most users never touch the trial until there’s 1-2 days left in it (let’s face it, we’re all busy), so the quicker you can get to the end of the trial the better.

  3. Wow! It was the best post i’ve read this week.
    Short and sweet.
    Thanks for that Steli!

  4. It doesn’t happen a lot that I disagree so strongly with point’s made on this awesome site, but I find Steli to be too strict and a bit old-fashioned, the fact is the biggest company’s don’t follow this “salesman over customer approach”, And if you break the article down, that’s the gist of the recommendations.

  5. The tips shared here are very helpful for startups who are facing competition and want to gain some market share. It provides an insight into consumers psychology. Thanks!

  6. Pierre Lechelle May 12, 2014 at 10:36 pm

    I agree. But I have to disagree. These tactics are great to test and optimize over time. I can already see people who will read the full article, implement everything and look at their business going down. Everything should be adapted to one’s Business Model, and thoroughly tested.

    • Pierre, you bring up a great point. Anything and everything that is written about will only work for you in the context of your business.

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