How I Raised the Price of My SaaS App by 60% – Dodd Caldwell – MicroConf Growth 2017

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0:14I've already been congratulating multiple times on Ezra's talk apparently if you squint in the back I'm his doppelganger I guess it's the man behind the beard and the similar body type but yeah I am the co-founder of moon cork and we target small businesses mostly local businesses and we help them were built into up a stripe and we help them accept recurring payments without doing any programming so I'm gonna be talking if this works here there we go sorry wrong button about raising our prices and really the decision-making process for raising the prices and how it worked out what the results were so just to give you a little background

1:05when we launched about four years ago we trying again there we go we started at nine dollars a month is like our base price and we have tiered banded pricing so people can move up our largest customers pay us thousands of dollars a month and our smallest ones paid us nine dollars a month and about 18 months ago we made the decision to raise our base price 66% to $15 a month and it doesn't sound like a lot but we have very price-sensitive small businesses that there's not a lot of price elasticity for a lot of these so it was a big a big decision for us even

1:43though at the time it seems kind of silly to be scared about raising our prices from $9 to $15 a month but really I guess the first thing is why did we raise our prices and I kind of call it like the SAS law of thirds I don't know if it's an official law but I know I've talked to a lot of other founders of b2b SAS apps that have this like a third of our users don't use the app like ever they just they may not stay with us for long but some of them just set it up and want to have the assurance it's there or

2:14they forget about it I'm not sure and a third of them are light users meaning they do use our app but it's like maybe for them revenue is not not their main source of income and then we have a third that are normal to heavy users they're gonna be moved up that chain fairly quickly usually up that that pricing schedule so obviously if we're gonna make a pricing change given that two-thirds of our customers are don't use the app or light users that's gonna make the biggest impact on our revenue also those smaller customers give us the most customer service issues so it makes us feel better if we're

2:52getting more revenue from then it kind of makes the headaches worth it and finally we are wanting to fight customer churn with negative revenue turn meaning we lose customers every month we feel like we've gotten that to like a pretty decent level there's not a ton we can do to reduce that but we can offset some of that by by increasing revenue per customer meaning the the revenue churn turns negative and you know you can't keep raising your prices but it does give you a nice shot in the arm and ultimately though we want to increase our monthly recurring revenue that's why we're raising prices so the first thing

3:30we did is as many of you probably would guess we started a bee testing and we I guess maybe a multivariate our ABC testing I don't know what you call it but we tested nine dollars or our base versus fifteen and nineteen dollars and that was you know a we wanted to get some some real data and we initially sent eighty percent of our traffic to the control price to the nine dollars a month some of that was just like scared so I didn't want to send like a ton of traffic to these higher prices and we didn't actually raise the price we just displayed a different price that was

4:07higher so they they were actually happy when they found how they were getting charged less when they actually activated their account and we actually saw without statistical significance that it really scared me cos $19 was losing pretty big ly it was down about like I don't wanna say our conversion rates were like 50% down versus like $15 a month was pretty much even with the $9 a month and that was not statistically significant but it was enough activations it kind of gave me a good idea hey maybe I should just test $15 so that's what we did and I divided the traffic up 50/50 so that we could get to statistically

4:48significant results quicker and then we waited and honestly I just said it and forgot about it I waited about a year we're not like a huge business you know so you have to have a good bit of a unique good many unique visitors and it took about a year to get those statistically significant results but they did come back and I think it showed that our the $15 only hurt our conversion rate by about 7 percent so I had to decide hey is that 7 percent worth it the drop in conversion rate so I created a pro forma spreadsheet and I can put this on slack later on if

5:26anybody wants to download this spreadsheet kind of the the process I went through to predict what different changes how those would affect our our m RR so some of the variables in there are hey what's the difference between grandfathering people in versus making immediate switch and just switching everybody to the higher price what is our churn rate how is this gonna affect our churn rate and you know obviously the data that we did have was or we could predict was the conversion rate and another important thing we didn't base it off of whole dollar numbers or whole whole users because I didn't really know exactly what our

6:06numbers were gonna be you know like 2 years from now and this proform of spreadsheet but I wanted to know what our numbers would be relative to other pricing and so we just basically use percentages rather than than whole numbers to know hey will we be doing better relative to where we were and the main question again is how does the price increase affect our monthly recurring revenue so I have this little framework for making a data informed decisions and it really it's just like common sense but it makes me feel good inside or whatever to know that hey I'm at least have this little tree that I'll

6:43run down to make decisions and makes me feel better when I actually make the decision so I'm gonna walk through that 9 step and then how I applied our this process to our pricing decision so the first thing is I just recognized I will have some of the data that I want and in this case I wanted to know the conversion rate and I could figure that out second I can make educated decisions on some of the data I don't have and that was actually churn rate I can go through and say hey what do I think the churn rate may be and finally there I can also seek

7:20wise counsel to make better educated guesses on the data I don't have and for me that meant I tried to find everywhere online that other founders had increased their prices and I reached out to them and got on the phone with them and asked them how it affected their churn rate and then I just kind of extrapolated some of that data and put it into the into the pro forma spreadsheet the other is if there's no way to make a best guess on certain data I just ignore it I think a lot of people spend too much time worrying about data and about things that they're they're never gonna

7:53know and for me I had no clue what was gonna happen to my unique visitors so I kind of took that out of the equation I did have to put that in a spreadsheet you know my conversion rate and everything or how many customers I would have but I basically just kind of flatlined it because I was like hey I can't I don't know what's going to happen two years from now with my unique visitors so I'm not gonna really apply that to this decision finally recognizing and this makes me feel good few of my decisions are irreversible you know what if I raise the prices and it

8:21sucks I can always lower them again and this is the part that makes me feel good really is reversing when you think through you can think through like worst case scenarios and worry about what might happen but knowing that like few of the these when you reverse a decision it may have consequences but I mean they're rarely nuclear it's not gonna be a big deal if we raise our prices and lower them maybe we've lost over the course of a couple months like we've lost a few customers that we could have picked up but it's not gonna tank my business at the same time I want to

8:51recognize that hey if consequences for an action for a decision our nuclear probably want to seek more counsel it's like a caveat for myself hey what are the consequences for making this decision and this is again common sense but I need to make the decisions based on the data that I don't have plus my best guess or educated guess on data I don't have and forget and ignore the data that I'm never gonna I'm never gonna know and what that does at the end is it allows me to basically even though I may not know if I've made the correct decision it allows me to feel good and know that

9:34I've made the wisest decision possible and from leading like a team standpoint to me that's really big from a leadership aspect as I'm able to explain both beforehand and then after the fact and whether it worked out or not I can actually clearly explain to my team hey this is why we're making this decision this is why we're going down this path and here's what I think may happen and uh you know you can always say you're sorry at the end if it didn't work out but I think the team better understands both both when things work out and when things don't work out when they can kind

10:06of see this tree of decision of the decision-making process so finally the results from our pricing change well obviously when we started off a hundred percent of our customers we're in the $9 a month schedule today that was 18 months ago today 33 percent of them are in the $9 a month schedule and some of those a lot of those actually are actually in higher tiers so they're actually paying us more even though they originally started in $9 a month and the great thing about this is when customers churn out of the $9 a month you actually feel good about it because you're replacing them with $15 a month

10:45customers with better revenue essentially and our customer churn actually decreased by 10% and that was a little bit surprising I think some of that obviously we've improved the product over 18 months but still it was like oh turn didn't even really kill us at all well that was one of the main things I was worried about we've grown since in that 18 months from 2600 paying customers to close to 4,600 paying customers now so that's good and our revenue per customer grew over 40% and ultimately our m RR has not quite tripled since then but close to close to tripled and in in that 18 18

11:32months so yeah any way you can reach out to me on slack the slack Channel or shoot me an email or reach me on Twitter and I'll try to remember somebody wants to remind me if they want that pro forma spreadsheet I can put that up on slack it may not work for you but maybe you can grab little nuggets from it and see kind of my thought process there and making that pricing decision and that's it thanks [Applause] you