Pricing benchmarks

By Patrick Campbell
Summary

Main Takeaways:

  • Updating pricing quarterly can result in 2-4X higher ARPU. 
  • Monetization has nearly 8X the impact of acquisition. 
  • Companies spend less than 10 hours per year on pricing. 
  • Companies using a value metric grow 2X faster. 
  • Localizing pricing results in 25-50% higher growth rates. 

Deeper insights into pricing and growth

Pricing is one of the most important growth levers in your business, so to answer Jeanne's questions, we're going to dig into the data from nearly five thousand companies and over one million transactions. 

No obligation ask: Click to tweet and thank Jeanne Hopkins for her question (you can edit before sharing). 

Pricing is a process of incremental gains

When comparing companies who regularly update their prices with those who don't, those companies updating their pricing at least once every 6 months are seeing nearly double the ARPU gain than those who upgrade their pricing only once per year or longer.

Your price is the exchange rate on the value you provide, so as your product and company improves, your price should be tracking alongside that improvement.

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Impact of monetization on your bottom line

Similarly, when isolating and normalizing the microeconomic impact of improving your main growth levers, you'll find that monetization has nearly 8x the impact of improving something like your acquisition.

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Companies spend very little time on pricing
Here's the rub though. We don't historically care about pricing. The average amount of time a company spends per year on pricing is less than 10 hours. There's a multitude of reasons why this is the case - pressures to grow at all cost, significant knowledge gaps on how to price, and countless others. 

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Unlocking growth by using a value metric

Make sure you're using a value metric. A value metric is what you charge for - per seat, per 100 visits, per gigabyte, etc. Data indicates that those companies utilizing a value metric are growing at nearly double the rate of those who are merely feature differentiated, and the divide is widening. Plus, this bakes expansion revenue into your pricing model to make retention easier, as well.

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Leveraging price localization for growth

Further, another quick win is to utilize price localization and internationalization, which means both updating your pricing cosmetically to use the currency symbol of the buyer, as well as updating the relative price of the product for the market density. This is a relatively easy way to quickly gain 25-50% higher growth rates.

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That's all for this week. We look forward to bringing you more data and insights about the subscription economy next week. 

*** If you missed our previous episodes you can find them here: ***

Episode 1: Churn Benchmarks

Episode 2: CAC Benchmarks

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Patrick Campbell

SaaS Economist

Find Patrick Campbell on twitter or linkedin

  
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