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Hey there - it's Brian 👋

Your business doesn’t grow when customers leave you.

One way to keep your customer-base is to make sure your pricing terms aren’t so frustrating that customers leave!

That happened to a SaaS client of mine that struggled to grow.

They had a lot of frustrated customers leave (so new customers were barely replacing them).

So today we’ll talk about how we fixed their pricing.

Today’s issue is for you if…

You have a product/service that’s contract based and you don’t know what levers you can pull with your pricing to keep customers engaged.

We’ll cover the 7 pricing levers, pros and cons to each, and when they make sense for your business.

Let’s make your business an outlier: 👇

Why I left Verizon

I rarely get mad.

My friend once described me as the most logical person she’s ever met (I swear I’m not a robot).

But I remember one of the few times I got mad was 2 years ago when I was leaving Deloitte and had to call Verizon to get my own phone plan.

It was a 2 hour call.

Every question I asked felt like customer service had to open an encyclopedia to find the contract term I was breaking and tell me why anything I wanted was impossible.

Terms were the opposite of simple and transparent.

The complexity got me so frustrated that I cancelled the plan entirely and moved to a new phone network.

That experience is exactly what my client wanted to avoid.

My client was losing revenue fast, because their customers were having bad experiences with their contracts!

So I hopped on the phone with 30+ customers, competitors, and pricing experts to find out what the pricing levers are.

We could set up their pricing to balance having an amazing customer experience and growing their revenue.

Here’s the 7 levers we found (and when it makes sense to use each):

1) Do contracts renew automatically? Or manually?

Auto-renewal is great for low-priced contracts. It lowers the time and effort needed for you to get paid.

But it’s not great for high-priced contracts since auto-renew means you don’t get a renewal conversation (so it’s one less change to upsell).

Another upside: Frictionless renewals means customers think less about leaving you.

Best customer experience:
Typically frictionless auto-renew. Bigger businesses may need sign-off on payments and may prefer more more control.

🧔🏻‍♂️ Brian’s nerdy side rant:

Don’t use auto-renew if your only reason is customers think less about leaving you. That tells me you’re not giving them a lot of value and you need to revisit your business model.

It’s also sleezy business and that’s not valuable in the long-run.

During renewal is a great time to revisit pricing. By the end of the contract your solution should have improved and be more valuable to the customer (so it makes sense to negotiate up on pricing).

2) Can customers renew their contracts early?

Early renewal is great for predictable revenue. You lock in customers for another year.

The downside surprised me though.

You could potentially lose revenue when customers shorten a contract.

To illustrate: if a customer only renews twice on a 1 year contract - early renewal means you get 1.5 years of revenue (vs 2 years of revenue).

Best customer experience:
Allowing early renewal.

3) Do you allow grace periods if customers pay late? How long?

This means customers get extra time after contract ends to renew and keep their contract terms.

Grace periods are best for B2B situations. Big companies have politics and hoops they need to jump through to make payments. They might want to pay you but the bureacracy makes it tough to get the sign-off.

Downside: with grace periods, people see the end of the grace period as the real deadline. Not the actual payment deadline. You’ll get longer sales cycles since there’s no pressure to renew on time.

Best customer experience:
Allowing grace periods.

4) Should your contracts be shorter term? Or longer?

Long-term contracts means you get more predictable revenue.

Short-term contracts mean fewer opportunities to increase prices (easier to negotiate price increases at each new contract).

Best customer experience:
Either. Depends on the customer.

5) Should you build auto prices increase into the contract?

The point of automatic price increases is that we assume you are constantly creating new value to your solution. So it simplifies paying for updates since customers no longer pay for new features.

Downside: It reduces customer retention when you don't deliver value for the increase

Best customer experience:
No automatic price increases.

6) How long in advance should you notify customers before renewal?

For this one let’s assume you have a long-term contract. I’ve seen notifications range from 1 month to 3 month notice (depending on the size of the contract).

Notifying customers of their renewal months in advance let’s you figure out which customers might might not renew. This helps you figure out why not, and fix the issue for them.

Early notifications also create more cross-sell / up-sell opportunities with each conversation.

Best customer experience:
Longer and frequent renewal notifications.

7) Do you allow customers to terminate the contract on their own?

This works best for low-value contracts. It makes operations much simpler.

Not great for high-value contracts since it removes the opportunity to retain customers by offering discounts/incentives/fixes.

Best customer experience:
Allow self-termination.

How should you use terms to price your products?

For this client we prioritized customer experience, but in your case it may be more complex.

You also need to take into account optimizing for revenue and operations (time + cost).

Although when in doubt: if you optimize for the best customer experience the revenue will follow.

And that’s it!

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See you next Thursday 👋

Brian
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