Industry executives and experts share their predictions for 2023.  Read them in this 15th annual VMblog.com series exclusive.

Pricing Comes into the Spotlight

By Griffin Parry, CEO and co-founder of m3ter

The year ahead will be challenging for SaaS growth. Already, 57% of IT teams say they're under pressure to reduce their SaaS spend, and software budgets for 2023 are likely to be squeezed further given the market conditions ahead. 

But even in this economic climate, vendors that can successfully pivot their focus towards value, efficiency and flexibility will not just survive the challenges of the next twelve months, but also continue to grow.

Pricing stands to become a significant focus for SaaS companies as they hope to make this happen. Here's what to expect: 

In a time of plenty, pricing strategies only needed to be ‘good enough,' and SaaS vendors often overlooked this fundamental lever for growth. 

In 2023, however, pricing will come back into the spotlight as a powerful mechanism for maximizing value from existing accounts, reducing churn, and helping to attract new customers. 

We will see more SaaS companies deploy and test a range of pricing options as they try to achieve this. Chief among these will be consumption-based pricing models, which allow for greater flexibility and transparency and therefore minimize the risk of being seen as shelfware. By paying only for what they use, and being able to clearly see how and where their resources are going, SaaS customers can manage their spend accordingly. 

Last year, OpenView revealed that companies with usage-based pricing in place grew faster than their counterparts who were using traditional, subscription-based models. Although growth will slow down across the board in 2023 given external market conditions, UBP will give SaaS businesses an edge over their competitors in retaining customers in a high churn environment, and will also support growth in the long term.

2.   More people and functions will be involved in pricing

As pricing comes into the spotlight, we expect more people from across the business to get involved in it, from CFOs and CMOs through to product and customer success teams. 

Securing input and buy-in from multiple stakeholders will result in a better, more structured, and higher-impact pricing strategy when it is implemented. The companies that are most successful will therefore have an organizational setup that enables pricing decisions and strategy to permeate the entire business. 

Product teams, for example, will be brought in to identify the features that customers value most highly and would therefore be willing to pay a premium for. Their input will also be invaluable in deciding which usage metrics to choose for consumption-based pricing, ensuring product value is aligned with customer growth. 

Customer success teams, meanwhile, will play an important role in evaluating feedback as the new pricing model is rolled out, allowing vendors to solidify customer relationships by demonstrating flexibility and adaptability in response. 

3.   Some will raises prices - but not all 

Customer tolerance of price inflation will diminish in 2023. SaaS companies were able to raise prices four times faster than global inflation in 2022, but the inflationary environment of 2023 is new territory for most software businesses, and many will exercise caution.

Many SaaS companies will prefer to focus on retention and loyalty by providing a solution that helps customers reduce their spend in the short term, for example through consumption-based pricing.  

Where businesses do choose to raise prices, the smartest will start by assessing product stickiness and the strength of their customer relationships. Where these are strong, price inflation is less likely to increase churn. Raising prices will also allow vendors to capture more revenue without having to release new products. 

4.   SaaS companies will focus on lowering the barriers to entry 

Sales conversations are going to be more challenging in 2023, so we will also see technology companies making it as easy and low-risk as possible for their prospects to become customers.

Flexibility, transparency and a customer-centric approach are going to be core to making this happen.

Vendors will experiment with a range of strategies, from lowering commitments and offering reverse trials to adopting usage-based pricing and product-led growth. Most often, it will be a combination of these mechanisms that works to make customer acquisition smoother and more streamlined. 

Flexibility will also be crucial with existing customers. In 2023, staying flexible will create the best chance of improving the customer experience and retaining business, whether through loyalty discounts, tailored pricing or other approaches. 

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ABOUT THE AUTHOR

Griffin Parry, CEO and co-founder, m3ter

Griff and his co-founder John Griffin started m3ter after building and selling a backend-as-a-service company to AWS. The experience brought the challenges and opportunities of usage-based pricing into sharp focus, inspiring them to found m3ter, an intelligent metering and pricing engine for SaaS businesses. Earlier in his career, Griffin held senior digital strategy and transformation roles at Sky.