Do you have a pricing page on your website? Our research into B2B SaaS companies reveals that what you communicate about your pricing can accelerate or slow down your growth prospects. Savvy SaaS players think carefully about what pricing information they publish, when, and how. We’ve identified three pricing communication practices that set winners apart from the rest.
Consider ditching your pricing page once you pass $10,000 in ACV
More than 90% of the SaaS companies in our database stop displaying a transparent pricing page on their website once their average annual contract value (ACV) exceeds $10,000. Furthermore, those that ditch their pricing page are often able to tilt up-market with annual ACV increases of 24% by adding larger customers. Compare that with just 14% for their peers who still have a transparent pricing page.
Why would removing your pricing page help you attract bigger customers? One reason may be that when customers see prices on your site, the phenomenon known as “anchoring” kicks in. Larger customers pigeonhole your solution as “too cheap to be good,” or they may start negotiations at a lower point instead of finding the right price for the value they will likely capture.
You may also want to stop advertising free trials
Equally interesting, our data show that taking free trials off the website also correlates with healthier ARR growth. Of the SaaS companies in our database who ditched their pricing page, 50% continued advertising free trials of their product on their site. On average, their ARR growth was 40% lower than that of our member companies that don’t advertise free trials. The reason? One possibility is that customers who like to “try before they buy” may take longer to make a purchasing decision. They spend more time shopping around and may eventually get distracted and settle for the “do nothing” solution. If you can close a deal without having to wait for the customer to play with your product first, you close it faster.
As another intriguing point, the companies we examined that offer free trials have higher average sales costs—66% of ARR, compared with just 21% for companies that don’t advertise their trials. Hence, we see that free trials can be more expensive if the wrong leads are signing up. This can also distract salespeople, if those prospects need frequent “touches” throughout the trial. Check this recent article for details on how to do this right!
Are there any downsides to taking the free trial off the website? Companies that don’t advertise trials spend significantly more to onboard new customers: $32,000 versus only $13,000 for companies that advertise their trial. Hence it may make sense to keep advertising your free trial despite the higher cost of sales if you are adding lots of customers. It’s also worth noting that just because you don’t advertise free trials doesn’t mean you can’t offer them if you need to.
If you keep your pricing page, shoot for more tiers
If ACVs are below $10,000 or you have decided to keep your pricing page anyway, think carefully about what’s on it. The number of tiers you define can make a big difference in your revenue growth.
Of the SaaS companies in our database that offer transparent pricing information, about 60% have defined three or fewer pricing tiers. Those that have defined more than three tiers boast 25% higher ARR growth and significantly lower discounting rates than the others. These differences in ARR growth and discounting rates suggest that companies with more tiers may be able to align their pricing more tightly with customers’ willingness to pay.
Another phenomenon we often see on pricing pages is tiers with nonsense names. Potential customers have a much harder time understanding what names like “standard” and “premium” mean versus more descriptive names like “freelancer,” “small business,” and “enterprise.” Descriptive names help customers sort themselves into the right category rather than looking for the cheapest category that meets their needs.
Our analysis shows that when it comes to conveying pricing information, less can be more in some cases—while in other cases, more is more. With that in mind, ask yourself:
- How is your ACV and ARR growth?
- What changes could you make today in your pricing communication strategies to get those growth numbers up?
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The findings we’ve shared here are the latest from McKinsey’s SaasRadar database—a proprietary benchmark of private and public B2B SaaS companies with annual revenues ranging from $10 million to $500 million. Participants receive a report comparing their performance and metrics to those of a hand-picked cohort of peers. The report’s findings help management teams to gain actionable insight into the drivers of growth and customer lifetime value.