75%
of customers opened to a new subscription model
18%
Increase in revenue per customer
The Challenge
The client had upgraded their current hardware and software technology, so it could be fully integrated into their large capital equipment. Traditionally they had sold their technology on perpetual licenses and offered system upgrades for free but felt that this approach was ‘uncoordinated’. They wanted to use their newest upgrade as a trial for a subscription-based pricing model but they needed to understand if their customers would accept the new structure.
To revise their current pricing model, the client wanted to know:
- Who their customer segments were?
- What was the best structure for a subscription pricing model?
- What percentage of customers would be open to each subscription model?
- How to build a better pricing evaluation process for the future?
Software as a Service (SaaS) Industry
As innovation and connected technology begin to disrupt mature industries pricing strategies will need to evolve to manage new cost structures. The client traditionally sold hardware and software products separately, which were add-ons in conjunction with large capital equipment purchases. The company continued to improve their technology, however, customers, who had perpetual licenses, were receiving software upgrades for free.
The client wanted to know whether a subscription pricing model would be embraced by their customers. Pricing Solutions team developed recommendations for offer structure and implementation plan that revealed a potential 18% increase in revenue per customer over 4 years.
Software As A Service (SaaS) Pricing Case Study
Building a Solution that Fits
The Pricing Solutions team developed a 3-step solution to manage internal concerns and help justify the move from a perpetual to a subscription-based pricing model.
- Develop Value and Pricing Hypotheses
Pricing Solutions Team held internal interviews with key stakeholders within the organization to deeply understand the solution, target markets, and competitive alternatives. After that, a workshop was conducted to define the business and financial goals, develop value hypotheses and confirm our understanding of the solution.
- Conduct Market Research
Desk research was conducted to evaluate alternative pricing models. Following that, Pricing Solutions used a discrete choice survey to identify unique customer segments and to test various offer structures; i.e. subscription pricing versus perpetual license pricing.
- Develop New Pricing Strategy
Based on the compiled customer research insights, Pricing Solutions developed a pricing simulation model to assess different pricing and offer structures. To review the research results and initial recommendations for the offer structure, a Strategy Alignment Workshop was conducted. The final pricing recommendations were developed in a Final Strategy Workshop where and an implementation plan was also developed.
The Result?
The customer research that Pricing Solutions conducted revealed that over 75% of customers would be open to a new subscription model. The recommended subscription model offered a potential 18% increase in revenue per customer over 4 years. The workshop that the team conducted also provided internal alignment and communication to get the organization on board for the shift creating confidence in the updated pricing strategy.
The Pricing Solutions Difference
Pricing Solutions expertise in pricing and proven research methodology address the challenges of adapting from a capital expense to an operational expense
By providing implementation plans and a series of workshop, Pricing Solutions helps clients to transition to subscription pricing models that will give their team the confidence it needs to make profitable change. To learn more about our experience with subscription-based models, please contact us today.