Complexity is bad. Unless it is good.

For ISVs, the days when a license was purchased up-front and the software was delivered and installed on-premise are gone. The proliferation of SaaS business models and the competitive landscape is demanding pricing models that are more flexible (and more complex).

It helps that new SaaS billing platforms are leading the charge and providing entirely new ways to price and deliver and collect for software licenses.

While complexity can negatively impact the sales cycle, it can also simplify the sales cycle by offering pricing configurations that are customized for every consumer or enterprise.

More choice is not always bad for customers.  

Here's a typical scenario. You launch a SaaS application for $14.99 per month. A few months later, a competitor launches a competing service for $10 per month. While it is tempting to reduce your price to attract more users, there is a danger of cannibalizing your existing customer base to accomodate the lower price.

HOWEVER, reducing your price to to attract more users but limiting their activities or access to premium features is a viable option that creates complexity but can also create new revenue.

Customers paying $14.99 for unlimited access will have a different value equation then those paying a lower price for limited access.  Customers that don’t see value in paying a set amount for unlimited access to a good or service may become interested if offered a chance to pay a nominal price in exchange for options. For those subscribers, the value comes in the flexibility to consume the good or service at will. Those not willing to pay for a $14.99/month for unlimited access may be willing to pay a $9/month if they can access core functionality but not advanced functionality.

To take the scenario one step further, the customer who does not see value in paying $14.99 for unlimited access may become interested when he can pay $1/month for each extra user, extra speed, extra content or some other unlocked feature.

Of course, too much choice can be a bad thing if the value of each choice is not properly articulated. When thinking about your offers, always map those offers to cross-sells and up-sells. Freemium business models that encourage users to convert to paid business models can be customized for greater up-sell potential.

You may also find savings in other places that justify the investment. For example, if a freemium pricing model removes the salesforce from the equation, the savings can be tremendous.

New pricing and packaging demands infrastructure agile enough to quickly add new business models without long integrations. If your billing and invoicing can't move quickly, or if you are stitching together your billing with XLS and duct tape, complexity is the enemy. Evaluate activity-based billing systems from vendors such as Transverse, Zuora or Aria.*

Remember, at $1 extra per use, the customer has a low barrier to trying out the new features, and the business succeeds in making money on features that previously would not be monetized. But the real value for the business is the opportunity to convert or up-sell the customer to different subscriptions over time, as the subscriber’s situation and interests evolve.

*Disclosure statement: I am not paid to write this blog. No one gives me money, buys my groceries or mows my lawn because of this blog. However, I do run a marketing business and, sometimes, I will write about companies that I represent (such as Transverse mentioned above) because I am enthusiastic about them. I will also write about companies that I do not represent because they are interesting to me.  If you want me to write about your company, if I have missed something, if you need additional clarification or if you disagree with my disclosure statement, please let me know (ben@maconraine.com).

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