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How to Understand Your Customer Pain Gap for Price Strategy

How to Understand Your Customer Pain Gap for Price Strategy

Your current agency pricing structure may focus on billable hours, flat fees for each component of a project or some combination of both. When you transition to a SaaS business model, you need to throw that structure out the window. Your services are packaged into clearly defined subscription products rather than an a la carte offering.

The customer pain gap is the secret to setting SaaS service pack prices for your digital agency.

What is a customer pain gap?

So what is a pain gap? Take a look at almost any SaaS product on the market. You consistently see three or four product tiers with different prices. Each level builds up to the next, with the first step leaving a bit of customer pain on the table. You give them 80 percent of the features they need so they're happy overall, but not so much that they have no motivation to move into higher plans. When their needs change or they want the extras after becoming familiar with your agency, they upgrade. This makes you more revenue with no additional customer acquisition costs.

How to leave a pain gap in your pricing

Start with your core offering. This is the entry-level tier that includes the absolute essentials all customers need. You only want to incorporate enough pain to act as encouragement. If you limit this basic offering too much, you may end up with unhappy clients.

The next step up provides extras needed to get better results. The value should be immediately obvious, so your customers have a compelling reason to want this upgrade. For example, if you offer content creation as a base package, you may include content distribution when they move up.

Your final tier is the cream of the crop. These customers get everything you have available for the highest possible value. This package is a dream come true for your clients, as all of their pain is handled.

Some services don't fit neatly into a subscription. They may be one-off or occasional packages that deliver value without having a clear place in your three tiers. Set these up as add-ons, which any customer can choose once they sign up with your digital agency.

Setting your SaaS model pricing

Hourly pricing has no place in the SaaS model, so shift your thinking to the value that each service brings to the customer. You may know how many hours it takes to accomplish a particular task, but do you know what its perceived value is to a client?

Step into your clients' shoes and think about the benefits you deliver. Are you increasing their revenue, freeing up their time, building a company reputation, or generating higher lead volumes? How much do you think they would pay for some of these outcomes? The amount of time you spend on the service is so far down the list for clients that it may not cross their mind at all, but their ROI is front and center.

Create a pricing funnel with your plans.

Much like a marketing or sales funnel, a pricing funnel is structured to move customers through it. Stick to three or four plans total. Anything more or less and you have a harder time encouraging customers to continue their journey.

A cheap, mid-range and pricey package provides the range you need to have clear price differences. If the tiers are too close together, you eliminate the pain and motivation necessary to get clients to continue to grow with your digital agency.

Resist the urge to undercut yourself in an attempt to drive more business. You need the most expensive tier to adjust value perceptions and encourage conversions on every tier. Even if you never get a single client signed on with the high-end service, it does an excellent job at creating pricing expectations.

Different customers value different things

Sit down with your current clients to gain insight into the value they place on your services. Some decision makers may be cost-sensitive and chose the lowest plan no matter what. Others weigh their options carefully to determine whether the value balances out the cost. A select few people want the best of the best whenever possible, so your most expensive plan attracts their attention.

A lot of trial and error is involved in figuring out the pricing strategy that works best for your digital agency. If you end up going too high, you will hear all about it from your customers and can quickly adjust. Once you get the perceived value right and convey it through your messaging, customers are happy to pay what you're asking. Take the time to think about what clients get out of each subscription and match the price to that.

Don't get frustrated if it takes time to hone in on the best performing prices. Your digital agency may have used its current pricing model for years, so expecting an instant change is unrealistic. Pay close attention to what your customers tell you, the plans other SaaS model agencies are offering and what your data shows. After a few months of enjoying the stable and steadily growing revenue generated by a subscription model, you'll forget your own pain soon enough.

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