
Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.
In the high-stakes world of SaaS, pricing changes can create significant revenue opportunities or trigger unexpected customer backlash. While many executives focus on designing the perfect pricing strategy, fewer invest adequately in shadow pricing—a crucial validation process before rolling out changes. This article explores why shadow pricing deserves a place in your pricing transition playbook and how to implement it effectively.
Shadow pricing is a simulation technique where you run your new pricing model alongside your existing one without actually charging customers differently. This process allows you to compare outcomes between current and proposed pricing structures, providing crucial data before implementing changes that could affect your entire customer base.
The financial models supporting pricing changes often contain assumptions that may not hold true in the real world. According to research by Simon-Kucher & Partners, 72% of SaaS companies that conduct shadow pricing exercises discover discrepancies between projected and actual outcomes.
"Revenue projections often overestimate by 15-20% because they fail to account for customer segment variations in price sensitivity," notes Patrick Campbell, CEO of ProfitWell. Shadow pricing provides empirical validation—or necessary corrections—to these forecasts.
Pricing changes can disproportionately affect certain customer segments in ways not immediately obvious during planning.
Atlassian's shadow pricing exercise before their 2017 pricing restructuring revealed that certain enterprise customers would experience more than 40% price increases—far above their acceptable threshold. This allowed them to implement grandfathering provisions for those accounts, preventing significant churn.
Many companies overlook the technical implications of pricing changes. In a 2022 OpenView Partners survey, 34% of SaaS companies reported technical billing complications when implementing new pricing models.
For example, Intercom's shadow pricing exercise uncovered that their usage-based pricing algorithm would have inconsistently measured certain customer behaviors, creating unpredictable bills for about 8% of their customer base. This discovery allowed them to refine their event tracking before launch.
Before beginning, establish what success looks like:
For effective shadow pricing, implement across a statistically significant customer sample that represents your diverse customer base. Companies like Salesforce typically select 10-15% of customers across different segments, industries, and usage patterns.
Shadow pricing requires sufficient time to capture usage cycles. According to Todd Eby, founder of SuccessHacker: "Run shadow pricing for at least one to two full billing cycles. For annual contracts, you need at least 3-4 months to capture meaningful data."
While aggregate revenue impacts matter, the distribution of changes is equally important. Stripe's shadow pricing exercise revealed their overall revenue projections were accurate within 3%, but 7% of customers would see increases exceeding 100%—information that led them to implement transitional pricing tiers.
The primary value of shadow pricing comes from the adjustments it enables. Zoom's pre-launch shadow pricing exercise for their Pro tier revealed that their proposed tier boundaries would have unintentionally pushed 12% of SMB customers into the higher-priced Business tier. This insight allowed them to adjust tier thresholds before launch.
Despite its importance, there are limited situations where shadow pricing might be unnecessary:
Even in these scenarios, companies should conduct alternative validations through customer interviews or limited market testing.
Before implementing usage-based pricing, Twilio's shadow pricing exercise revealed that while most customers would benefit from the new model, a subset of enterprise users with sporadic, high-volume usage would see dramatic cost increases. This led them to create "burst pricing" provisions that prevented these customers from experiencing bill shock.
HubSpot's shadow pricing uncovered that their proposed contact-based pricing would have created significant technical challenges in their attribution model. According to HubSpot's VP of Product, this discovery saved them "months of post-launch firefighting and thousands of support tickets."
Think of shadow pricing as an insurance policy against costly pricing errors. The investment in time and resources to conduct thorough shadow pricing typically represents less than 5% of the implementation cost but can prevent revenue disruptions many times that amount.
As pricing becomes increasingly sophisticated in the SaaS industry, with 68% of companies now employing some form of usage-based elements according to OpenView's 2023 SaaS Benchmarks Report, the complexity and importance of shadow pricing will only increase.
Before finalizing your next pricing change, ask yourself: can you afford to skip the validation that shadow pricing provides? For most SaaS executives, the answer is a resounding no.
Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.