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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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Introduction
Setting the right price for your SaaS product is perhaps one of the most critical business decisions you'll make. Too high, and you risk pushing away potential customers; too low, and you leave significant revenue on the table. But how do you know what price point will maximize both conversion and revenue? Enter VWO (Visual Website Optimizer) for pricing experiments—a powerful tool that enables data-driven price testing for subscription-based products.
In this comprehensive guide, we'll explore how SaaS companies can leverage VWO to optimize their pricing strategy through systematic testing, ultimately improving conversion rates and maximizing revenue.
Why Price Testing Matters for SaaS Companies
SaaS pricing is uniquely complex compared to traditional product pricing. With subscription models, you're not just selling a one-time purchase but establishing an ongoing relationship where the lifetime value of a customer becomes paramount.
Recent research from Price Intelligently shows that optimizing your pricing strategy can impact your bottom line up to 4x more than improving customer acquisition. Despite this, many SaaS companies set their prices based on competitor analysis or gut feeling rather than systematic testing.
The stakes are high:
- A mere 1% improvement in pricing can translate to an 11% increase in profits
- According to ProfitWell, 98% of SaaS companies that regularly test pricing outperform those that don't
- The average SaaS company changes its pricing only once every 18 months—far too infrequent for optimal results
What is VWO and Why Use It for Price Testing?
Visual Website Optimizer (VWO) is a leading conversion optimization and A/B testing platform that allows companies to test various website elements—including pricing pages. While there are several A/B testing tools on the market, VWO offers specific advantages for SaaS pricing experiments:
- User-friendly interface: Create and launch tests with minimal technical knowledge
- Robust segmentation: Target specific user segments based on behavior, geography, or other parameters
- Statistical significance calculations: Know with confidence when your results are valid
- Integration capabilities: Connect with your analytics and CRM tools for deeper insights
- Multivariate testing: Test multiple pricing variables simultaneously
Setting Up Your First SaaS Pricing Test with VWO
Step 1: Establish Clear Objectives
Before launching any pricing experiment, define what you aim to achieve:
- Increase conversion rate
- Improve average revenue per user (ARPU)
- Reduce churn by finding the optimal price-to-value ratio
- Test price elasticity for different customer segments
- Evaluate new pricing tiers or structures
Step 2: Develop Testable Hypotheses
Form clear hypotheses about how pricing changes might affect customer behavior. For example:
- "Increasing our starter plan price from $19 to $29 will increase perceived value and maintain conversion rates"
- "Offering an annual discount of 20% instead of 15% will increase annual plan adoption by 25%"
- "Adding a middle-tier plan at $49 will capture customers who find our pro plan ($99) too expensive"
Step 3: Design Your Test in VWO
Navigate to VWO's testing dashboard to create your experiment:
- Select "Create" and choose "A/B Test"
- Enter the URL of your pricing page
- Use VWO's visual editor to modify pricing elements
- Set up variation pages with different pricing structures
- Define your goals (conversions, revenue per visitor, etc.)
- Configure traffic allocation between variants
- Set duration parameters based on your typical conversion cycle
Step 4: Implement Proper Tracking
Ensure your test tracks meaningful metrics beyond just conversion rate:
- Trial sign-ups
- Paid conversions from trials
- Average deal size
- Customer lifetime value (where possible)
- Plan distribution across tiers
- Expansion revenue
VWO's integration with tools like Stripe, Chargebee, or your custom billing system will be crucial for accurate data collection.
Best Practices for SaaS Pricing Experiments
Test One Variable at a Time
While it's tempting to overhaul your entire pricing structure, isolating variables helps pinpoint exactly what drives changes in customer behavior. Consider testing:
- Base price points
- Discount structures
- Feature allocation across tiers
- Number of pricing tiers
- Free trial duration
- Billing cycle options (monthly vs. annual)
Use Segmentation Effectively
Not all customers respond to pricing changes the same way. Use VWO's segmentation capabilities to analyze how different user groups react:
- Enterprise vs. SMB customers
- Geographic regions
- Acquisition channels
- New visitors vs. returning visitors
Account for Sales Cycles
SaaS purchasing decisions—especially for higher-priced products—often take time. Ensure your test runs long enough to capture the full sales cycle, which may be 30-90 days for many B2B SaaS products.
Monitor for Unexpected Consequences
Price changes can have ripple effects beyond conversion rates:
- Higher prices might reduce initial conversions but attract more serious customers with lower churn
- Lower prices might boost sign-ups but increase support costs from less-qualified users
- New tier structures might cannibalize your premium offerings
VWO's detailed reporting helps identify these secondary effects.
Common SaaS Pricing Tests to Run with VWO
1. Price Point Testing
The most straightforward test involves changing the actual dollar amount:
- Control: Current price point ($49/month)
- Variation A: 20% increase ($59/month)
- Variation B: 20% decrease ($39/month)
2. Pricing Model Testing
Test fundamentally different approaches to your pricing structure:
- Per-user pricing vs. flat-rate pricing
- Usage-based tiers vs. feature-based tiers
- Good/Better/Best tiers vs. simplified two-tier approach
3. Annual Discount Testing
Find the optimal discount rate to encourage annual commitments:
- Control: 10% annual discount
- Variation A: 15% annual discount
- Variation B: 20% annual discount with additional features
4. Free Trial Modification
Test how trial structures impact conversion:
- 14-day vs. 30-day trial periods
- Credit card required vs. no credit card required
- Limited-feature trial vs. full-feature trial
5. Visual Presentation Tests
How pricing information is displayed can significantly impact conversion:
- Horizontal vs. vertical pricing tables
- Most expensive plan first vs. cheapest plan first
- Highlighting recommended plans vs. neutral presentation
- Monthly price display vs. annual price display (with monthly equivalent)
Case Study: How Company X Optimized Pricing Using VWO
A mid-market SaaS company (anonymized for privacy) used VWO to optimize their pricing strategy with impressive results:
Initial situation:
- Three-tier pricing: $29/$79/$199 monthly
- 2.3% conversion rate from trial to paid
- 60% of customers on the lowest tier
Testing process:
- Created four pricing variations in VWO
- Ran tests over 45 days with equal traffic distribution
- Analyzed results across different customer segments
Results:
- Best-performing variation showed a 31% increase in overall revenue
- Conversion rate improved by 12%
- Average revenue per user increased by 17%
- Customer distribution shifted, with 45% choosing middle-tier (up from 30%)
The winning strategy involved raising the entry-level price slightly while enhancing its features, creating a more compelling middle tier, and positioning the highest tier as an "enterprise" solution.
Analyzing Your Test Results
VWO provides robust analytics to help you interpret test outcomes. Pay attention to:
Statistical Significance
Don't end tests prematurely. VWO calculates statistical significance, helping you determine when you've gathered enough data to make confident decisions.
Segment Analysis
Dig deeper than overall results. A price change might positively impact conversion from certain traffic sources while negatively affecting others.
Secondary Metrics
Besides conversion rate, analyze:
- Time to decision
- Support ticket volume (do lower prices attract high-maintenance customers?)
- Average revenue per user
- Churn indicators (where possible)
Beyond One-Time Tests: Building a Pricing Optimization Culture
The most successful SaaS companies treat pricing optimization as an ongoing process:
- Create a testing calendar: Schedule regular pricing experiments throughout the year
- Build a knowledge base: Document all test results to inform future experiments
- Combine quantitative and qualitative data: Supplement VWO testing with customer interviews about pricing perception
- Monitor competitive landscape: Use pricing tests to respond to market changes
- Consider price localization: Test how different geographic markets respond to various price points
Conclusion
Effective price testing with VWO gives SaaS companies a competitive advantage in an increasingly crowded marketplace.