4 Common B2B Pricing Mistakes and How to Avoid Them
Did you know simple, flexible B2B pricing can help your SaaS business grow faster?
Software as a Service (SaaS) is booming, but the industry is getting crowded. With over 16,000 SaaS companies in the United States alone, business buyers can choose from many providers. Slight differences in the buying experience can sway a customer to decide between your product and a competitor.
Do you really want to lose customers because you don’t offer flexible pricing? Offering pricing and payment terms that fit your customers’ needs can make or break your B2B SaaS business. Flex payments are quickly becoming more and more a part of internet purchasing and are an easy way to put yourself ahead of your competitors who don’t offer this payment method.
As of 2021, organizations use around 110 apps, with app usage growing 7 times in the last 5 years alone! SaaS popularity will drive your company’s growth and reduce the barriers to purchase. By offering flexible pricing, you can:
- Convert more customers, shortening your sales cycle
- Increase pricing, more easily
- Capture larger customers with more lifetime value
All without changing a single feature of your underlying product... if you stop making these 4 mistakes with your pricing strategy.
Mistake #1: You Don’t Provide Flexible Payment Terms
Poor payment terms may cost you, customers, even if they love your product.
In fact, 34% of business buyers cite poor payment terms as one of their major challenges.
Inflexible pricing and billing requirements turn away new and existing customers. Buyers want more control over their cash flow, and partial overtime payments put them back in charge.
Your customers want flexibility when paying for software — can you provide it for them? Perhaps using an experienced Saas business that can provide this solution for you is the right decision.
If you are like most SaaS companies, your sales cycles is long... Over 70% of B2B sales take 4 months to close, with 46% lasting over 7 months! You could instead invest the same time and resources into:
- Product improvements
- Driving additional value to customers
- Increasing market share.
It’s easy to attribute long sales cycles to the nature of B2B sales and the number of decision-makers involved in each purchase. But companies with an average contract value up to $50,000 close within 3 months, while larger contracts take around 6 months or more.
Sales cycles clearly last a lot longer for larger contracts because customers hesitate to pay larger sums of money.
Mistake #2: You Don’t Keep Up with Pricing Preferences
Your customers’ pricing expectations are changing fast.
As the demand for SaaS products is booming, many B2B companies are investing in pricing improvements. In fact, since summer 2021, over 50% of B2B businesses have named pricing and deal scoring as a top priority. Evaluating payment methods pays for itself.
Those who don’t deviate from the status quo will fall behind.
But if you’re ready for it, the recent shift to digital can become an opportunity for your business.
McKinsey’s recent B2B Pulse report shows that B2B customers trust online sales channels more than ever before. In fact, nearly 80% of businesses will place orders worth more than $50,000 after digital self-service or video sales calls. If you take advantage of this shift, you can close buyers without spending on expensive in-person negotiations or potentially any direct sales calls. There’s only one problem: customers resist digital-only deals for higher average price points. Only 35% of businesses will buy more than $500,000 worth of products without face-to-face interaction.
To land larger enterprise customers and larger enterprise deals, you may have to offer flexible payment terms.
Mistake #3: You Limit Credit Card Payments
Card payments are loved by B2C and B2B customers alike.
50% of all business buyers prefer to purchase software with credit cards. The same holds true even for large enterprise buyers.
Businesses of all sizes enjoy the convenience and ease of paying with their corporate card instead of initiating wires or ACH transfers. The time saved with card payments quickly adds up across many software purchases made by each business. Yet, many software costs are impractical to put on a credit card. 61% of SaaS companies bill once a year, so to purchase software a business has to pay for the entire annual cost at once. The average software purchase is too large for a card payment, as costs often run between $100,000 and $150,000.
If you bill upfront, you are preventing customers from using their favorite payment method.
Mistake #4: You Assume B2B Buyers are Rational
Since business purchases involve multiple decision-makers, you may fall into the trap of assuming purchase decisions are rational.
So your sales team tries to close deals based on value. You describe extensive features, explain the time saved with your product, and negotiate a better bundle based on the prospect’s needs. But none of those tactics consider the psychology at play.
Business buyers are just as prone to purchasing biases as retail consumers.
Your software as a service offering is not only a psychological purchase, it’s a luxury product.
B2B buyers use the same decision-making shortcuts as retail consumers, especially for large price points. Businesses judge expensive product offerings as higher quality and lower risk. On the other hand, discounts can compromise that perception of value in your prospect’s mind. For example, the Bloomberg terminal never offers discounts or even publishes its pricing, maintaining the integrity of the Bloomberg brand.
But if larger costs slow down your buying cycles or turn away prospects completely, how can you balance the perception of value and accessibility of your offerings? After all, your leads are worried that even if they talk to your sales team, they might not be able to afford your product at all.
You are losing revenue by letting go of clients who hesitate at your perceived price.
Such hesitation is quickly apparent on a demo call, so sales teams negotiate down. To close a deal, your sales team probably offers large discounts on long-term plans. So lump annual payments are costing your company dearly in annual contract value while bringing down the perception of your product.
Channel the power of pricing psychology by offering flexible payment terms to your customers. Head over to our FAQ page as it will probably answer a lot of thoughts going around in your head.
Benefits from Paying Over Time
Charging upfront for your SaaS product may be easier, but it is losing your business revenue.
Large annual price points can communicate the quality of your product, but even large enterprise buyers may hesitate when committing to pay tens or hundreds of thousands of dollars on a new contract. Instead, provide your customers with the flexibility of paying overtime. This way, your customers can:
- Pay over time with the flexibility they desire
- Purchase more as payments are spread over time
- Accelerate their purchasing decisions, as pricing is now frictionless
And if you’re ready to offer flexible pricing options, you can book a call with our team to see Alternative Payments in action.