Recurring revenue is the lifeblood of any subscription company. It’s what makes subscription companies so appealing! You don’t have to worry about one-off sales that may or may not return. If you’ve got a solid product, they automatically return. Every. Single. Month. Amazing!
But as wonderful as it is, it can also be the most downright frustrating and eye gouging part of your business. Gail Goodman, CEO of Constant Contact calls this the “long, slow, SaaS ramp of death”, and for good reason.
You can put in months of hard work improving every last nook, pixel and cranny or put together the greatest marketing campaign your team can muster, all to barely budge your MRR graph. Heck in some cases you may actually see a decline in your recurring revenue.
So while there are certainly stories you’ll read on Hacker News or Reddit or Twitter about someone with “hockey stick” growth, the fact is…99% of businesses won’t see that.
Instead what they’ll see is slow, painfully incremental, boring growth.
But! It’s not all doom ’n gloom! There are in fact things you can do to increase your MRR. Things you can start putting in to practice today!
Let’s take a look at four things you can get the ball rolling on now to start getting more revenue!
1. Charge more
I know, I know. Charging more sounds obvious, but the fact is, most companies are drastically underpricing their product.
The most common cause of charging too little is that we, as founders, are self-conscious. We’re afraid of rejection and we don’t give ourselves enough credit for the problems our companies solve.
So, we charge too little to reduce the chance someone will reject us. #psychology
The fact is, if you’re solving any real, tangible problems for your customers, you shouldn’t be charging single-digit amounts. Every time I see some business software charging $5 a month I want to scream at them. It’s insanity.
Businesses use software for at least one of three things: to save time, to save money or to make more money. These are all summed up as “value”…businesses pay for “value”.
If your product is only creating $5 of value, then I’d suggest that maybe you should find a new product. That’s harsh, but I’d also suggest that chances are your product does create a lot more than $5 of value.
Let’s do some quick math here as a simple example.
How much is your customer’s time worth? I’d bet at least $50/hour. Depending on their role, probably hundreds of even thousands of dollars an hour, but let’s start on the low end.
If you save them over 6 minutes of time a month, then you’re already underpriced at $5/mo. But I bet you aim to have people spend more than 6 minutes of time a month with your software.
There’s just no scenario where you shouldn’t be charging at least $20 a month for your product. And in reality most companies will happily pay many multiples of that.
But if you’re weary of this, then just run a little test.
Double prices. Just double them. Don’t change anything else. Don’t rearrange features or raise limits on anything. Just double the prices on your pricing page. And wait.
Then, in a month, check if your conversion rates or growth rates declined. My guess is that neither will decline…in fact I’d bet both will actually increase!
Now, do it again. And again. And again. Do it every month until you find it’s not having a positive effect on your revenue growth!
Who are you more likely to trust with your business? Someone you’ve had zero experience or interaction with? Or someone you converse and interact with on a daily basis?
The latter, obviously.
And that’s why it’s much cheaper to grow revenue from your existing customer base than by acquiring new customers. It’s not that you don’t need both, but acquiring new customers is just always more expensive.
If the customers you’re serving are growing and getting more value from your business over time, then you should match that with pricing.
You aren’t running a charity, you’re running a business and if customers are getting more value, then that’s the perfect opportunity for you to offer an upgrade.
The value you provide should always be greater than the price they’re paying, but they should grow somewhat in parallel.
There are all sorts of ways, logistically, to set this up. You can get really creative with this stuff, but let’s talk about a few common ones.
Per-user or per-seat pricing is one common way to attach value provided to value received. This type of pricing essentially means there’s no limit to how much you could make from a given business.
As your customer grows and more of their team uses your product, the more you make.
Some companies you’ve probably heard of that use this type of pricing/upgrade model:
- Salesforce — Pricing is anywhere from $25/mo per user up to $300/mo per users
- Atlassian — They’ve got a whole suite of various products, but pricing is all based on the number of users.
- Slack — Pricing starts at around $6/mo per user and goes up from there based on the features needed.
- Trello — Pricing starts around $10/mo per user
You’re probably most familiar with metered or usage-based pricing from hosting/infrastructure companies like Heroku or Amazon Web Services.
The more you use their services, the more you pay. There’s a very literal correlation to the exchange of value.
You likely have some base plans that you already offer, but deciding ahead of time exactly how you “bucket” features within those plans can be a little bit of a shot in the dark that you aren’t ever sure you have right.
If you position your biggest features as “add-ons” it’s easy for your customers to essentially create the perfect package of tools.
It’s also a much easier upsell (i.e. “For just $10 more per month you can get Feature X”).
3. Get rid of your free plan
Freemium is something that’s a default for nearly any software company. Seems silly to even suggest not having a free plan. But that’s exactly what I’m suggesting.
Get rid of your free plan, you’re giving away the farm.
I know, I know. It’s not that easy. So lets break it down a bit.
What’s the purpose of a free plan at all? Well, generally it’s used for one of two things.
“Free” is a marketing tool
The thinking goes that by having something that’s free, you can get exponentially more people in the door, giving you the opportunity to then sell them on a premium plan.
But the problem here is that it anchors the “value” conversation to $0. Anything you say, do or offer will get viewed through the lens of “I’m currently spending exactly $0…why would I spend a not-$0 amount?”
It sets your user base up to categorically not value your product.
Arguably “free” as a marketing tool can be great for consumer businesses, as consumers are traditionally extremely price conscious and have a near infinite number of options. Their motivations for spending money are usually much different as well (most things consumers by are “wants” not “needs”).
But there are very few business scenarios where a blatantly “free” plan is beneficial. The economies of scale just don’t work in your favor. You need a huge “top of the funnel” to make the conversion rates pan out profitably in the long term.
On top of that, it’s very expensive to support all of those free users. Large, venture-backed companies with 10’s or 100’s of millions in the bank can afford to support a large free user base. You cannot.
“Free” as a way to trial the software
Many companies use a “free” plan as a way to let potential customers try out the software. They get the benefits of the “marketing tool” angle plus users get to see what type of value they could get! Two birds, one stone, right?!?! Wrong.
Not only do you have the downsides of the “free as a marketing tool” angle, but you’re also offering your customer a limited view of what you can do for them.
That means the message that gets sent to the customer is “this has very little value and also can’t even do that much for me”.
So what’s the solution here? Instead of offering a free plan, offer a time-limited free trial. 7 days, 14 days, 30 days, 60 days…doesn’t really matter how long other than they need enough time to be able to understand just how much value they’ll get from your service.
4. Remove a “maximum” price/unlimited
Look, I get it. Pricing products is hard. It’s one of the most difficult decisions you’ll make when creating any type of product, as there’s no “easy” or “right” answer to “how much should I charge for my product?”
But there is one bit of advice that I strongly urge you to consider: never offer an “unlimited” plan.
Early on in my career I made this mistake. I had never built a business on recurring revenue before, so coming up with a good pricing model was the same as pulling numbers out of thin air. After coming up with what, I thought, was a great set of plans, I decided I’d shoot for the proverbial stars and throw out an “unlimited” plan for a whopping $99. Ha!
When you’re brand new to pricing, it’s easy to think “If I can get anyone to pay me $99 a month, I’ll be set!” You’re itching to make some money, any money, and you’ll give away the farm to try to entice people to fork it over.
But stop. Stop giving it away. Chances are you’re already charging far too little, and having an “unlimited” plan just puts the nail in the coffin. Here’s why.
As we talked before, when you’re pricing anything, you should be pricing based on value. You need to find a balance of where what they’re paying is comparable to the value you’re providing, and the more value you provide, the more money you should make.
With that in mind, does “unlimited” makes sense? No. Because they get “unlimited” value while you just capped how much revenue you can make on any given customer. Now would be an appropriate time to facepalm.
Do you realize how bad of a move that is? The type of customers who will make use of that “unlimited” plan are exactly the customers who will be more than happy to pay you exponentially more than you’re charging! They’re the ones who stand to get the most value and the more they use your product, the more value they get! Charge them accordingly.
So there we have it! Four ways you can start raising that MRR today!
- Charge more — You’re likely charging far too little as it is.
- Upsell — It’s much cheaper to make money from your existing customer base.
- Get rid of your free plan — You’re anchoring the “value” conversation in the wrong place.
- Don’t use “unlimited” plans — You’re dishing out unlimited value to the exact people who will happily pay you more.