For your Web App, do you roll in that new feature for free or charge for it?
During a call with a client yesterday the topic of aligning the product development roadmap with pricing came up. It was interesting because this was an early stage company and we don't usually get to this point at their stage. But it was a great conversation and I wanted to share what we talked about - and get your input on how you have or will handle this. Comments are open!
The basic idea is this. You go to market with an offering that includes A, B, & C features - perhaps your Minimum Viable Product (MVP). Based on what you pulled out of the product to create your MVP, you have some features that you know your customers will likely need or really want later on. Your product development roadmap now includes features D, E, & F.
The question was simple: when they are ready, do you add features D, E, and/or F to the existing offering that includes A, B, & C that your customers are already paying for or do you start a new offering or pricing bundle / tier that includes A, B, & C as well as one or all of D, E, & F. The answer, as you can imagine, is "it depends."
At Sixteen Ventures, when we work with SaaS & Web App clients, we are always looking for new ways to make money - after all, we're the ones that originally defined the 7 SaaS Revenue Streams - you know, the ones you see in business plans all over the place now. Therefore, you could conclude that we might say, when you release feature "E" you will want to wrap that into a new bundle since we know there is a lot of perceived value in that feature. You would be wrong though, and here's why:
Don't sacrifice overall Customer Lifetime Value (CLV) for a quick bump in Monthly Recurring Revenue (MRR)!
So this is the old "its cheaper to keep a client than to get a new one" argument - just SaaS-ified. The main thing to remember is that SaaS is all about the service. Lets assume that the lifetime of a customer will be 3 years. But for smaller, niche SaaS vendors (i.e. those working without a net contract) they cannot guarantee it, so they have to work hard to ensure those customers stick around for the full three years. At the very least, they need to ensure they stick around long-enough to pay for acquiring them in the first place! So, with SaaS, the idea is that you - as the customer - offload infrastructure, updates, etc. to the vendor. You just login and do your work. It should be constantly updated, secure, etc.
But what about new features? Is there an expectation that when a new widget, report, etc. is released that the customer will get it? Will the customer upgrade momentarily to get access to the new feature only to downgrade later (best case - in this context) or go somewhere else (worst case) because you clearly don't understand where their value perception is and you just irritated them. Don't underestimate spite as a driver of business decisions!
It is up to the SaaS vendor to manage expectations and be very clear - up front - about what is included in the subscription level or pricing tier the customer has selected. In some cases, new features are expected to be added as part of the subscription, and sometimes not. As long as its clear to the end-customer, there shouldn't be a problem. But from the vendor standpoint, how do you draw the line between adding a feature to an existing subscription level because it makes sense and will keep the customer happy versus using that feature as a carrot to get them to move to a more expensive pricing tier or bundle?
The bottom line is, you need to make sure - at some level - that you continuously improve the product enough to ensure the client happily stays with you. You have to take into consideration what the expectations are of your customers and what the overall value perception of the SaaS product or Web App is at the various pricing tiers and within each individually targeted market segment. Because it is cheaper and easier to keep a customer than get a new one, unless there is a significant increase in the value perception by the client with the addition of a feature, it is likely a good idea to simply include it as part of the ongoing service you provide.
That said, there are techniques you can use to test the value perception of features you're on the fence about - features that could drive additional revenue and CLV. The goal is certainly to grow C/MRR over time by adding new customers, but to also add to it - and the associated CLV of those customers - by providing upsell, upgrade, or cross-sell opportunities. Some features will clearly have a perceived value large enough that the expectations would be a new pricing tier or bundle in order to get access to it. Others are not as clear and it is up to you to figure out where to draw the line. But remember, that might not be a solid line you draw one time. Each market segment could perceive the value of the feature differently.
So, the main lesson is... don't sacrifice CLV for a quick bump in C/MRR - the old "its cheaper to keep a customer vs. get a new one" argument is a legitimate one - and recognize all of this in the context of aligning everything with the value perception of the target market segment.
Now, would you like to know more about the techniques I mentioned above purchase the 5 Hour video series - the Pricing Page Success Formula - I put together to help you get the most out of your Pricing Page. For a limited time you can get the Pricing Page Success Formula video series - with content on Value Pricing, Pricing Page Design, and even Price Testing - for the Introductory price of ONLY $297.