SaaS companies are now shifting from a purely subscription model to usage-based pricing, something that Shopify has established across “a mix of its products,” according to Ria Bhavnani, who’s part of the product pricing and monetization team at Shopify.
Bhavnani sat down with BetaKit editor-in-chief Douglas Soltys at SAAS NORTH to talk about Shopify’s approach to pricing, as well as how business can implement price changes at a “detrimental time.”
One of the reasons why SaaS companies are shifting to usage-based pricing, according to Bhavnani, is that it can help them “grow their base” as the prospect of a global recession rises.
“Every business should be thinking about the timing of that price change for your customers.”
– Ria Bhavnani, Shopify
Shopify offers a mix of subscriptions and usage-based pricing across its products. Its Payments offering, for example, is sold with usage-based pricing, while creating an online store through Shopify is paid through monthly or annual subscriptions.
With usage-based pricing, “you are widening the segment that can access your product, so you’re lowering the barrier to entry. Depending on what stage of growth you’re at, this might be very helpful,” according to Bhavnani.
Bhavnani also discussed how Shopify approaches price changes. Amid the turbulent macroeconomic conditions, Bhavani said she has seen an increasing number of companies are thinking about price changes. However, she argues that companies should be thinking about pricing constantly.
“Maybe it’s more relevant in this market, but it’s something you should always be thinking about to grow your business and to evolve,” she said.
Shopify’s anchor rationale for price changes, for example, comes from asking questions like, ‘What is the value we’re driving? Where do we feel like that sits within the market?’
Bhavnani said that companies must also keep their customers in mind when making decisions about price changes. The rising costs of goods and services due to inflation affect businesses and consumers alike.
“Every business should be thinking about the timing of that price change for your customers,” she said. “If you are going to do a price increase, make sure that you’re mindful of what your customer is going through at this time.”
When the price change is implemented, Bhavnani suggests that the messaging should be succinct so as to not lose customers, as they would also have to overcome cognitive hurdles in justifying the price change among other competitors in the space. Companies should also give ample notice to their customers about the price change, depending on its magnitude.
In the full interview, Bhavnani speaks more to the transition from subscriptions to usage-based pricing, segmenting, and communicating price changes internally and externally.
Featured image courtesy SAAS NORTH.