How to Incentivize Upgrades in SaaS

Jan 17, 2008 by Sinclair Schuller

In my previous post, I discussed pricing strategies for SaaS offerings. To summarize, my proposed strategy is to put profit-generating emphasis on upgrade/feature add-ons tacked on to your core offering and not on your application’s core recurring base price (which could lead to an unnecesary adoption barrier). This begs the question: “Ok, Sinclair, that sounds swell but how do I convince people to add features or upgrade to a paying plan from a demo or freemium model?” The best way to answer this is to tackle it from your customer’s viewpoint, which is generally driven by the question of “What do I get for upgrading or buying this upgrade?” What your customer is really asking is whether or not spending more money is worth it. Implicitly, your software as a service customer is analyzing what sort of value the upgrade will yield and comparing it to your proposed price.

 

Using this, what should your goal be if you are trying to provide incentive to upgrade? Focus on the blue part! Your customer will consider purchasing the extra functionality a “no-brainer” if the perceived net gain is significant. Generally, you can accomplish this one of two ways: lowering the feature cost or creating the upgrade/new functionality in a way that raises the ceiling (Value to Customer) significantly without inflating cost to service or sales and marketing (S&M) costs. I would generally shoot for the latter. I’d venture to say that generally, adding a small amount of extra effort on the R&D side or focusing on creativity in your extra features can inflate (justifiable or otherwise) the sense of value your customer extracts from a feature. When planning for-sale SaaS offering features, focus on things that require little to moderate effort and cost, but that can yield significant value. This will give significant upgrade incentive to your tenants by boosting net gain.

 

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