5 Tips for Pricing During the Covid-19 Crisis

The Covid-19 pandemic will continue to affect businesses across all sectors, and when it comes to SaaS companies, this may not be the time for pricing-as-usual.

In the current cycle of potentially collapsing demand, you need to take a strategic approach to protect prices. And since these conditions are likely to remain throughout the anticipated recovery, it is imperative that companies stay in crisis-alert mode well into the new normal—whatever that is going to look like.

I’ve talked to quite a few SaaS execs over the past month, and many aren’t sure how to manage pricing during these uncertain times. They aren’t prepared to price—whether up or down—in response to changing market conditions and competitive dynamics.

These decisions aren’t easy, but they’re vital. Those companies that emerge from this pandemic as winners will be battle-ready to defend their pricing with disciplined processes that will give them a major competitive advantage when the economy inevitably turns around.

Taking an intelligent, comprehensive approach to pricing will keep your ship afloat in these crazy times, and the following tips will help you do just that.

Tip #1: Lower prices with caution

A race to the bottom leaves very few winners, and overzealous price-slashing will hit you particularly hard if you position yourself as a premium provider. Major price cutting may seem like the compassionate thing to do right now, but you run the risk of appearing desperate. If you undervalue what you have to offer, so will your existing customers and your pipeline of new prospects.

In fact, it could prompt your competitors to slash their prices as well, and when all this is over, the new pricing could become the norm. In other words, when this is all done and behind us, there is a real danger that the market may simply adjust to your lower price as the new normal.

How do you demonstrate empathy for your customers while retaining value and brand integrity? The remaining four tips will help you explore your options.

Tip #2: Focus any price adjustments on at-risk customers

While I discourage across-the-board price cutting, it makes sense to target those customers who are more likely to jump ship due to economic hardship. Downwardly adjusting pricing for a specified period, for those clients with whom you have a solid relationship, serves as a show of good faith. Also, it paves the way for future renewals and potential upsell opportunities.

Tip #3: Protect ARR—Your most prized asset driver

ARR is not only integral to keeping your company profitable—it’s a key factor when it comes to valuation and funding. In other words, you must protect it at all costs.

When it comes to reducing pricing, consider cutting billable rates for any professional services you provide before cutting recurring revenue streams. Alternatively, you can look at moving to a fixed/per-service pricing model for those services, rather than basing prices on time and materials (since customers tend to be less price-sensitive when it comes to fixed pricing). Finally, you might consider accepting lower gross margins for services your clients perceive as lower value, while maintaining current prices for more critical services.

However you approach it, in most cases it makes sense to focus any price cuts on areas that won’t impact recurring revenue.

Tip #4: Create special offers

Rather than cutting prices across-the-board, consider creating special offers. Special offers are a great way to show compassion for your customers and their economic struggles without impacting your brand image or your long-term ARR.

Special offer pricing might include:

• Discounts for a specific period (typically 12 months)
• Bundling features into a comprehensive package, thereby increasing the value customers receive and providing a potential boost to your ARR
• Moving customers to your premium package at their current price for a limited time, providing greater value and creating upsell opportunities when the good times return
• Provide “payment holidays,” where existing customers can use your platform for free for 2–3 months. Once the payment holiday ends, the existing contract picks back up where it left off, so if they had 5 months left when the holiday started, they’ll have 5 months remaining in their contract.

Tip #5: Consider adjusting sales compensation

I’ve noticed a new phenomenon I call the “pandemic paradox.” Normally during an economic slowdown, we predict job losses—but instead, many SaaS companies are increasing their sales capacity so they can pursue and close more deals with minimal discounting.

These companies may try to recruit your top salespeople, and if your bonus- or commission structure is based on pre-pandemic revenue projections, your salespeople will earn less. If that happens, they may consider taking a job somewhere else.

The bottom line? As you explore your options for adjusting pricing, be sure to adjust your compensation packages to account for these changes—resetting quotas so they reflect the reality of the new economy. This will show your sales staff that you value their hard work, and it will keep them motivated and committed to your mission.

Bonus Tip: Don’t create a self-fulfilling prophecy

The term “self-fulfilling prophecy” refers to the socio-psychological phenomenon of someone predicting or expecting something to happen, and this prediction changes their behavior. The resulting behaviors align to fulfill those beliefs. In other words, what we believe can greatly influence our actions.

Back in 2008, during our last major economic crisis, I saw many sales teams falling into the habit of predicting failure. Some sales teams all but gave up, and forecast meetings became an exercise in explaining why every deal was either pushed or lost due to “no decision.”

Sales leaders must be sensitive to the struggles their teams face, but they also need to forge ahead, reviewing deals the way they always have and refusing to turn pessimism into a self-fulfilling prophecy.

Be sensitive to the situation, but ask your sales leaders to review deals the way they always have. Sure, adjust the pricing in the ways we’ve mentioned here, but do not let this pandemic become your company’s self-fulfilling prophecy.