Posts tagged saas

It was only a few months ago that the recurring billing platform Spreedly, changed their pricing. Now it’s Recurly’s turn. However, unlike Spreedly’s pricing change, Recurly’s changes appear to be good all round.

Recurly’s previous pricing was based on a series of bands. What I dislike about this method of pricing is that it causes band shock. Let me explain what I mean by this using Recurly’s old pricing as an example. 

Imagine you’ve started using Recurly. At some point, your transaction volume will reach the usage limit for the Small Plan. You’ll be forced to upgrade to the Medium Plan. In this scenario, your average transaction cost for processing 499 transaction is 24 cents under the Small Plan, however once you hit 500 transactions you suffer band shock as your average transaction cost doubles to 49 cents. These shock points are shown in the graph below.

Band shock is a subject that I’d like to discuss in a lot more detail at a later date, but for now we’ll define it as a customer’s reaction to upgrading to a higher pricing band but the average cost of using the service suddenly increases (rather than decreases).

What did Recurly get right?

Recurly’s pricing plan changes were smart for three reasons.

Removed the bands. One simplified plan.

Recurly’s new pricing doesn’t use bands. Aside from a minimum charge per month, their pricing is based on a percentage of sales value plus a 10 cent transaction fee. This percentage+fee approach is similar to Spreedly, except that Recurly doesn’t have bands.

Removing the bands, removes the band shock and any concerns around sharp increases in price. When evaluating recurring billing platforms, we had to factor in the worst cost scenario. It makes price comparison complicated. Shaun Chapman even created, BillingSavvy, a neat little tool that calculates the most cost effective platform to be on depending on your subscription price and transaction volume. Note: BillingSavvy doesn’t include Recurly’s new pricing.

Now that Recurly have simplified their plan, I believe they’ve reduced some of the cognitive load around pricing for potential customers.

Grandfathered their existing customers

The manner in which Recurly introduced this change was clever too. They told all existing subscribers that their existing plans were being grandfathered. As a customer, just seeing this sentence in the announcement immediately reassured me that there was no bait-and-hook going on. Grandfathering your existing customers keeps them calm and makes them feel special.

I appreciate that grandfathering isn’t always possible and I admit I gave Spreedly an overly hard time about this. If a pricing plan isn’t economically viable then you have to bite the bullet, force customers to the new terms and accept the consequences.

Introduced new features

Recurly also introduced some new features that were only available on the new plan. My favourite of this being a Subscription Retention Report. This was something I was struggling to get out of our existing database - so it’s release was very timely.

The lesson here is that if you change your prices without any visible change in the product, then the pricing change is hard to justify - particularly to existing customers. Adding new features is a good sweetener for migrating existing customers to the new plan.

Are the new plans more expensive?

It depends. Because Recurly’s pricing is now based on the value of each transaction, their monthly charge will vary. 

If you’re a business selling subscriptions for less than $12 per month, then you’re almost always going to gain from migrating to the new plan. However if you’re subscriptions are charged at over $30 per month, then you’re paying more. Anyone in between these price points has a mixture.

I’ve made a Google Doc that lets you plug in your average order value (AOV) and compare the plans.

Fortunately for us, our AOV are a lower price point, so it’s all win for us. We migrated to the new plan - and now have access to a few additional features like the retention reports I mentioned earlier.

Any down side?

It’s a pity that the multi-currency features are an extra charge, it would be fantastic to have these included in the simple price too.