Alternative Pricing: Letting Go of Bad-Fit Customers is For the Best

ChartMogul lost a large number of legacy customers when migrating them to a new pricing model, however, the highly engaged `good fit` customers enabled ChartMogul’s continued growth.

Early Pricing Experiments

ChartMogul’s pricing model was customer-based at the company’s inception. The price you paid for using CharMogul was dependent on the number of customers your business served.

Even in the early years of ChartMogul, we encountered several challenges with customer-based pricing:

• We frequently couldn’t close deals without discounting.

  
  

• We encountered a lot of friction with the entry-level pricing.

  
  

• Paying customers that were growing into higher pricing tiers would reach out regularly to ask for discounts.

  
  

Ultimately, we ended up with many customers having discounts and all sorts of individual agreements and a large number of plans. There was a fundamental lack of a price to value alignment.

ChartMogul’s pricing page in 2017

The Decision to Move Away From Customer-Based Pricing

In the summer of 2018, we conducted extensive research into alternative pricing models.

The research concluded with a clear recommendation: revenue-based pricing would result in a better price to value alignment.

The decision to migrate from customer-based pricing to revenue-based pricing was just a first step.

We decided that after the release of revenue-based pricing to new customers, we would also migrate all legacy customers to the new pricing.

To understand the impact of the new pricing on our current recurring revenue, we mapped the whole customer base to MRR bands.

We did this by creating ranges in $10K MRR increments such as $10-20K MRR, $20-30K MRR, and so forth. This showed us the customer count in each band and what the total amount paid would be.

ChartMogul’s pricing page in 2022**

Before Migrating Our First Customer

While preparing for the pricing migration, we determined that the account management team would take the lead on the project since we anticipated that re-selling and additional onboarding would be necessary to migrate some of these accounts successfully.

We divided our customer base into groups, segmented by price and plan. Later, we prepared customizable messaging templates that reflected our company values like integrity and empathy.

An Iterative, Empathetic Pricing Migration Process

The migration process started out with the oldest legacy plans and the lowest paying accounts in them. We worked through migrations in batches and set a quarterly goal for the account management team.

The batching helped us to tweak our messaging as we went along.

We found that showing strong empathy in our communication and allowing the customer to be heard really helped to get the buy-in. In many cases, we were asking for a lot of extra money so we aimed to always identify opportunities to deliver more value and expand the usage of ChartMogul.

Some discussions took several weeks of back and forth and occasionally involved the product and engineering teams.

What surprised us most was that many customers accepted the new pricing with little to no resistance.

Challenges Encountered

A number of customers had strong emotional responses.

Getting them to agree to the new pricing was a journey that required patience from both sides which at times resulted in several weeks of back and forth.

When a conversation wasn’t going anywhere, myself or our CEO would get involved to help work towards a win-win solution. Some founders and executives responded better when talking to someone they perceived as an equal.

In some cases, the price increases were extreme where a customer would move from paying something like $300 to paying $2500. We decided to be flexible when working with these types of high-value accounts.

We developed a system we called gradual pricing alignment. Instead of asking a customer to pay the full amount right away, we would roll out the increase in increments over a more extended period of time.

Letting Go of Bad-Fit Customers

We determined during the pricing migration that some customers were simply not the right fit. Looking closer at these accounts, we found that we had been trying to keep some customers happy for years at great expense to our business.

These accounts were leftovers from the early time of ChartMogul, when our positioning wasn’t that clear yet, which attracted all types of customers.

Some had become bad fit customers over time. The gap between what ChartMogul could do for them and what they wanted to use our product for had grown significantly since signing up.

When a customer had such a limited usage profile and no interest in expanding it, there was often no pathway to get the buy-in to our new pricing.

44.7% Account Retention is Not the End of the World

To understand the result of the migration, let’s dive into one customer segment and look at ChartMogu’s Pro Plan customers that migrated to the new Scale or Volume Plans.

In that customer segment, we lost 178 accounts. From 322 subscribers in September 2018, we went to 144 in February 2020. Account retention was 44.7%.

Chart: Migrating from Pro Plan to Scale or Volume Plans – Subscribers**

At first glance, this was a huge loss for the business.

However, looking at MRR in that same segment tells a different story. We went from $57,640 to $85,838 and attained almost 148.9% MRR retention.

Chart: Migrating from Pro Plan to Scale or Volume Plans – MRR**

Moreover, these accounts expanded further since we completed the pricing migration in Q1/2020.

Our Takeaways From the Pricing Migration

All in all, the project took 1.5 years to complete. We consider the pricing migration a big success for several reasons.

The remaining customers were primarily highly engaged, good-fit users that took full advantage of the platform. This made it easier for our success team to manage those customers. We saw our support volume relative to our customer number decrease.

The pricing migration also helped our positioning. We learned that B2B SaaS was our sweet spot which impacted our product roadmap and marketing strategy.

We gained a better understanding of our pricing power. Value-based pricing reduced friction for our sales team to convert leads to paying subscribers and our account managers to retain customers.

My favorite part of the pricing migration was all the engaging conversations we had with our customers. These helped us build better, value-based relationships with them.

Our team learned a ton about where our customers are realizing the most value. We gained a better understanding of our customers’ future needs which will empower our company to prepare for the future to grow alongside their changing needs.