How Teamleader leveraged new pricing and packaging for a 22% increase in ARPA in less than a year
In this case study, we’re going to look at how:
- After staying with the same subscription price for 8 years, Teamleader comprehensively overhauled the pricing model for its work management tool.
- Their intensive research and analysis phase delivered a long-term, deeper understanding of its market and customers.
- Aspects of the package changes allowed for a monetisation strategy to create better upsell opportunities, reduce customer churn rate, increase net recurring revenue, and increase ARPA by 22% in less than a year.
Everyone understands the importance of an app’s value proposition. With only 15 seconds on average to grab a potential customer’s attention, entrepreneurs and marketers spend hours finding ways to communicate this as effectively as possible. But what about the actual value of the product you’re selling?
Determining, changing, or fine-tuning your SaaS subscription pricing is easy to overlook. The enormity of the task itself can be off-putting, but the rewards of pricing strategies speak for themselves.
Have a B2B SaaS product you’d like to scale? Get in touch to see how we can help.
Teamleader is a work management tool for SMEs that combines CRM, invoicing, and project planning into one platform. Launched in 2012, the company spent its first years focussing on perfecting the product and ensuring customer satisfaction.
As is common in the early stages of a SaaS startup, Teamleader sought to focus on key performance indicators such as customer acquisition and retention to make sure they created a solid foundation for its product. Its first pricing model change came in 2016 with a simple 15% increase on quarterly contracts. The price calculation itself remained straightforward, and was based simply on the number of users and product features or modules chosen. If existing, quarterly-paying customers wanted to stay at the same pricing level, they just needed to switch to an annual subscription.
This naturally had a positive impact on churn and average revenue, and created a 12.5% growth in monthly revenue retention (MRR). However, in subscription pricing terms it was a very straightforward change that didn’t raise too many questions either from the customer or the business owner. Indeed, some customers didn’t even recognise or act on the opportunity to save money. The real game changer came with the decision to overhaul the pricing and packaging in 2020.
Pricing structure and packaging overhaul
An overhaul of this scale is easy to underestimate. As put succinctly by Jeroen De Wit, CEO of Teamleader, “This was really a cross-functional project. It wasn’t simply a marketing thing or development thing, because we really needed to change a lot.
"We weren’t only naming knowledge-based products and marketing assets, we also needed to create the packages and tailor the product, and sometimes features are linked to each other which creates further complication. Then there was the extensive market research and competitor pricing comparison for product/market fit. I must say, it’s thanks to the laser focus that we had, that we were able to deliver it in such a short period of time.”
The new structure they ultimately settled upon was one that offered three levels of subscription package, with increasing functionalities and price. Initially the levels were named “Good, Better, Best”, but were later changed to “Go, Move, Boost”. With the right background research and analysis in place (more on that below), Teamleader found ways to create subscription pricing packages that would appeal to its core target markets.
Analysis and Research
Switching from a straightforward, modular subscription pricing plan to a three-tier package system requires complex background research and expert strategizing. Teamleader’s first step was to identify its target market, which they defined as two core customer segments: agencies and builders.
Teamleader then turned to a regular partner – Vlerick Business School – for some help with its research.
Vlerick is a triple-accredited, highly respected international school for executive education that has specific expertise in digital transformation and entrepreneurship and innovation. Among other things, Teamleader runs yearly strategic projects with their MBA students and professors, producing a fantastic standard and quality of work. On this occasion, the research partnership focussed on two separate areas.
The first area was a willingness-to-pay analysis. Vlerick carried out a survey on Teamleader’s focus segments, both for customers and non-customers. The research showed that people would be much more willing to pay for increased prices for the larger accounts. It also showed that in order to remain competitive, the company would need to implement a discount mechanism for multiple-user customers, such as granting a 50% discount on each user beyond 10 users.
The next step was to compare pricing with multiple competitors. Here, they focussed on competitors in the Netherlands and in Belgium to discover how the new prices might behave and get a better idea of market fit. They discovered that, in general, Teamleader pricing would be slightly above average to competitors up to 6 users, beyond which the price became more affordable.
One final step was to match the existing customer base with the new pricing. They analysed different types of customers and their usage of the tool to discover the best fit for them in terms of package, and the average price increase.
While Vlerick was busy with their research, Teamleader’s executives and management dove deep into relevant literature on subscription pricing. They found a great deal on ProfitWell’s Price Intelligently. The ProfitWell platform was especially relevant and highly inspirational, as it is aimed at growth stage companies wishing to maintain or increase their growth, and enterprise companies wishing to preserve their leading market position or gain a competitive edge.
Business growth: monetisation strategy
One of the leading motivators that led to the pricing overhaul was low Net Revenue Retention (NRR). Looking at key metrics between 2016 and 2019, it became clear that without new sales, Teamleader’s MRR base on a cohort basis was shrinking, and NRR remained unsatisfyingly below the ideal 110% benchmark NRR number, so the company was clearly compelled to address this shortfall and to keep growing the business.
Customer segment: existing customers
Losing customers is always a risk when implementing pricing changes. As De Witt states, “It sounds easy to change your pricing and packaging, but when we did this, we were already at more than a million MRR, and you're always concerned about customer reactions – will there be an increase in churn? Will there be huge downgrades as opposed to the upsell that you're looking for?”
Teamleader ultimately decided not to force their current customer base to move to the new packages. They took a different route, contacting their customers to let them know about the upcoming changes, noting that the move could be financially beneficial for some. Customers were therefore free to move. If they chose not to, however, the price of their current, newly named ‘legacy’ plan would increase by 15%, and they would only receive product-wide updates.
On the one hand, leaving a large portion of current customers on the legacy plan can risk churn, particularly when that customer base doesn’t see any innovation, which then creates a false impression of product stagnation. On the other hand, it provides the opportunity to run multiple upsell projects and vastly improve customer lifetime value (LTV) and customer acquisition cost (CAC) metrics. This turns new features into a regular, automatic communication touch point with this legacy customer base to encourage them to make the switch.
Teamleader currently focuses its efforts on more scalable in-app upsell projects. It has begun marketing new features on the login page, so that users see it immediately. They also implement new in-app buttons to showcase features that are available in higher-tier packages and linked to “why use this feature?” and “discover the package” videos.
Time period and timing
Teamleader feels that the timing was just right for a project of this magnitude. As mentioned earlier, at the initial stages of a SaaS startup, the focus really remains on the core KPIs that prove you are getting and keeping customers. Once this is clear, you have a solid, data-based foundation to back up your product.
From there you can begin scaling the company and product, and shifting your focus a little towards other metrics such as NRR, MRR, ARPA, LTV, and CAC. Teamleader has worked closely with their investors, Fortino, since 2014, and enjoy weekly meetings that include brainstorming sessions where they put their heads together to work out ways to nurture the company’s growth.
Fortino’s experience with SaaS startups meant they were highly familiar with price-increase strategies. The pricing and packaging project was one such suggestion, which, at the time, Teamleader felt was too early. Not too long after, however, they came to realise that the time was right. The company had been working for years on perfecting the product and had never asked for anything beyond its minor increase in price in 2016. By formulating the new pricing plan, however, they gave themselves more room to reinvest into improving and perfecting the product for the customer.
Moving from a simple pricing model with a single 15% increase in 8 years, to a complex and thoroughly researched subscription pricing tier system created exponential growth and upsell opportunities for Teamleader, resulting in an NRR of 100%. Today, long-time customers are happy due to the little change or disruption to them, or due to the extended features now available to them.
By consequence, the revenue per customer will enjoy a natural increase, with new customers coming to the tool at a subscription price of around €90, as opposed to the former price of €75. For Teamleader, this translates to a 22% increase in Average Revenue Per Acquisition (ARPA) for new customers.
Happy customers, a happy company – a win-win for everyone.
If you’re a European-based B2B SaaS startup looking for advice and potential investment, we can help. Contact us, and let’s get the conversation started.