You may have heard of the 18k gold paperclip bookmark sold by Tiffany & Co. The first thing you might be thinking is, “Why would they sell a paperclip for $1.5k?” The answer, in part, is because people are willing to buy it at that price. How much are your customers willing to spend on your service? What do your clients think your product is worth? You’ll never know unless you ask.
Where to Start
Some SaaS companies struggle with seeing the value in measuring customer willingness to pay (WTP). Those who see how this information can impact success may have trouble convincing the nay-sayers in their organization. Present your case by collecting WTP information across various touch points already in place. For example, you can ask customers in an NPS survey if they are willing to refer friends at the current price. We all know friends don’t let friends waste money on bad SaaS. You can also ask about WTP in other opportunities such as during an exit interview, at customer advisory boards, and so on.
Be sure your questions, whether in interviews or surveys, are open-ended. Avoid Yes/No and multiple-choice questions starting with phrases such as “did you” and “which of the following.” They constrain the customer’s ability to respond fully and honestly. Open-ended questions keep the client talking during the conversation; they might reveal something you hadn’t thought of before, both customers and non-customers alike.
We all know friends don’t let friends waste money on bad SaaS
How to Do it Right
When you set out to understand WTP with existing customers, stick to value. A question to stay away from: How much are you willing to pay for this? Go on and ask them but don’t be surprised when you get a response like “As close to free as possible!” Frame the question to focus on benefits or value conversion. WTP is about understanding what value means to them and how they measure it. This is your opportunity to learn what do (or don’t) your customers care about; what is the worth of the solution to their problem and, more importantly, of your solution to their problem.
If your clients are saying they’re getting very high value at the current price, this might be a sign that they’d be willing to pay more. Don’t just offer/ask for random numbers, though. There are methodologies used to find a reasonable price range; the Van Westendorp (VW) Price Sensitivity Meter is a popular one that’s been around for decades.
WTP is about understanding what value means to them and how they measure it
Van Westendorp
This approach will help you find a safe range of prices that your customer base is most willing to accept. The industry-standard VW survey will help you get a decent idea of WTP. You’ll discover how cheap is too cheap and at what point the customer will flip the table because the fee is too damn high!
Be advised, this survey technique does have its downsides, especially in software as a service. Some participants may not understand the context well enough to give you good answers, so it’s important to survey a good mix of your target customers. Casting a net that is too wide or too narrow can severely bias the results of the survey.
Just know the key here is to focus the analysis less on the price levels and more on the relative WTP between types of customers. To get a decent output, you’ll need at least a few hundred responses, the more the better. Check out this Qualtrics article on the VW technique and let me know what you think.
Iʻd love to hear from you! Shoot me a message with your questions about Willingness To Pay or any other pricing questions you may have.
