How do design software companies scale?
SaaS companies grow in a number of different ways, but which are most relevant to design software companies? David Abrams from Demio is of the belief that companies can place too much emphasis on growth and acquisition before any other metrics. He believes expansion can occur organically once you’ve found a niche for your product in the market and have taken the time to focus on your customers’ pains and needs.
“The great thing about SaaS is that once you have some growth and a valuable product, you’ll get organic growth from referrals”, David explains. It’s at this point that you’re in an ideal position to look at further growth, whether this be moving into a new market, creating a new sub-product and so on.
Harrison Rose agrees that listening closely to your customers’ needs is crucial, stressing the importance of focusing on acquisition and retention before aiming for rapid growth. Once these elements are in a good place, you can then look to step on the next growth lever.
Design subscription software has been seen to take this next step in a number of ways. Some look to further monetize their existing product, others look to move into a new market (be it a new geography or a new industry) and others opt to move upmarket, increasing the size of the customer they’re working with.
For design software companies, it’s often the case that growth is kick-started when it becomes clear that individuals are using your product within larger companies. By better serving these product champions who are using your design product in their professional work, your company has the capacity to make an impact in larger businesses. Harrison notes that it’s the design software companies serving a number of customer types, from individuals to businesses to design agencies, that are exhibiting the most growth at the moment.
“For design software companies, it’s often the case that growth is kick-started when it becomes clear that individuals are using your product within larger companies”
What are the best practices for setting up pricing for design subscription software?
David is of the view that pricing is something to always revisit and iterate upon. It’s part of your business strategy and should evolve as you get a better picture of who your customer is and what they’re willing to pay for your solution.
If your pricing strategy is to set your product cost at $1 less than your competition, you’re pricing yourself down in the market. The ultimate goal should be understanding your ideal customer profile and how you can help them.
Some design software companies opt to offer a lifetime plan, but as Harrison acknowledges, this is rarely the case for established design software companies - rather an option for early startups as a means to get cashflow early. It’s not a wise pricing model to keep as you scale, but one that has the potential to kick-start a creative software company.
Paddle are in a unique position as a company powering thousands of checkouts. We see the price points and different billing models used by numerous design software companies and have seen an evolution in how design companies are thinking about pricing.
We've noticed that design software companies often take the following pricing journey:
- Starting with monthly/annual recurring billing.
- Next looking to optimize the price of these plans based on the value you’re delivering to your customers.
- Looking into other regions and, on a country-by-country basis, considering the purchasing power, competition and appetite to pay for the software in the region (for Paddle, this ‘true localization’ when selling to new regions is crucial).
- Next moving towards selling to teams and companies, not just individuals. This can mean moving away from the monthly and annual plans and opting for the per-seat billing model, enabling you to charge more for increased usage, bigger teams, etc.
- After moving to per-seat billing, your company could allow people to self-serve pay for a small number of users, say 5, but any more will involve getting in touch via a ‘contact us’ button. This is a great opportunity to upsell additional seats and tailor pricing to the customer’s specific usage needs.
How can you maximize your customer conversion while scaling?
Companies have a huge opportunity to decrease customer acquisition costs by increasing free to paid conversion rates, David advises. He believes that many companies underutilize webinars and customer on-boarding during this time and that, once you’ve ascertained your ideal customer persona, you can create an engaging webinar outlining the elements of the product which drive the most value for your users. By highlighting your product’s value, you can preemptively address any concerns that can stop free users from becoming paid customers.
For Harrison, it’s important to consider how you’re framing this conversion point from free to paid. Ie. is it sales assisted or is in non-sales assisted?
According to a Redpoint Ventures report, across the thousands of SaaS companies they surveyed they saw an average unassisted conversion rate of 4%, whereas assisted conversions (involving conversations with a sales and/or customer success team) was 15%.
While this emphasizes the importance of the human touch, there is still plenty that can be done if you’re a design software company without a sales team.
Harrison advises you to consider what the right type of free trial is for your product. In the same report from Redpoint, the average performance on a time trial (virtually regardless of duration, whether it was 7 or 30 days) was around 15-16%. Time trials are very popular and effective for conversion, but in Paddle’s experience overseeing thousands of checkouts we’ve also seen similar conversion rates from usage based trials.
Location is always key, Harrison reiterates, so once again ‘true localization’ can have a huge impact on conversions for your product if its pricing is well-tailored to the region in which it’s being sold.
Learn more about how to tackle the scaling hurdles of your design software company by watching the full webinar here.