Changing Your Pricing Model: How Hired Went from a Transactional to a Subscription Model
October 11, 2019
Pricing is an incredibly important part of any SaaS product’s go-to-market strategy. In a market that requires companies to earn their customers’ business each and every day, it can literally make or break your entire business model.
While there are many tactical elements to consider, the most successful pricing strategies are built on a strong, almost philosophical foundation: that your pricing needs to be a win-win that works for both your customers and your company. This is why it’s crucial to establish strong alignment between your prices and the value you deliver to the people paying those prices.
At Hired, we started out with a transactional model that was—at the time—a super disruptive approach and one of our key differentiators. After a few years, however, we realized that a subscription model would deliver more value for us and for our users. It would help us establish a more predictable and consistent income based on recurring revenue instead of one-time purchases. And it would help the companies that we served drive more value from our platform.
With twenty-five years in the software business, I’ve seen my share of pricing exercises. I’ve had roles in almost every function from sales to product to customer success. And I’ve had the pleasure of working for industry leaders like Oracle, SAP, and Thermo Fisher as well as up-and-coming early-stage companies navigating their way through Series A, B and C territory.
No matter a company’s type or size, pricing is always a significant factor in whether an organization succeeds or fails. And—like everything else in the fast-moving SaaS world—pricing is not a once-and-done task. Like any other aspect of your product, it must evolve as needed to align with the market, customer needs and company objectives. This is why, when it came time to shift from a transactional to a subscription pricing model, our team at Hired didn’t hesitate for a moment.
Recognizing Your Cue – Opportunities and Conviction
At Hired, we help top R&D, engineering, and tech talent find jobs they love. Our company is both highly specialized, in terms of the roles we fill, and global, in terms of our reach. Our magic is that we put the job seeker squarely in charge of his or her own search, allowing candidates to look for jobs based on their own terms. Our intent-based approach matches people with companies at the intersection of skills, interests, preferences and priorities. All of this comes together to enable us to deliver our company clients a 60% better response rate to inquiries, and save them an average of 40 to 60 hours for each tech role filled.
Early on, we grew like gangbusters because we had built what every tech company wanted – a pipeline of qualified tech talent that was available in the moment. We quickly became the secret weapon of thousands of companies looking for instant gratification in the hiring arena and a competitive edge in the market. For the first four years, we didn’t even need to build a professional sales organization. Customers called us.
Part of our success at this stage was that we were charging less than traditional contingent-recruiting agencies, which typically charged 20 – 30% of a candidate’s base salary. Our less expensive pay-as-you-grow model was in line with what our clients and the market demanded. What we wanted, however, was a way to deepen and strengthen our relationship with both our customers and our candidates. Our goal was to transition away from a reliance on one-time revenue opportunities so we could build a more stable and predictable revenue generator. We wanted more committed relationships that would enable us to broker matches on a regular, ongoing basis.
Starting the Process – Data and Common Sense
Having established our goals, it quickly became clear that the way to deliver better value to our customers and our company was to switch from a transactional model to a subscription model.
As I noted earlier, once we’d clearly articulated our goals, there was no debate on the issue. We all knew it was the right thing to do for all parties concerned. I often describe the logic behind our decision with a cell phone analogy. The days of paying for talk time by the minute or texts by the message or storage by the gigabyte are- thank goodness – far behind us. Instead, we now pay a finite, fixed fee for mobile service. This simplifies our engagement with the provider and gives us the ultimate control over how much value we extract from the service.
Once we’d made the decision to transition, it was time to get down to the brass tacks of pricing and packaging. We needed to get clarity on how to bundle services into packages that were simple, easy to understand and priced to deliver strong value.
The first step in the process was to look at the available data. As is the case in most pricing discussions, 80 – 90% of what we ended up doing was common sense. Even so, we did all the due diligence that this kind of product-defining exercise warrants. We had years of transactional data from which to mine insights about how customers wanted to be sold and what they were willing to pay.
- It’s a fact of life now that the average length of time an individual stays in a role is less than 24 months. This translates into a market liquidity upwards of 30 – 50%.
- If a transactional customer was paying a 20 – 25% contingency fee on a base annual salary of $100,000, that translates to $20,000 to $25,000 per hire.
- Factor in the number of positions in that company and their rate of turnover, and you can quickly get a rough idea of their annual hiring costs.
We knew that if a company was going to commit to the Hired platform for 12 to 36 months, we had to deliver a better deal than the one they were already getting. It’s a classic supply and demand question.
Like in the mobile phone analogy, our subscription model gave us a way to offer our clients – big and small – an efficient platform and access to a marketplace for one, simple, predictable fee. No unexpected costs. No sliding scale.
This approach meant that the HR buyer only had to go to the group holding the purse strings—the board, finance, CTO, VP of Engineering, etc. – once. They get that initial approval, and they’re done. Now it’s up to them to drive the ROI based on how they use the platform.
Transitioning Well – Simplicity and Value
The transition wasn’t perfect right out of the gate, but it went pretty smoothly overall. We did, of course, have the advantage of some 10,000 companies that had been experiencing strong success on our platform for years. With that customer asset as a solid foundation, we felt confident in our ability to make this major change in our go-to-market strategy.
From start to finish, everything we did was about simplification. We knew that to successfully pivot our pricing model at this stage of the game with this many existing customers, we needed pricing that met two key criteria:
- It had to be incredibly easy to understand
- It had to demonstrate a clear value for the customer
We needed customers to be able to see immediately how this shift was good for them, and then we needed to make it easy for them to move into whichever new plan made the most sense for their needs.
As we rolled things out, it was helpful to look at our customer segments differently in the context of the new paradigm. While we still retained our ideal client profiles, during the transition phase it made sense to also group customers into these three categories:
- Successful Clients: These existing customers had already experienced strong success on our platform, so they were the easiest to upsell into the new packages
- New Clients: Net new, first-time clients were even easier to sell in because they didn’t have any legacy pricing to compare. Instead, we could offer them a simple, predictable, one-time fee right off the bat
- Marginal Clients: This was the most challenging group since we had to convince them that their success level would increase now that they had the ability to drive their own ROI with the support of our customer success team
Throughout the process we tuned things in real-time based on how prospects and customers were responding to the value of the subscription offerings, offer acceptance rates across the three segments and specifics about how we were winning people over to the new pricing model.
Ensuring Success – Teamwork and Focus
I’ve been evangelizing the importance of pricing in a SaaS go-to-market strategy since day one because, in my various roles at different companies, it has always been my job to deliver ROI for both the company and the customer.
Creating pricing and packaging that drives value to both your bottom line and the customer takes an all-hands-on-deck approach that involves everyone in the company. From sales and marketing to the product team, account management and customer success, we are all in the business of making sure the customer is successful. Each of these functional groups brings unique insights and perspectives to a pricing project.
While everyone in the company has something to offer, getting input from customer-facing groups like sales is especially important. Their front-line experience pitching packages provides critical visibility into how customers react to pricing, whether they understand the value and when pricing issues slow down the sales process.
Some may say that we had unusual advantages at Hired as we embarked on this pricing project. In addition to having an experienced internal team and a smart process designed to capture their contributions, we also had the advantage of a large transactional install base that was willing to evolve with us into the new, modernized subscription model.
Based on my wider experience, however, I truly believe that you can develop successful (even game changing!) pricing and packaging no matter what your situation. They key is to fully commit to putting your customer’s need for value at the core of all your decisions. Add to that some common sense and a willingness to do your due diligence, and you will be well on your way to creating a pricing model that will work for both you and your customers.