- When it came to the pricing strategy
for ToutApp, my last SaaS business,
there's a distinct before and after.
Don't get me wrong, we made a lot of changes.
We consistently increased prices,
and I know I've done videos before
on intelligently pricing your SaaS product
but there's this one thing we did that changed everything.
It completely transformed
the fundamental structure of our business.
It's when we switched from charging
on a monthly basis
to charging for the year upfront
with the cash upfront, everything changed.
Our cashflow actually went up,
our retention went up,
our DRR went up,
we were able to do a lot of really crazy things
with customers because there were committing
for a full year.
However, that transition that before and that after
was super hard to make.
The biggest reason,
it was just really hard to gather up the courage
to ask for that big of a number,
to actually say,
no you have to pay us up front.
No, you have to commit for a year.
That was super tough.
And that's when I discovered the 20% rule.
Some smart people told me about it and I learned it
and we tried it and it made the biggest difference
to help make that transition.
So in this video, I'm gonna walk you
through what that 20% rule is,
and we're walking you through exactly
why you should deploy it
and it'll help you grow faster
and transform your pricing strategy.
Intro.
(upbeat music)
Whats up everybody,
welcome to Unstoppable.
I'm TK and on this channel,
I help SaaS founders like you navigate the path
to the next stage of growth,
navigate the path to product market fit
with an unstoppable strategy.
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because I drop a video like this,
two to three times a week with the TK energy.
If you're part of my SaaS, go to market coaching program,
if you're already part of our community, welcome back.
It's really awesome to see you over here.
So I remember when in the early days of ToutApp,
there's this one point where word of mouth started to spread
and just about every software company
in San Francisco started to want a sales engagement tool.
And they're either looking at ToutApp
or they were looking at Yesware,
like that's literally where we were the two games in town.
And so what ended up happening,
was we started to get a lot more inbound leads
and we had a tiny team.
We had like seven people, eight people.
We're just starting to get our go-to market strategy
in place and switching from just self-service
to sales driven because larger
and larger teams wanted the product for their entire team.
And we eventually hit a point where we were like,
we have to start charging for the full year.
But that transition was super hard
because we were just afraid, were like,
we were used to just saying,
hey, it's this much a month you should join,
this is the team plan.
And having to switch from that
to say you have to prepay for the year
and you have to do a year commitment,
like that was a tough thing for our people.
We knew that conceptually, is the right thing
to do for the business,
but for us, our happiness offices
we call them to actually say that to their customers
and risk losing a deal,
that was super scary.
And that's when we discovered the 20% rule
and we put in the 20% rule into play
and we were able to actually transform our pricing strategy,
transform our business.
So in this video, I'm gonna walk you
through exactly what the 20% rule is
and how to implement this.
If excited to get in,
go in and smash that like button
for the YouTube algorithm,
really likes it when you do that.
Let's go into what exactly the 20% rule is.
20% rule is basically, you tell yourself
and the team that look,
we're gonna offer the same offer
that we normally do in our deals,
we'll do the same proposal.
So if it's 100 bucks a month,
it's a hundred bucks a month.
If it's $300 a month, it's $300 a month.
If it's $600 a month, $600 a month.
Just do that.
That's fine.
And that's easy.
Nothing's scary.
Right?
However, you're gonna add one more line
to the proposal or the offer or the email
or whatever you say on the phone.
You can say,
look, it's X dollars per month.
However, if you prepaid for the full year,
we'll give you a 20% discount.
Believe it or not,
this was beneficial for both sides.
For the customer,
it gave them an option.
They could say,
okay, cool, like I'll just do a month.
But if they're feeling high conviction around the platform,
which is what was happening for us at that point
when everyone needed to get on a sales engagement platform,
at that moment, they were like,
well, I'm gonna need this a month after,
and the month after, and a month after,
I'm all in, I've already looked at Yesware
and I looked at ToutApp,
I want ToutApp.
So then we just go for the one year deal
and to get a 20% discount.
So they were like just willing to opt in.
And there were some people that said,
no, I'm not ready for one year yet.
And that was fine.
We completely hedged our bets.
And the way we offered it, we just said,
look, this is the price,
but if you sign up for the year,
then we do a 20% discount, totally normal.
You've seen in other places.
So that helped in the customer side.
But it actually helped a lot more on our side for our team
because it felt scary to say it's $20,000.
It just did, like,
I don't know about you,
but, I don't know where you are,
but at that time in the early days,
I didn't even have $20,000 in my bank account.
Like it was a lot of money for me.
So to be able to ask that,
just from a mindset perspective, it was super tough.
And so the 20% thing made it logically reasonable
in my brain.
Basically I was saying,
oh, look, you're gonna spend this money,
our product is awesome,
you're gonna spend this money over the course of a year,
but if you paid up front, we'll give you a 20% discount.
And it felt totally logical and totally reasonable.
And it helped everyone
in the team just be able to quote that.
And as soon as we started doing that,
magic happened,
people just started to pay us that full amount upfront.
And I know it sounds obvious,
but it was like a mental crush that helped us
break down some mental barriers
and just get the momentum going.
As soon as we started to do that,
more money started to come in
from every customer we brought on.
Cashflow went up because we actually locked them
in for a year.
Churn actually went down.
We were able to just keep our customers for longer.
And a bunch of other things started coming
into play just because they signed up for a year.
So that's principle number one in this video,
just use the 20% rule.
Say, give the price you normally give
and then give them an option to say,
by the way, if you sign up for the full year
and pay upfront, 20% discount,
otherwise you can just do month to month,
completely up to you.
And when you do it that way,
you little by little start to see the appetite
in the market.
And we start to see nine times out of 10,
the customer just goes through the one-year deal.
Then you can start to switch it to say,
hey, it's for one year, and this is the price.
And you can bake in the 20% discount.
And then in this, I wanna pay monthly,
then you give them like,
well, that's cool
but then you don't get the discount
and then we give you the month.
You can slowly ratchet your way
to just servicing one-year deals.
A couple other things come into play too.
This is where principle number two comes in.
Because you start getting a lot more cash
into the business upfront
instead of waiting for that monthly revenue stream
to kick in, you have some cash you redeploy.
So the second thing we did after the 20% rule,
is we started to invest the cash into customer success.
Meaning we just put in more money to hire more
customer success people,
so that we could take better care of the customers.
As we did this, what we ended up doing is like,
okay, they sign up for a full year.
So let's make sure we properly onboard them,
we can spend the money on that.
Let's make sure we do quarterly business reviews,
we can spend the money on that.
Let's make sure that we actually engage
with them before the renewal comes up.
And because we did that, retention went up,
our dollar retention rate actually went up
because every time we did a quarterly review,
we were like,
oh, you hired 10 more salespeople?
Great.
Do they need ToutApp seats?
Awesome.
And they would just buy more,
we would sell them during those quarterly business reviews.
And when you compounded the two,
a more money was coming in,
churn went down, DRR went up,
so growth went up, which was amazing.
So that was the second principle
where we took that cashflow that was coming in,
we reinvested it back
into more customer success people
because all of a sudden,
this wasn't just a monthly transaction.
This was a one-year commitment.
And we were like,
let's go like,
really plan out that year
and make sure they're super successful.
Are you starting to see the power of the 20% rule?
So, before I have one more for you.
I have a third principle
that you absolutely have to know as part of this 20% rule.
But even if you just do these two things,
can you start to see how you can convert the complete makeup
of your business.
You can go from just this monthly transactional relationship
to a strategic one-year relationship.
If you start to see the power in this,
can I just get a yes in the comments below?
Also smash that like button for the YouTube algorithm.
YouTube algorithm likes it when you do that,
and so do we,
just means the world to us.
Oh, also one more thing.
I have a five point SaaS growth strategy guys.
If you're in this stage
where you're looking to make big moves
in your business and grow it,
check out my five-point SaaS growth strategy guide,
it's completely free.
I'll link to it below at the end of this video,
and I'll tell you more about it.
Principle number three,
when you start to do this,
when you apply the 20% rule,
this opens up the conversation
to a more strategic relationship.
This was the crazy thing that I started to see
when customers were like,
oh cool,
yeah, we'll commit for a year.
And we're like, okay, sweet.
Like they want,
they really want the 20% discount, I guess.
What we found was,
it wasn't really just the money to them.
This was an important choice they we're making.
So they were happy to do a one-year commitment.
They were happy to take the discount.
They felt good about that, but it opened the conversation
to a more strategic relationship.
Meaning, all of a sudden we were like,
hey, do you want to do like a case study
in like three months when we hit these benchmarks
and a quarterly business unit?
They were like, yeah, absolutely.
All of a sudden those deals
as we were doing the quarterly business reviews
and it came up for renewal, we were able to renew them
for a two-year contract and a three-year contract.
So because we made that switch
from just a MRR play to saying,
okay, 20% discount for one year,
that helped us in investing in the customer success.
And because we invested
in the customer success and built that relationship,
it became more strategic,
because it became more strategic,
a bunch of other things came out of the relationship
including longer deals,
two-year deals and three-year deals.
Our first six figure deal,
true six figure deal for our SaaS business
was not a one year,
like it wasn't six weeks
because it was a one-year contract,
it was because they did a two-year deal and was like,
I think it was like 60 K and 60 K.
So it was 120 K deal.
And I was like, that is awesome.
And that was the power of the 20% rule.
So to recap, use the 20% rule to actually switch
from just doing monthly deals to yearly deals.
So give out a 20% discount.
It just makes it super easy and easy to convince people.
Then take that free cashflow
and invest it into customer success
and think strategically for that full year.
And finally, up level the conversation
at renewal time to say,
let's do a two or three-year deal,
let's do a case study,
Let's plan out how are we gonna actually
expand the platform.
Let's get your insights into the roadmap.
Like, think strategically about these deals
because you're taking a longer view on these.
And when you do that,
you're gonna be able to increase your retention.
You're gonna be able to increase
your dollar retention rate.
You're gonna be able to increase your growth.
And you're gonna have a much more strategic relationship
with your customers,
all because you gave them a 20% discount,
which is super, super powerful.
So, that's what I have for you today.
If you got value from this video,
be sure to smash that like button.
Also, if you're growing your SaaS business,
you likely wanna actually have a proper strategy.
Pricing is just one of the components.
There are other components to billing driving growth
for your SaaS business.
So this is why I create my five-point SaaS growth
strategy guide.
It's completely free and it goes
into detail on how to craft an unstoppable strategy
for your SaaS business to drive growth.
All you need to do is just,
go to getunstoppable.com/strategy.
Get on unstoppable.com/strategy.
Just go over there, put in your email
and you'll get a free access to the guide.
We'll go into much more detail into how to craft a strategy.
Giving more ideas like the 20% rule.
Lastly, if you got value from this video, please share it
with a fellow founder or your team.
That would mean the world to us.
Smash that like button if you haven't already.
I also drop a video like this two to three times a week.
So be sure to hit the subscribe button
and that bell icon and you'll get notified
every single time I drop an episode.
Lastly remember, everyone needs a strategy
for their life and their business,
but when you are with us,
yours is getting unstoppable.
I'm TK,
and I'll see you the next episode.
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