Crafting customer-centric pricing policies

Redesigning the billing experience to reduce churn and reduce cost to serve

Outcomes

  • $3.2 ARR upsell in one month

  • A revised, best-in-class pricing policy

Summary

  • Type: Financial Policy Adjustment

  • Focus: Retention

  • Timeline: August - October, 2023

  • My Role: Research lead, cross-functional liaison

  • Methods: In-depth interviews, services diagramming, design workshop, competitive analysis, secondary research

Company growth hindered by painful overage fee policy 


Pantheon is a San Francisco-based, B2B SaaS organization that provides web development tooling and site hosting. Customers loved features that were clearly built with their needs in mind, meaning Pantheon was primed to expand into new markets and grow their existing customer base.

However, once customers were paying for site hosting plans, they ran into the company’s policy for handling overages on site visit limits. Pantheon handled these overages differently than other companies, and while the intention was to take the guesswork out of selecting a plan for customers, in practice, this created unpredictable pricing for customers and drove high rates of churn.

How can we improve the overages policy to better conform to industry standards and alleviate customer pain? 

I led a multi-pronged research project to understand what about the overages policy was generating the most pain and make recommendations on how we might reduce them. This led to an overhaul of our overages policy, including special pricing for non-profit organizations.

Tell me where it hurts

To start designing solutions, I led discovery research to understand the current state of this policy from internal employee and customer perspective.

For customers, this research revealed that our way of handling overages was unique in the market by auto-adjusting their site plans to accommodate the levels of site traffic they received. Most other peer companies followed a usage-based system, charging a set amount for every unit over their limits (for example, $5 for every 1000 site visits over their plan limit). They may have signed up for a, say, $50/month plan, but following a period of high traffic to their website, would be moved to a $200/mo plan, resulting in a big change to their annual web hosting budget. This sudden change created swirl for customers to try to figure out how to unlock budget quickly to accommodate the new plan level. Many customers only needed to experience this once before quickly canceling their site plans and churning.

Internally, I discovered that the process of identifying which sites needed to have their plan changed was entirely manual, and lacked clear handoff points. The pain experienced by customers through this process also meant that every month, members of our Customer Success team spent many hours generating reports to help customers understand their site traffic changes, and responding to high-emotion emails. This process was a lose-lose situation for customers and the company.

Services diagram of internal process for executing overage fees

It was clear to me that if we solved this problem, it would have a transformative impact for customers and the business. I began by creating a list of questions that would help me understand the context for this process at this organization, how it fits into a larger picture of the industry, and to ideate potential solutions. Some of these questions were:

  • When did this policy start, and what were the motivations for doing it this way?

  • What does the process flow look like? What are the steps, who performs them, what data do we use to do it, and where does that data come from?

  • How many customers are affected by this problem each month? Does this process affect some customers more than others?

  • What are the financial impacts of this process? How much ARR is generated? How much churn? What is the internal cost to perform this process?

  • What research has been done previously on this process? Are there existing recommendations from previous employees about how this might be improved?

  • What are common overage policies in this industry? How does our policy compare to these standards?

  • How does this affect customers? What are their feelings and experiences of this process? How does it affect their feelings towards our company?

I grouped my questions by method - competitor analyses to contextualize company practices within the larger industry; services diagramming and design workshops to document the shape of the current internal process and the different people and business systems involved in executing it; secondary research to understand internal motivations and what we already knew about this problem; and qualitative analysis of customer feedback to understand the experience in their own words.

This was going to be a big project, and I knew there were two critical things I’d need to do for it to succeed: the first would be to break it up into smaller deliverables and share these insights out on a regular cadence, keeping up interest in this issue and adding new learnings as I went; the second, assemble a group of invested stakeholders from across the company. This process touched nearly every corner of the org chart, and I knew the project would only really succeed if I included their perspectives and expertise.

With a game plan set, it was time to dive in.

Diving In - Assembling and Analyzing Data

I started by going through the existing research and competitor analysis. I worked closely with a product manager to gather every PRD, slide deck, memo, and Google sheet that existed on the topic, and I poured over all of them, identifying recurring themes.

At the same time, I dove into competitor analysis, combing through their Documentation to surface their traffic definitions and their overages policies. I learned that of the 10 companies I researched, 8 followed a usage-based pricing model, and charged customers a small fee when they went over their limits. I also discovered that this policy was becoming a liability for us in the market, as several direct competitors were creating comp-kill pieces specifically about our overages policy.

From here, I wanted to hear directly from customers. To save time and move quickly, I gathered tickets filed with our Support team related to being overaged. Collaborating with my Research Manager and a member of the Customer Success Engineering team, we identified themes for the open-text responses sent by customers. These were difficult responses to read. Customers told us that they felt like they had been “set up to fail in every way.” We also learned that this process was especially painful for non-profit organizations, whose often limited budgets are usually set several years in advance. When they receive overage charges, they don’t have free budget to devote to increasing their site hosting spend. We also learned that often when a non-profit is seeing elevated traffic on their sites, it’s because there’s some kind of emergency happening - the NPO provides a service in their community, and people are coming to the site because they need help and/or information. For these customers, overaging them in this way felt like they were being punished for doing necessary work in their communities.

With these initial insights, I created a deck summarizing our top three findings:

1) That lack of visibility and lack of trust were our customers’ top pain points when it came to this overages process

2) That we were out of sync with standard industry practices when it came to charging for overages

3) That our overages process created too much financial risk for our customers, who couldn’t predict what their month-to-month charges would be as a result of our auto-adjustments of their plans.

While I know that customer stories in their words are powerful, connecting those stories to the company bottom line is where the rubber really hits the road. To do this, I worked with our Customer Success and Finance team to determine the cost to the organization of this process. From our collaboration, I learned that overages created a $6.5M risk to our ARR. This was no small problem!

Communicating Findings and Outcomes

Throughout this study, I was sharing findings with my UXR partner and larger Design team in our weekly Critique sessions and my product partners, getting their input on findings to date and incorporating feedback on directions to move in, refining message, and making recommendations.

When we had the message ready, I began by presenting my findings to the members of the Product squad I was partnering with and the VP of Product. While there was agreement on what the findings showed and the recommendations, the response from my squad was something along the lines of “This is out of our jurisdiction - this isn’t a product decision, it’s a business decision.” And they were right! The business needed to decide if this was still the right financial policy for us, given our renewed focus on customer experience.

Luckily, we didn’t need to wait long before we got another chance to share these findings more broadly. Our research team holds a quarterly “Research Read Out,” and I was given time to go deeper into what we’d learned about overages. Our audience of roughly 60 people included many members of the product and engineering teams, as well as people from CS, Sales, Data and Analytics, Finance, and our Chief Product Officer. In response to these findings, our CPO declared “We need to make this a priority.”

A tiger team was quickly assembled, as well as a meeting with our C-suites to drive strategic decision making about how we wanted to proceed going forward. Our executive team moved swiftly - a director of customer services was converted to focusing full-time on redesigning our internal overages process. Our CFO and Pricing Strategy Manager jumped into overhauling not just our overages policy, but our site plan pricing too. If the problem of overages was that our traffic limits were too low, we needed to address the root of the problem. With the new overages policy, we moved to an industry-standard usage system, as recommended in my research, and increased traffic to site plans by 40%, reducing the likelihood of customers experiencing an overage, even under the new, less painful process. We even created a special overage policy specifically for non-profit organizations, ensuring that they would be protected from overages for four months so that they could experience spikes when the need arose without being punished for it. 

Customers were immediately thrilled. When we shared the changes with early customers for feedback, the response was “This is exactly what I was asking for, it’s massive progress and seems more fair. Thank you!”

What I learned

Patterns in the market will affect how your products and policies are received by customers. Customer trust is broken when familiar patterns aren’t followed, especially when it comes to money.