A Route Management Software Achieved 61% MRR Growth with Tiered Pricing and Feature-Based Add-ons

Project Overview

A leading route management software provider partnered with LabsMedia to optimize their pricing strategy and drive sustainable revenue growth. 

The company initially offered a single, straightforward pricing plan that lacked flexibility and failed to capitalize on growing demand from larger corporations. As the company’s customer base expanded, its leadership recognized the need for a more sophisticated pricing structure that catered to different segments of its users.

We were brought in to restructure their pricing, identify revenue leaks, and craft a tiered system that would encourage user upgrades and higher customer lifetime value (CLV).

Business Goals

The route management software provider had several important goals for this project:

1. Increase MRR

Improve the pricing to reflect the true value of their features and better meet customer needs, leading to higher Monthly Recurring Revenue.

2. Encourage upgrades

Get more customers to move from basic plans to higher-value packages by showing them the added benefits of these options.

3. Simplify conversion

Make it easier for customers to sign up for premium plans by bundling features together, so they can see clear value in committing.

4. Close pricing loopholes

Fix gaps in the pricing model that allowed customers to use extra features or roles without paying for them.

5. Reduce churn

Use value-based pricing to keep customers happy and engaged as their businesses grow, reducing the likelihood of them leaving.

6. Capitalize on premium features

Offer customers the chance to pay for additional services without requiring them to upgrade to a higher tier, allowing for more flexibility based on their needs.

Challenges

The route optimization software provider faced multiple challenges that required immediate attention:

1. Limited upgrade options

The single per-driver plan didn’t encourage upgrades. Customers had no incentive to move to higher tiers, as their basic needs were met by the entry-level offering.

2. Low Average Revenue Per User (ARPU)

Most customers were on the basic plan, which capped the growth of ARPU. Despite adding new customers, the revenue per customer remained stagnant.

3. Revenue loss from loopholes

Customers were exploiting loopholes in the pricing model, particularly by assigning multiple roles (like admins) without incurring additional costs. This led to a significant loss of revenue opportunities.

4. Scalability concerns

As the route management software grew, the lack of a scalable pricing strategy meant they were not capitalizing on the product’s full potential.

SaaS Pricing Solutions Implemented

Pricing strategy 1: Entry-level pricing with basic per-driver model

• Accelerate: $39 per driver/month, billed annually (with a 20% discount)

In the initial phase, the route optimization software provider’s goal was to build a customer base. We designed a simple per-driver pricing structure with a 20% discount on annual billing to encourage long-term commitments.

While effective for onboarding customers, this basic plan quickly showed its limitations for larger businesses. We realized more pricing options are needed to grow the customer base.

Growth and impact:

• MRR: Steady growth, but limited due to a flat per-driver rate.
• ARPU: Stagnant, as most customers stayed on the basic plan.

Here’s a chart comparing customer growth and Average Revenue Per User (ARPU) under the “Accelerate” plan. As seen, customer numbers increase steadily over time, while ARPU shows only slight gains, reflecting the limitations of the entry-level per driver pricing model in scaling revenue significantly.

Pricing strategy 2: Tiered pricing to drive upgrades

In this strategy, we introduced tiered pricing. Customers now had options based on their business size and feature requirements. 

The Growth Plan offered advanced features, pushing many users to upgrade from the Essentials plan. The introduction of the Enterprise Plan opened the door for larger businesses to create customized solutions, which led to higher revenue opportunities.

Growth and Impact:

• MRR increase: 25% growth as users upgraded to higher tiers.
• ARPU increase: More customers opted for the Growth plan, raising the average revenue per user.

Here is the bar chart illustrating how customer distribution changed across different plans after introducing tiered pricing. 

The shift shows a significant movement of customers from the Essentials plan to the higher-value Growth and Enterprise tiers, aligning with the goal of driving upgrades and increasing revenue.

Pricing Strategy 3: Bundling drivers to increase revenue per sale

In the third phase, we shifted from per-driver pricing to bundled driver packages. This addressed a key issue: previously, customers would sign up individual drivers, limiting scalability. 

By bundling drivers into packages, the route optimization software provider simplified conversions and increased the overall value per sale. Instead of converting multiple individual drivers, the bundled plans converted businesses at a higher price point.

As a result, fewer conversions were needed to meet MRR goals, and the average sale value increased dramatically.

Growth and impact:

• MRR increase: 20% jump, with larger customers bundling users and opting for annual plans.
• Customer conversion: The bundled pricing simplified the decision-making process, leading to quicker conversions.

Here’s a line chart illustrating the Monthly Recurring Revenue (MRR) growth before and after the introduction of bundled user plans. 

The shift to bundled plans resulted in a notable upward trend in MRR, reflecting how this strategy drove conversions and increased revenue more effectively than the previous per-driver model.

Pricing Strategy 4: Solving the product usage loophole with per-user pricing

The route management provider discovered that customers were using admin accounts to bypass paying for extra drivers.

In response, we adjusted the pricing model to a per-user structure rather than per-driver, closing this loophole. Every admin, dispatcher, or driver would now count as a user, increasing overall revenue and ensuring fair pricing across the board.

Growth and impact:

• Revenue recovery: Recaptured lost revenue by ensuring all users, not just drivers, were charged.
• MRR increase: An immediate 15% jump in MRR after closing these pricing loopholes.

Pricing Strategy 5: Upselling via marketplace add-ons

In the final stage, we introduced a marketplace that allowed customers to purchase add-ons for specific features.

Marketplace pricing:

Customers could now customize their plans with premium features, only paying for what they needed. This à la carte model provided new opportunities to upsell without overwhelming users with features they didn’t require.

Growth and impact:

• MRR: Increased by 15% as customers adopted add-ons tailored to their needs.
• Customer engagement: 35% of customers adopted at least one marketplace feature, improving customer satisfaction and driving additional revenue.

Results Achieved

1. MRR growth

Over the course of these pricing revisions, the route management company’s MRR increased by 61%, thanks to more customers upgrading to higher-tier plans and utilizing marketplace add-ons.

2. Improved user retention

By providing pricing plans that matched the needs of growing businesses, customer churn decreased by 12%.

3. Higher average revenue per user (ARPU)

The tiered and bundled pricing models led to a 33% increase in the average revenue per customer as more users upgraded to premium plans.

4. Marketplace upsell success

Nearly 40% of the company’s customers opted for at least one add-on from the new marketplace, contributing significantly to their MRR.

From single drivers to bundled users: A visual breakdown of revenue growth

Before and after comparison: Pricing strategy impact