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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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Introduction
For SaaS companies, pricing is arguably one of the most impactful business decisions you'll make. Yet, surprisingly, it's often based on gut feeling, competitor benchmarking, or simple cost-plus calculations. In today's competitive marketplace, these approaches are insufficient. Effective pricing research through methodologies like Gabor-Granger testing can mean the difference between thriving and merely surviving. This practical guide to Gabor-Granger testing will help SaaS executives implement data-driven pricing optimization strategies that maximize revenue and better align with customer value perception.
What is Gabor-Granger Testing?
Gabor-Granger is a quantitative pricing methodology developed in the 1960s by economists Clive Granger and André Gabor. While originally designed for traditional products, it has become increasingly valuable for SaaS pricing strategies.
At its core, the methodology presents potential customers with a series of price points for a product or service and asks whether they would purchase at each price. The process starts with a low price and incrementally increases until the respondent declines to purchase. This systematic approach helps SaaS companies identify optimal price points and understand price sensitivity across different customer segments.
Why Gabor-Granger Works Well for SaaS
SaaS businesses have unique characteristics that make Gabor-Granger testing particularly effective:
Subscription pricing models - The recurring nature of SaaS revenue makes pricing precision even more critical; small adjustments compound over customer lifetime value.
Digital delivery - Without physical production constraints, your pricing can be more directly aligned with perceived value rather than costs.
Feature segmentation - SaaS offerings can be easily tiered, making it ideal to test price sensitivity across different feature sets.
Rapid implementation - Results from Gabor-Granger testing can be quickly implemented and measured in a SaaS environment.
Setting Up Your Gabor-Granger Test
Step 1: Define Your Objectives
Before beginning any price testing, clearly articulate what you're trying to learn:
- Are you validating a new pricing structure?
- Testing price elasticity for an existing product?
- Exploring pricing for a new feature set?
- Evaluating different pricing tiers?
According to ProfitWell, companies that conduct regular pricing research grow 2-4x faster than those that don't. Your objectives will shape your entire testing approach.
Step 2: Identify Your Test Group
For statistically significant results, you'll need:
- Prospective customers - People unfamiliar with your current pricing but in your target market
- Existing customers - To understand how pricing changes might affect retention (approach with caution)
- Sufficient sample size - Typically 100+ respondents per segment you wish to analyze
Research by Price Intelligently suggests that segmentation is critical - different user personas often have dramatically different willingness to pay, sometimes varying by as much as 200-300% for the same product.
Step 3: Design Your Survey
A well-designed Gabor-Granger survey for SaaS should:
- Start with product description - Clearly articulate the value proposition
- Present price points sequentially - Begin with a lower price and increase incrementally
- Include 5-8 price points - Too few won't give you enough data; too many causes survey fatigue
- Space price points appropriately - Often 15-30% increments work well for SaaS products
For example:
"Would you purchase [Product X with features A, B, C] at $19/month?"
If yes: "Would you purchase at $29/month?"
If yes: "Would you purchase at $39/month?"
And so on until they decline.
Step 4: Collect and Analyze Results
The data collected allows you to construct a demand curve showing the percentage of customers willing to buy at each price point. This helps identify:
- Maximum revenue price point - Where price multiplied by quantity (willing buyers) is highest
- Price cliffs - Points where demand drops significantly
- Segment variations - How willingness to pay differs across customer segments
According to a study by Simon-Kucher & Partners, companies that leverage pricing research like Gabor-Granger achieve 30% higher profits on average than those using intuition-based pricing.
Advanced Implementation Techniques
Testing Multiple Feature Sets
For SaaS products with tiered offerings, conduct parallel Gabor-Granger tests for different feature combinations to understand:
- Value perception of individual features
- Optimal feature bundling
- Tier spacing that maximizes conversion and revenue
This approach helps avoid the common pitfall of "feature bloat" where additional capabilities don't translate to higher willingness to pay.
Combining with Van Westendorp Price Sensitivity Meter
For more robust pricing research, complement Gabor-Granger with the Van Westendorp method, which asks four key questions about price expectations:
- At what price would this be too expensive?
- At what price would this be expensive but still worth considering?
- At what price would this be a bargain?
- At what price would this be too cheap, making you question quality?
This combination provides deeper insights into psychological price barriers and perceived value.
Limitations and Considerations
While powerful, Gabor-Granger has some limitations SaaS executives should be aware of:
Hypothetical bias - What people say they'll pay and what they actually pay can differ. ProfitWell research suggests hypothetical responses can overestimate willingness to pay by 10-20%.
Context sensitivity - Responses are influenced by how you present the product and competitive alternatives.
Value communication - If respondents don't fully understand the product value, results will be skewed.
Single-feature focus - The methodology doesn't naturally handle complex multi-feature subscription pricing scenarios without modifications.
Implementing Findings: From Test to Production
After analyzing your Gabor-Granger results, implementation requires careful planning:
Gradual rollout - Consider A/B testing your new pricing with a subset of prospects before full implementation.
Grandfather existing customers - Protect your customer relationships by maintaining existing pricing for current users.
Value communication strategy - Develop messaging that clearly articulates why your product is worth the price point you've selected.
Continuous monitoring - Track key metrics like conversion rates, average revenue per user, and churn after implementing new pricing.
Conclusion
Gabor-Granger testing offers SaaS companies a structured methodology to move beyond intuition-based pricing toward data-driven pricing optimization. While not perfect, it provides valuable insights that can significantly impact your bottom line and growth trajectory.
The most successful SaaS companies view pricing not as a one-time decision but as an ongoing process of refinement. Regular price testing using methodologies like Gabor-Granger ensures your pricing strategy evolves with your product, customer base, and market conditions.
By implementing the practical steps outlined in this guide, you can develop a pricing strategy that accurately reflects the value you deliver, maximizes revenue potential, and creates a sustainable competitive advantage in the marketplace.
Next Steps for SaaS Pricing Success
- Evaluate your current pricing process and identify gaps where data-driven approaches could improve outcomes
- Plan your first Gabor-Granger test focusing on a specific segment or pricing question
- Consider complementary research methodologies to address the limitations of Gabor-Granger
- Develop a regular cadence of pricing research (ideally quarterly or bi-annually) to stay aligned with evolving market conditions
Remember, in SaaS, pricing is not just about capturing value—it's about communicating it. Your price is often the most powerful signal of your position in the market. Make sure it's sending the right message.