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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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You’re likely underpricing your product if customers convert too easily, discount requests are rare, your best customers call your product “cheap,” and your pricing isn’t tied to clear value metrics. Run a quick pricing audit—analyzing win/loss data, willingness-to-pay, and expansion revenue—then test price increases on segments, align pricing with value metrics, and communicate changes transparently to capture more revenue with minimal churn.
Underpricing is one of the most common and most expensive mistakes in SaaS pricing strategy. You feel “safe” because deals are closing, NPS looks good, and churn is manageable—but your ARPU, ACV, and monetization efficiency are quietly capping your growth and valuation.
This guide shows you how to diagnose underpricing quickly, prove it with data, and execute price optimization and value-based pricing changes without blowing up your pipeline or angering your best customers.
Why Underpricing Is a Silent Growth Killer in SaaS
Underpricing rarely shows up as a crisis. It shows up as:
- “We need to add more logos to hit the plan.”
- “Sales is hitting volume targets, but ARR isn’t moving fast enough.”
- “We can’t afford to invest more in product or marketing.”
In SaaS, even small price gaps compound into huge differences in revenue and valuation:
- A 20% underpricing gap on a $2M ARR base is $400K/year—every year.
- Over 5 years, that’s $2M in lost revenue before compounding expansion, upsells, and investor multiples.
- At a 6–8x ARR multiple, that’s $12–$16M of enterprise value left on the table.
Underpricing also directly distorts the core SaaS economics investors care about:
- CAC payback: If you’re charging $60/user for something worth $90, your payback period stretches. You need more months to “earn back” acquisition costs, which limits how aggressively you can spend on growth.
- LTV and LTV:CAC: Lower ARPU compresses lifetime value even if churn is healthy. That makes your LTV:CAC ratio look weaker and raises questions in funding conversations.
- Funding optics and narrative: Investors notice when your win rates are high, price objections are low, and you sit well below competitors. That’s often interpreted as “they’re underpriced or leaving monetization upside unexplored.”
Diagnosing underpricing is one of the fastest ways to unlock non-linear growth without changing your product, your market, or your sales headcount.
Fast Self-Check: 7 Signs You’re Underpricing Your Product
Use this as a quick “am I underpricing?” diagnostic before you dive into deeper pricing metrics.
1. Conversion is high but overall revenue is low
- Your free-to-paid or trial-to-paid conversion looks strong (e.g., 25–40%+), but:
- New MRR/ARR is under plan.
- ACV is lower than your market peers.
- Interpretation: You may be “buying” conversions with a price that’s well below perceived value.
Sanity check:
- Compare your conversion rate and ACV to public comps or data from your investors/peers.
- High conversion + low ACV vs. peers = classic underpricing pattern.
2. Prospects rarely push back on price or ask for discounts
- Enterprise buyers barely discuss pricing.
- Procurement doesn’t negotiate or quickly accepts your first quote.
- Discount requests are infrequent and shallow (e.g., <5–10%).
Healthy pricing usually creates some friction. If no one pushes back, it likely means:
- You’re below the “pain threshold” for your segment.
- You’re not capturing enough of the value you create.
3. Customers call your product “cheap” or “a no-brainer”
Pay attention to the language customers use:
- “For what you charge, this is a steal.”
- “Honestly, you should charge more.”
- “It was a no-brainer to get this approved.”
Those comments are qualitative willingness-to-pay signals. Individually they’re anecdotes. In aggregate, they’re a strong sign your price is lagging the value delivered.
4. You win deals too easily against higher-priced competitors
- You regularly beat better-known, higher-priced competitors.
- Prospect feedback:
- “You’re 30–50% cheaper and do most of what they do.”
- “We didn’t even need approval at your price.”
Winning because you’re better is good. Winning because you’re obviously cheaper is a pricing problem, not a product edge.
5. Heavy usage with low ARPU/seat prices
- Product analytics show:
- High log-in frequency.
- Multiple teams using the product.
- Business-critical workflows built on you.
- But your pricing:
- Low ARPU relative to usage.
- Flat fee that doesn’t scale with seats, volume, or value drivers.
If customers are running their business on your product but paying like it’s a nice-to-have tool, your monetization is misaligned with value.
6. Upsells feel like an afterthought, not a revenue engine
- Expansion revenue is small or inconsistent.
- Sales and CS are focused primarily on new logo acquisition and renewals.
- You don’t have clear upgrade paths or monetizable add-ons.
In a healthy SaaS pricing strategy, NRR (Net Revenue Retention) is a growth lever. If NRR is stuck near 100% despite strong usage and product adoption, underpricing and weak packaging are likely culprits.
7. Pricing hasn’t changed in 2+ years despite added features
- You’ve shipped major features, modules, workflows, or integrations.
- You’ve moved upmarket, added security/compliance, or deeper analytics.
- But your list prices and packaging haven’t changed.
In SaaS, value is not static. If your pricing is frozen while your product improves, the gap between value delivered and value captured grows every quarter.
Data-Driven Ways to Prove You’re Underpriced
Once the self-check suggests underpricing, validate it with simple, executive-friendly pricing metrics pulled from your CRM and billing tools.
Analyze win/loss and discount patterns
Pull 6–12 months of opportunity data:
- Win rate vs. target:
- If win rates are much higher than your model (e.g., you planned for 25% but see 45–50%+), ask whether price is too low.
- Loss reasons:
- How many deals are lost on “price too high”?
- If pricing is rarely cited as a loss reason, that’s a red flag.
- Discounts:
- Average discount <5–7% in enterprise, or very few deals asking for concessions, suggests headroom.
Rule of thumb:
- A healthy environment usually includes some price-driven losses and real discount tension, especially in mid-market/enterprise.
Compare ACV and ARPU by segment vs. internal benchmarks
Break down revenue:
- ACV / ARPU by:
- Segment (SMB / mid-market / enterprise).
- Industry.
- Deal size band (e.g., <$10K, $10–50K, $50–150K, $150K+).
Compare to:
- Your plan assumptions.
- Industry benchmarks (from investors, peers, public comps).
Signals of underpricing:
- ACV 20–40% lower than benchmark peers targeting similar customers.
- ARPU per user/seat materially below what buyers pay for comparable tools.
Look at customer willingness-to-pay from sales notes / CS feedback
Mine qualitative data:
- Sales call notes (CRM).
- CS tickets and QBR notes.
- Customer interviews and NPS comments.
Look for:
- Comments about being inexpensive or no-brainer.
- Procurement feedback that approval was trivial.
- Customers voluntarily saying, “We’d pay more for X,” or “If you could do Y, this would be worth double.”
This qualitative WTP (willingness-to-pay) insight, especially repeated across segments, is as important as any survey.
Check margin and payback vs. your growth targets
Two simple checks:
- Gross margin vs. target
- If you’re at, say, 70–75% gross margin with a relatively low-cost product, you may be undercharging for value.
- Many mature B2B SaaS products target 75–85%+.
- CAC payback period
Calculation (simplified):
- CAC payback (months) = CAC per customer ÷ MRR per customer
- If your payback period is longer than your target (e.g., >18 months for a growth-stage company) despite strong adoption and retention, you might be underpricing.
If your unit economics lag despite good retention and engagement, the easiest lever is often pricing, not more volume.
Common Reasons SaaS Teams Underprice (and How to Fix Each)
Fear of churn or slowing new bookings
Symptom:
- Leadership fears any price increase will spike churn or stall pipeline.
- Teams default to “let’s grow logos first, optimize pricing later.”
Fix:
- Start small and targeted:
- Increase prices for new customers only to test WTP without touching the base.
- A/B test higher list prices or reduced discounts by segment.
- Instrument and track:
- Win rate by cohort.
- Churn and NRR for impacted segments.
- Use data to show that moderate price increases don’t meaningfully impact churn when value is strong and communication is clear.
Copying competitor price points without context
Symptom:
- Your price pages look suspiciously similar to your competitors.
- You adopted their tiers and ranges with minor tweaks.
Fix:
- Re-anchor pricing around:
- Your specific ROI story.
- Your product depth or breadth vs. competitors.
- Your target customer’s budgets and value drivers.
- Run your own WTP discovery:
- Customer interviews.
- Sales feedback loops.
- Simple price sensitivity questions (“At what price would this feel too expensive / too cheap?”).
Competitor prices are inputs, not answers.
Misalignment between product value and pricing metric
Symptom:
- You charge per user, but value is tied to transactions, documents, API calls, or outcomes.
- Customers in different segments produce wildly different value but pay roughly the same.
Fix:
- Identify your primary value metric, e.g.:
- Seats/users.
- Monthly active contacts/projects.
- Volume of jobs, messages, records.
- Revenue influenced, time saved, or other ROI proxy.
- Realign packaging:
- Make the value metric visible in your plans (e.g., tiers based on volume bands).
- Ensure heavy users naturally expand via the metric, not just negotiation.
Lack of confidence in positioning and packaging
Symptom:
- Sales teams default to discounts to “make the deal happen.”
- Internal discomfort with charging premium prices.
- Confusing tiers that sales can’t easily explain.
Fix:
- Clarify positioning:
- Who is each plan for (SMB vs. mid-market vs. enterprise)?
- What core outcomes does each tier deliver?
- Simplify packaging:
- 3–4 clear plans with obvious step-ups in value.
- Usage caps and features aligned to buyer profiles.
- Enable the team:
- Pricing one-pagers, battlecards, and objection-handling scripts.
- Internal training on the ROI story behind the new pricing.
How to Safely Increase Prices Without Losing Your Best Customers
The goal is not just “raising prices.” It’s optimizing monetization with controlled risk.
Choose where to raise: new vs. existing customers, tiers, add-ons
Options to de-risk:
- New customers only:
- Fastest test. No impact on current base.
- Specific tiers:
- Raise prices on the most underpriced or in-demand tier.
- Keep entry-level tier accessible.
- Add-ons and modules:
- Introduce or reprice add-ons where incremental value is clear (analytics, advanced security, integrations).
Prioritize areas where:
- You see strong usage and ROI.
- Price sensitivity has historically been low.
Use value-based pricing: align to usage/ROI metrics
Where possible, tie your price metric to:
- The scale of value: e.g., number of employees onboarded, number of workflows automated, volume processed.
- Clear business outcomes: e.g., cost savings, revenue impact.
Examples:
- Move from flat $XX/mo to:
- Base fee + usage-based bands.
- Seat-based with limits that ladder up by business size or complexity.
This creates natural expansion as customers grow, increasing NRR without needing constant renegotiations.
Test price changes with small cohorts and A/B offers
You don’t need a massive overhaul on day one.
- A/B test new pricing on:
- A subset of inbound traffic (e.g., 20–30%).
- One or two specific regions or segments.
- Compare:
- Conversion rate.
- ACV / ARPU.
- Sales cycle length.
- Use short test windows (4–8 weeks) to gather enough data, then adjust.
Protect champions and design upgrade paths, not cliffs
Avoid creating pricing cliffs that surprise or punish your best customers:
- Grandfather existing customers for a period (or permanently at current pricing).
- Offer “soft landing” upgrade paths:
- Gradual increases over 1–2 renewal cycles.
- Transition discounts for a set period.
- Proactively brief key champions and admins:
- “Here’s what’s changing, why it’s happening, and how we’re protecting you.”
Communicating Price Increases the Right Way
How you communicate matters as much as what you change.
Message around added value, outcomes, and roadmap
Structure your message:
- Context:
- “We’ve significantly expanded the product: [features, reliability, support, security].”
- Value:
- “Customers are achieving [X% faster workflows, $Y in savings, better compliance].”
- Change:
- Clear outline of new pricing, effective dates, and who is affected.
- Reassurance:
- Grandfathering or transition terms, plus commitment to ongoing investment.
Keep the focus on outcomes, not just your costs.
Offer grandfathering, notice periods, and transition discounts
To reduce churn risk:
- Grandfathering:
- Freeze pricing for existing customers for 6–24 months, or indefinitely for legacy tiers.
- Notice periods:
- Provide 60–90 days’ notice for SMB; up to 6–12 months for large enterprise.
- Transition discounts:
- Time-bound discounts (e.g., 20–30% off list for 12 months) to ease customers onto new plans.
This makes the increase feel reasonable, fair, and respectful of existing relationships.
Equip sales and CS with scripts and FAQ to handle objections
Internally:
- Provide:
- FAQ with common customer questions and clear answers.
- Talk tracks linking price to value and roadmap.
- Guidance on when exceptions can be made (and who approves them).
- Train:
- Role-play renewal conversations.
- Coach teams on managing emotional reactions without panicking or backtracking.
Externally:
- Ensure every CSM and AE can clearly explain:
- Why the change is happening.
- How it impacts the customer specifically.
- What options they have to stay within budget.
Example: Diagnosing and Fixing Underpricing in a B2B SaaS Product
Imagine a B2B workflow automation SaaS at $6M ARR.
Initial signs:
- Trial-to-paid conversion: 35% (strong).
- Win rate: 48% against competitors.
- Average ACV: $12K, while similar tools in the space average $18–20K.
- Very few discounts requested; procurement approvals are quick.
- Heavy daily usage with multiple teams in mid-market accounts.
Leadership suspects underpricing.
Data check:
- Win/loss: “Price too high” appears in <5% of losses.
- ARPU by segment:
- Mid-market ARPU is ~40% lower than investor benchmarks for similar products.
- CAC payback: 20 months, longer than their 14-month target, despite low churn and high engagement.
- CS notes: Several customers explicitly say “we’d pay more for X” and call the product a “steal.”
Conclusion: Strong signals of underpricing.
New pricing strategy:
- Introduce 3 clear tiers with usage-based limits tied to number of workflows and automations.
- Raise list prices for new customers by 25–30% on mid-market and enterprise tiers.
- Keep existing customers grandfathered on legacy pricing for 18 months.
- Add a new analytics add-on priced per account volume.
Execution:
- A/B test new pricing on 30% of inbound sign-ups for 8 weeks.
- Monitor:
- Conversion rate.
- ACV.
- Win rate.
Results after 6 months:
- New-customer ACV: up 28%.
- ARPU: up 22%.
- Win rate: slight decline (48% → 42%), but more than offset by higher deal size.
- CAC payback: improved from 20 to 15 months.
- NRR: increased from 106% to 116% as value-based usage drove natural expansion.
- Churn: no meaningful increase among grandfathered customers.
They unlocked ~30% more monetization without a feature overhaul—purely through better SaaS pricing strategy and monetization design.
A Simple 30-Day Pricing Audit Plan for Your Leadership Team
Use this 30-day pricing audit to quickly assess whether you’re underpricing and where to act.
Week 1: Gather data
Pull from CRM, billing, and product analytics:
- Win/loss data and reasons (last 6–12 months).
- ACV, ARPU, and discount levels by segment.
- Churn and NRR by segment and plan.
- Product usage vs. revenue (e.g., top 20 accounts by usage vs. what they pay).
- Gross margin and CAC payback vs. your targets.
Deliverable: A concise pricing metrics dashboard or slide pack.
Week 2: Qualitative insights
- Talk to:
- 5–10 AEs about price objections and “no-brainer” deals.
- 5–10 CSMs about customers who call you cheap or say they’d pay more.
- 5–10 customers across segments about:
- Perceived value vs. price.
- Budget ranges for similar tools.
- How they describe ROI.
Deliverable: Summary of willingness-to-pay and perception signals.
Week 3: Diagnosis and options
Leadership working sessions:
- Identify underpriced segments, tiers, and usage patterns:
- Where is price friction low?
- Where is usage high and ARPU low?
- Define 2–3 pricing experiments:
- New pricing for new customers in specific segments.
- Adjusted tiers and value metrics.
- Repriced or new add-ons where value is clearest.
Deliverable: A short list of pricing experiments with hypotheses and KPIs.
Week 4: Design and launch experiments
- Finalize:
- New price points or ranges.
- Updated packaging and value metrics.
- Communication plans for internal teams and (if needed) affected customers.
- Set up:
- A/B testing routing or cohort-based pricing.
- Tracking dashboards (conversion, ACV, win rate, churn where relevant).
Deliverable: Live tests running with clear timelines and success criteria.
At the end of 30 days, you aren’t committing to a one-time pricing change—you’re standing up a pricing optimization loop. From there, iterate based on data rather than guessing or staying stuck with outdated price points.
Run a 30-Day Pricing Audit: Book a working session to review your pricing data, identify underpricing signals, and design a test plan to increase ARPU.