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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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Many SaaS products are underpriced when compared to the value they deliver, customer willingness to pay, and market benchmarks. You can diagnose underpricing by checking for signs like consistently high win rates, persistent discounting pressure from your own team (but not from customers), fast adoption with lagging revenue growth, and low price sensitivity in renewal cycles—and then use structured experiments to move prices up while managing risk and churn.
This guide walks through how to diagnose underpricing, quantify the upside, and adjust your SaaS pricing strategy with low-risk experiments.
What “Underpricing” Really Means in SaaS (and Why It Matters)
In SaaS, underpricing doesn’t just mean “cheaper than competitors.” You’re underpriced when:
- The value delivered (time saved, revenue generated, risk reduced) is significantly higher than what customers pay.
- Your pricing metrics (ARPU, LTV, payback) are well below what’s typical for your segment.
- Customers would happily pay more without meaningful impact on win rates or churn.
Competitive pricing can still be underpricing if the entire category is too cheap relative to value.
Why underpricing matters
Underpricing quietly erodes the fundamentals that drive your valuation:
Lower LTV
If you’re charging $80 where the market will support $120, you’re leaving 50% LTV on the table before you even think about churn or expansion.Slower CAC payback
With the same CAC and lower ACV, your CAC payback period stretches. That constrains paid acquisition, sales hiring, and product investment.Lower valuation multiples
Investors look at net revenue retention (NRR), ARPU/ASP, and margin. Underpricing depresses all three, even if logo growth looks great.Strategic constraints
You end up under-funding roadmap, support, and brand—then lose to better-monetized competitors who can outspend you.
Underpricing feels “safe” in the short term but is often more dangerous than being slightly expensive.
Classic Warning Signs Your SaaS Is Underpriced
Here’s a checklist of concrete signals across commercial, product, and financial metrics that your SaaS pricing may be too low.
Commercial signals (win rates, discount patterns, sales feedback)
Win rates are abnormally high
For competitive deals, win rates >60–70% can be a yellow flag.
If every competitor comparison ends with “you’re a no-brainer on price,” you’re likely underpriced.
Discounts mostly come from your side, not customers
Reps offer discounts preemptively to “avoid losing the deal,” even when prospects didn’t ask.
Approved discount levels are high and common (e.g., 20–30%+ “standard discount”).
Sales objections focus on product gaps, not price
You rarely hear: “You’re too expensive.”
Instead you hear: “We’re not ready yet,” “We need this feature,” or “We don’t have a use case for all of this.” Low price may be masking value misalignment.
Procurement sails through
Enterprise deals get approved suspiciously quickly.
You rarely get pushed into long negotiation cycles over price or legal.
Product & customer signals (NPS, engagement, “no one complains about price”)
High NPS / CSAT with no price complaints
Customers are happy, use the product heavily, and no one mentions price as a trade-off.
In interviews, they say: “Oh, it’s not expensive at all,” or “Honestly, it’s a rounding error.”
High product adoption and engagement vs. low revenue per account
Accounts with dozens or hundreds of active users but paying what looks like a small-business bill.
Heavy usage that doesn’t scale revenue (no seats, usage, or value metrics tied to price).
Zero friction in renewals
Renewal conversations are focused entirely on features or roadmap.
Multi-year renewals are easy to close without concessions, suggesting you have more pricing power than you’re using.
Financial signals (ARPU vs peers, payback period, expansion revenue)
Your ARPU/ASP is well below peers
Similar ICP, use cases, and deployment complexity—but you’re charging 30–50% less than competitors.
Benchmark across: public comps, sales intel, analyst reports, and customer anecdotes.
CAC payback is longer than it should be for your segment
For mid-market/enterprise: payback >18–24 months often indicates room for higher pricing or better packaging.
For SMB/PLG: if you invest in growth but can’t break even on CAC in 12 months, your price or monetization model may be off.
Low expansion revenue despite strong adoption
NRR is stuck at 100–105% even though usage grows strongly within accounts.
No clear value metric to capture growth in customer value, so revenue stays flat.
If you’re nodding “yes” to several of these, there’s a good chance your SaaS is underpriced.
Root Causes: Why SaaS Companies End Up Underpricing
Cost-plus and “gut feel” pricing instead of value-based
Many SaaS companies still set price as:
Cost of infrastructure + support + a margin we’re comfortable with
or
What feels “reasonable” for our persona
Problems with this:
- Costs have little to do with economic value created for the customer.
- “Gut feel” tends to anchor low, especially for technical founders who wouldn’t personally pay high SaaS prices.
Value-based pricing flips this: price is linked to ROI and customer willingness to pay, not your costs.
Founders’ fear of churn and slowing growth
There’s a common anxiety loop:
- “If we raise prices, we’ll scare prospects away.”
- “If we scare prospects away, growth stalls, and investors panic.”
So prices stay low, even as product value and brand trust grow. Meanwhile:
- You train the market to expect low prices.
- You constrain your GTM because you can’t afford enterprise reps, partnerships, or brand.
Ironically, slightly higher prices often improve perceived value and attract more serious buyers.
Legacy price points that never matured with product value
Typical pattern:
- Year 1: MVP launches with a simple, cheap pricing page.
- Year 3–5: Product is 5× better; you serve larger customers and more critical use cases.
- Pricing: still roughly the same.
If you’ve added major capabilities (automation, analytics, security, integrations) or moved upmarket but your list price hasn’t meaningfully changed, you’re almost certainly underpriced.
A Simple Framework to Diagnose Underpricing in Your Business
Use this three-step assessment as a quick SaaS pricing checklist.
1. Compare price to value delivered (ROI, time saved, revenue impact)
For your core segments, answer:
What business outcome do we drive?
Revenue (e.g., +X% conversion, +Y% upsell)
Cost savings (e.g., reduce manual work, headcount saved)
Risk reduction (e.g., compliance, errors, downtime)
Can we estimate ROI in dollars?
Example:Your tool saves 10 hours/month for a team at an average loaded cost of $80/hour.
That’s $800/month saved.
If you charge $150/month, that’s >5x ROI—many teams would still buy at $250–300.
If ROI is consistently 5–10x+ at current pricing, especially for mid-market/enterprise, you probably have room to move up.
2. Benchmark your ASP/ARPU and packaging against competitors and segment norms
Collect:
- Competitor pricing from their sites, pricing calls, partners, and customer anecdotes.
- Public benchmarks (e.g., what typical ACV looks like for tools in your category and deal size).
- Internal data: ASP by segment (SMB, mid-market, enterprise), average seats, discounting levels.
Ask:
- Are we 20–50% below direct alternatives for similar buyer personas and deployment complexity?
- Are our higher tiers under-adopted because the step-up is too small, or lower tiers too generous?
Being the cheapest can work as a deliberate strategy; unintentionally being the cheapest is usually underpricing.
3. Talk to customers: willingness-to-pay and what they’d cut first in a budget squeeze
Set up 10–20 quick conversations with a mix of:
- New customers
- Power users
- Budget owners / executives
Ask questions like:
- “On a scale of 1–10, how essential is our product to your operation?”
- “If your budget was cut by 30%, which tools would you drop first? Where would we be in that list?”
- “If we disappeared tomorrow, what would you do instead? What would that cost?”
- “When you first saw our price, what was your honest reaction?”
Themes to watch:
- If they say “You could charge more and we’d still buy”—that’s gold.
- If you’re rarely among the first tools they’d cut in a squeeze, you likely have pricing power.
How to Quantify the Upside of Fixing Underpricing
Once you suspect underpricing, build a quick business case.
Scenario modeling: +10–30% price impact on ARR and payback
Create a simple model:
- Current metrics:
- Number of customers
- Average ACV / ARPU
- Churn rate
- CAC and CAC payback
- Scenarios: +10%, +20%, +30% price increases for:
- New customers only
- Renewals only
- Both, with assumed churn or win-rate impact
Example:
- 500 customers × $6,000 ACV = $3M ARR
- Add +20% pricing for new customers, assume no change in win rate initially for 6 months:
- 100 new customers at $7,200 ACV = $720K vs $600K
- That’s $120K incremental ARR in one year from that cohort alone.
Run similar scenarios for:
- Shorter CAC payback (higher ACV).
- LTV/CAC improvements with incremental margin.
Often, modest price increases can fund critical hires or initiatives.
Customer mix: where you can take price safely vs. where you can’t
Not all customers are equal in pricing sensitivity. Segment by:
- Size: SMB vs. mid-market vs. enterprise
- Use case criticality: core workflow vs. “nice-to-have”
- Adoption: power users with deep integration vs. light users
You’ll often find:
- Enterprise and high-adoption customers have more tolerance for price increases.
- Price-sensitive SMB segments may need softer changes (e.g., new plans, better packaging, longer notice).
This segmentation tells you where to focus first for low-risk upside.
Low-Risk Tactics to Test and Increase Prices
Here are practical experiments you can run next quarter to correct underpricing without blowing up growth.
Grandfathering existing customers, changing price only for new deals
The simplest low-risk move:
- Increase list prices for new customers only.
- Grandfather current customers at existing rates for a period (e.g., 12–24 months), or until a contract change.
Benefits:
- No immediate churn risk from your existing base.
- You see how the market responds (win rate, sales cycle) before touching renewals.
- Creates a “lock in old pricing” incentive for prospects to move faster.
You can later:
- Harmonize prices at renewal with clear communication of added value.
- Offer legacy customers a gentle step-up to current pricing over 1–2 cycles.
A/B testing price levels and packaging in specific segments or regions
If your volumes allow it:
- Test different price points in:
- Certain geos (e.g., NA vs. EU)
- Specific acquisition channels (e.g., website vs. partner deals)
- Segments (SMB vs. mid-market)
Examples:
- Show 50% of PLG signups a $99/mo price, 50% a $119/mo price for the same plan.
- Test a version of your mid-tier with slightly fewer features at the same price and one with more features at a higher price.
Track:
- Sign-up rate
- Conversion to paid
- Churn in first 90 days
- Expansion over 6–12 months
If the differences are minimal in performance but higher in revenue, you’ve found pricing power.
Moving from all-you-can-eat to tiered / value-metric pricing
If you’re underpriced and don’t scale revenue with usage, fix the model, not just the sticker.
Moves to consider:
- Introduce tiers (Starter, Growth, Scale) with graduated limits on seats, usage, or advanced features.
- Adopt a value metric aligned to customer outcomes, such as:
- Seats / active users
- Contacts, projects, or records
- API calls, messages, or workflows
- Revenue processed or spend managed
Start by:
- Leaving existing customers on all-you-can-eat for now.
- Launching new packaging/value metrics for new customers and new use cases.
This is often where the biggest long-term monetization upside lies.
Communicating Price Increases Without Triggering Backlash
Pricing strategy is half math, half messaging. How you communicate matters as much as what you change.
Linking increases to clear value, roadmap, and improved service
When notifying customers:
Lead with value, not the percentage increase:
“Over the last 18 months, we’ve shipped X, Y, Z…”
“We’ve invested in better uptime, security, and support.”
Be transparent about why:
“We’re aligning pricing with the value our customers tell us they’re getting.”
“This allows us to continue investing in A, B, and C that you’ve requested.”
Use specific, relevant examples:
“You now automate [X tasks] that used to take [Y hours], and we’ve added [key features] without changing price until now.”
Timing, notice periods, and giving options (term extensions, bundles)
To reduce churn risk:
- Provide clear notice (30–90 days for SMB; 90–180+ days for enterprise).
- Offer options, like:
- Renew early for 12–24 months at legacy or partially increased pricing.
- Move to a bundle that improves value-per-dollar (e.g., add seats or modules).
Tactical tips:
- Cap annual increase for loyal customers (e.g., “no more than 10–15% per renewal cycle”).
- Allow grace periods where customers can downgrade or adjust usage before the new price fully kicks in.
Handled well, price changes can actually strengthen trust, not break it.
Building a Culture of Ongoing Price Optimization
Fixing underpricing once is good. Building a habit of price optimization is how you avoid drifting back into it.
Setting ownership (pricing council, RevOps, or product marketing)
Make pricing someone’s job:
- Create a pricing council with:
- Product
- Sales / RevOps
- Finance
- Customer Success / Support
- Or give clear ownership to RevOps or product marketing with authority to run tests.
Responsibilities:
- Monitor pricing metrics and signals.
- Propose and design experiments.
- Align GTM, product, and finance on changes.
Cadence: when to revisit pricing, what metrics to monitor
Set a regular cadence:
- Light review quarterly
- Deeper review annually or after major product/positioning shifts
Key metrics to track:
- ARPU / ASP by segment
- Discount rates and approval patterns
- Win/loss reasons (with “price” clearly categorized)
- CAC payback and LTV/CAC
- NRR and expansion by cohort
- Price-related NPS or CSAT feedback
This doesn’t mean raising price every year. It means continuously asking:
- “Are we still aligned with the value we deliver?”
- “Are our pricing metrics where they should be for our stage and segment?”
If you see signs of underpricing in your SaaS and want a structured, low-risk plan to correct it, book a pricing review to identify underpricing and model safe price increases for your SaaS.