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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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In the competitive landscape of Software as a Service (SaaS), your pricing strategy is far more than just a number on a page. It's a strategic lever that directly influences acquisition, retention, growth, and overall business valuation. Yet despite its critical importance, many SaaS leaders struggle to optimize their pricing approach.
According to OpenView Partners' 2022 SaaS Benchmarks report, companies that regularly revisit their pricing strategy (at least quarterly) grow 30% faster than those that don't. Yet surprisingly, the same study revealed that 42% of SaaS companies haven't changed their pricing in over a year.
This comprehensive guide explores the most effective SaaS pricing models, strategies for selecting the right approach for your business, and practical steps for implementation. Whether you're launching a new product or reassessing your current pricing structure, these insights will help you maximize revenue while delivering value to your customers.
Common SaaS Pricing Models: Understanding Your Options
Per-User Pricing
What it is: Charging a fixed fee for each user who accesses your software.
Best for: B2B applications where value increases with user adoption within an organization.
Example: Slack charges based on the number of active users, starting at $7.25 per user per month for the Standard plan.
Advantages:
- Straightforward for customers to understand
- Predictable revenue that scales with customer growth
- Simple to implement and manage
Limitations:
- Can discourage full company-wide adoption
- May not align with the actual value delivered
- Creates friction for adding new users
Usage-Based Pricing
What it is: Customers pay based on their consumption of specific resources or features.
Best for: Infrastructure services, API platforms, and tools where usage directly correlates with value.
Example: AWS charges based on compute time, storage, and other resource consumption metrics.
Advantages:
- Directly aligns price with value received
- Enables low entry point with growth potential
- Data shows usage-based companies trade at higher revenue multiples (according to OpenView Partners)
Limitations:
- Revenue can be less predictable
- Harder for customers to budget
- Requires robust usage monitoring systems
Tiered Pricing
What it is: Multiple package tiers offering different feature sets at increasing price points.
Best for: Products with clearly segmented market needs and feature requirements.
Example: Mailchimp offers Essential, Standard, and Premium tiers with progressively more sophisticated features.
Advantages:
- Caters to different market segments
- Creates natural upsell pathways
- Allows price discrimination without discounting
Limitations:
- Can create complex decision process for prospects
- Feature differentiation must be meaningful
- Risk of customers feeling restricted in lower tiers
Value-Based Pricing
What it is: Pricing based on the estimated economic value your solution delivers to customers.
Best for: Enterprise software with measurable ROI and significant business impact.
Example: Salesforce prices based on the value of improved sales processes and outcomes rather than purely on features or users.
Advantages:
- Highest potential for revenue maximization
- Aligns pricing with customer outcomes
- Focuses sales conversations on value rather than cost
Limitations:
- Requires extensive research and understanding of customer economics
- More complex to explain and sell
- Requires ongoing value demonstration
Freemium Model
What it is: Basic version free with premium features available at a cost.
Best for: Products with viral adoption potential and low marginal costs.
Example: Zoom offers a free tier with 40-minute meeting limits, driving upgrades for business users.
Advantages:
- Low-friction user acquisition
- Built-in upsell pathway
- Data from free users can inform product development
Limitations:
- Must convert sufficient percentage to paid
- Free offering must deliver value while leaving reason to upgrade
- Can attract users with no intention to pay
How to Select the Right Pricing Model for Your SaaS Business
1. Understand Your Value Metrics
The foundation of effective SaaS pricing begins with identifying your value metrics—specific measurements that directly correlate with the value customers receive. According to a study by Price Intelligently, companies using value metrics in their pricing grow 2-3x faster than those that don't.
Key questions to ask:
- What aspects of your software deliver the most tangible value?
- What metrics do customers use to measure success with your product?
- How does usage correlate with outcomes customers care about?
For example, a project management tool might find that the number of projects completed correlates with customer value more strongly than the number of users.
2. Analyze Your Customer Segments
Different customer segments have varying willingness to pay, usage patterns, and value perceptions. Profitability in SaaS often comes from recognizing and pricing according to these differences.
Key questions to ask:
- What distinct customer segments do you serve?
- How do their needs, budgets, and usage patterns differ?
- Which segments represent your ideal growth opportunity?
A B2B email marketing platform might identify distinct needs between small businesses (price sensitivity, basic features) and enterprise clients (integration capabilities, advanced analytics, dedicated support).
3. Evaluate Your Competitive Landscape
While you shouldn't blindly match competitors' pricing, understanding the competitive landscape provides valuable context for your pricing decisions.
Key questions to ask:
- How do competitors structure their pricing?
- What price points exist in the market for similar solutions?
- Where can you differentiate through your pricing approach?
Avoid racing to the bottom on price—according to a McKinsey study, a 1% improvement in pricing typically yields an 11% increase in operating profit, far outweighing the impact of volume increases.
4. Consider Your Acquisition and Growth Strategy
Your pricing model should complement your go-to-market approach and customer acquisition strategy.
Key questions to ask:
- Is your sales process self-serve or high-touch?
- How important is rapid initial adoption versus long-term revenue maximization?
- What role does pricing play in your customer expansion strategy?
A product with a high-touch enterprise sales process may benefit from value-based pricing, while a solution targeting SMBs might prioritize simplicity with tiered pricing.
5. Align With Your Company Economics
Your pricing needs to support sustainable business operations and growth targets.
Key questions to ask:
- What are your customer acquisition costs relative to lifetime value?
- What margins do you need to maintain?
- How will your pricing scale as you grow?
According to ProfitWell research, companies that align pricing with unit economics see 30% higher growth rates than those that price based primarily on market positioning or competitive factors.
Implementing Your SaaS Pricing Strategy: Best Practices
1. Test Before You Commit
Pricing isn't set in stone. A/B testing different approaches can provide valuable data before full implementation.
Implementation tip: Start with new customer segments or markets when testing new pricing approaches to minimize disruption to existing customers.
2. Create a Clear Value Narrative
Your pricing shouldn't just be a number—it should tell a story about the value you deliver.
Implementation tip: Develop clear messaging that ties your pricing structure to customer outcomes and ROI. According to a study by Simon-Kucher & Partners, companies with value-based messaging achieve 14% higher prices.
3. Plan Your Grandfathering and Transition Strategy
When changing pricing, careful handling of existing customers is crucial.
Implementation tip: Consider grandfathering existing customers or offering phased transitions to new pricing. According to ProfitWell, companies that grandfather effectively retain 13% more revenue during pricing changes.
4. Build Pricing Operations Into Your Organization
Pricing isn't a one-time decision but an ongoing strategic process.
Implementation tip: Assign clear ownership of pricing within your organization and establish regular review cycles (quarterly is recommended) to assess and refine your approach.
5. Communicate Price Changes Effectively
How you communicate pricing is almost as important as the pricing itself.
Implementation tip: Frame price changes in terms of added value, improved experience, or enhanced outcomes—not just cost increases. Provide advance notice and clear explanations of the benefits.
Common Pitfalls to Avoid in SaaS Pricing
1. Under-pricing Your Solution
Many SaaS companies—particularly early-stage ones—significantly under-price their offerings. ProfitWell research suggests that more than 80% of SaaS businesses are priced too low relative to the value they deliver.
Avoidance strategy: Conduct regular value-based pricing research and customer willingness-to-pay studies.
2. Excessive Discounting
While discounting can accelerate deals, it undermines your pricing integrity and reduces perceived value.
Avoidance strategy: Implement structured discounting guidelines with approval processes for exceptions. Consider value-add alternatives to discounting, such as extended implementation