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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
Pricing is the most powerful, yet often underutilized, strategic lever in a SaaS company's toolkit. According to a study by Price Intelligently, a mere 1% improvement in pricing can yield an 11% increase in profits—far surpassing the impact of comparable improvements in acquisition or retention. Yet despite this outsized influence, many SaaS executives rely more on intuition than data when setting prices.
When SaaS companies do engage in pricing research, two methodologies frequently emerge as frontrunners: the Van Westendorp Price Sensitivity Meter and the Gabor-Granger technique. Both approaches have distinct methodologies, advantages, and limitations that make them suitable for different pricing scenarios. This article provides a detailed comparison to help you determine which pricing research method aligns best with your SaaS business objectives.
Understanding the Van Westendorp Method
What Is the Van Westendorp Price Sensitivity Meter?
Developed by Dutch economist Peter van Westendorp in 1976, this methodology measures price sensitivity by asking respondents four key questions:
- At what price would you consider the product to be so expensive that you would not consider buying it? (Too expensive)
- At what price would you consider the product to be priced so low that you would feel the quality couldn't be very good? (Too cheap)
- At what price would you consider the product starting to get expensive, but you would still consider buying it? (Expensive/High)
- At what price would you consider the product to be a bargain—a great buy for the money? (Cheap/Good Value)
These responses generate four price points that, when plotted, reveal an "acceptable price range" where the curves intersect. The most critical intersection—where "too cheap" meets "too expensive"—is called the Optimal Price Point (OPP).
Advantages for SaaS Companies
Nuanced Price Perception: The Van Westendorp method excels at uncovering psychological pricing thresholds and gauging how customers perceive value, which is particularly important for SaaS products where value can be abstract.
Customer-Centric Approach: As McKinsey research indicates, SaaS companies that integrate customer feedback into pricing decisions are 25% more likely to exceed their growth targets.
Simplicity: The methodology is relatively straightforward to implement with basic survey tools and doesn't require specialized software.
Contextual Insights: Beyond just identifying price points, Van Westendorp provides insights into how price relates to perceived quality and value—crucial for subscription-based models where customer retention hinges on sustained value delivery.
Limitations in the SaaS Context
Product Knowledge Requirement: Respondents need sufficient understanding of your SaaS solution to provide meaningful price evaluations. For highly innovative or complex products, this can be challenging.
Competitor Anchoring: The method doesn't explicitly account for competitive offerings that might anchor customer price expectations.
Limited Revenue Optimization: While it identifies acceptable price ranges, it doesn't directly reveal the price point that maximizes revenue or profit.
Understanding the Gabor-Granger Method
What Is the Gabor-Granger Technique?
Named after economists Clive Gabor and Andre Granger, this approach presents respondents with a series of price points in either ascending or descending order, asking at each point: "Would you purchase this product at this price?" The responses create a demand curve showing how many customers would buy at each price point, allowing companies to identify the revenue-maximizing price.
Advantages for SaaS Companies
Revenue Optimization: The Gabor-Granger method excels at identifying the price point that maximizes revenue, which aligns well with growth-focused SaaS strategies.
Demand Elasticity Insights: It reveals how sensitive demand is to price changes—valuable information for SaaS companies considering tiered pricing or planning price increases.
Quantitative Robustness: The approach yields clear numerical outputs that can be directly applied to financial modeling and forecasting.
Feature-Level Analysis: When adapted, Gabor-Granger can evaluate willingness to pay for specific features, helping SaaS companies optimize their pricing tiers and packaging.
Limitations in the SaaS Context
Hypothetical Bias: As with many pricing research methodologies, there's often a gap between what respondents say they would pay and what they actually pay in real purchasing situations.
Sequential Presentation Effects: The order of price presentation can influence responses, potentially skewing results.
Limited Psychological Insights: Unlike Van Westendorp, Gabor-Granger provides less insight into the "why" behind price perceptions.
SaaS-Specific Considerations When Choosing a Pricing Methodology
Product Maturity and Market Establishment
For New SaaS Products: Van Westendorp often works better for novel offerings where market price expectations aren't well-established. According to OpenView Partners' 2022 SaaS Pricing Survey, 62% of companies launching new products found Van Westendorp provided more actionable insights than other methodologies.
For Established SaaS Products: Gabor-Granger tends to be more effective for products in established categories where customers have clearer reference points and can more realistically evaluate their willingness to pay.
Business Objectives
If Maximizing Market Penetration: Van Westendorp can help identify the price threshold below which adoption significantly accelerates.
If Optimizing Revenue: Gabor-Granger's ability to plot a complete demand curve makes it superior for identifying revenue-maximizing price points.
If Building Tiered Pricing: A combination approach often works best, using Van Westendorp to establish the overall acceptable range and Gabor-Granger to optimize specific tier pricing.
Subscription Pricing Complexity
SaaS pricing involves multiple dimensions beyond just the dollar amount, including:
- Contract duration
- User-based vs. usage-based structures
- Tiering strategies
- Upsell pathways
Neither methodology alone addresses all these dimensions comprehensively. According to Profitwell data, 98% of SaaS companies that successfully implemented value-based pricing used multiple research methodologies rather than relying on a single approach.
Best Practices for Pricing Research in SaaS
1. Combine Methodologies for Deeper Insights
The most effective pricing research often combines both approaches:
- Start with Van Westendorp to establish acceptable price ranges and understand psychological thresholds
- Follow with Gabor-Granger within that range to pinpoint revenue-optimizing price points
- Validate with additional methods such as conjoint analysis for feature-value mapping or price testing
2. Segment Respondents Strategically
Different customer segments often have dramatically different willingness to pay. According to Price Intelligently, the average variance in willingness to pay across customer segments is 3.5x for SaaS products.
Segment your research respondents by:
- Company size
- Industry
- Use case
- Geographic region
- Current alternatives/competitors used
3. Incorporate Feature Value Testing
For SaaS products, the question isn't just "what should we charge?" but "what should we charge for which features?" Extend your pricing research to include feature value assessment:
- Which features drive the highest willingness to pay?
- Which features are considered "table stakes" versus premium?
- How do value perceptions differ across customer segments?
4. Account for Land-and-Expand Strategies
Most successful SaaS businesses grow revenue through a combination of new customer acquisition and expansion within existing accounts. Your pricing research should evaluate:
- Initial purchase price sensitivity
- Upsell/expansion price sensitivity (which may differ significantly)
- Long-term customer lifetime value implications of different pricing strategies
Case Studies: Pricing Methodology in Action
Case Study 1: Enterprise Project Management SaaS
A project management platform targeting enterprise customers initially used Gabor-Granger to set its pricing, resulting in a $45/user/month price point. However, after experiencing higher-than-expected churn, they conducted Van Westendorp research and discovered that while their price was within an acceptable range, it exceeded the psychological threshold where customers expected enterprise-grade security features—which were actually included in their next tier up.
By restructuring their pricing tiers to align with these psychological thresholds identified through Van Westendorp, they decreased churn by 18% while maintaining similar revenue per customer.
Case Study 2: SMB Marketing Automation Platform
A marketing automation SaaS company serving small businesses used Van Westendorp for its initial pricing, establishing a range of $29-79/month. Within this range, they then applied Gabor-Granger testing, which revealed that while $59/month maximized theoretical revenue, there was minimal demand difference between $49 and $59. They chose $49 as their price