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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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The business world is experiencing a rapid shift toward subscription-based models, far beyond just software. From consulting agencies to digital content creators, services of all kinds are adopting recurring revenue models. The reasons are clear: businesses enjoy more predictable revenue streams and deeper customer relationships than one-off sales. In fact, companies built on recurring revenue have grown 4-5x faster than the S&P 500 in recent years.
For service providers, moving to a subscription model offers increased stability, improved customer retention, and greater growth potential. As the global subscription economy is set to reach $1.5 trillion by 2025, this approach is becoming essential for businesses seeking long-term success.
The Growing Trend of Subscription-Based Pricing
This surge in subscription-based pricing is accelerating across industries. For service providers, moving to a subscription pricing model can unlock substantial benefits. Recurring revenue smooths out the volatility of project-based income and boosts company valuations. It also incentivizes stronger customer loyalty and retention, since clients engage continuously rather than through one-off transactions. Top service companies now leverage recurring revenue to expand customer contracts and increase Annual Contract Value (ACV) over time, with some firms reporting net retention rates above 120%.
Even traditionally one-time services are making the leap.
- Professional consulting firms are moving from hourly billing to monthly retainer subscriptions for more stable income and closer client partnerships.
- Digital product businesses that once sold standalone e-books or templates are launching membership libraries with recurring fees.
We’ve even seen experimenting with subscriptions, such as pay-per-feature upgrades in cars, to generate ongoing revenue. Across industries, “as-a-Service” is the new norm, and service providers who convert to subscription pricing stand to reap major rewards in stability and scale.
Transforming Your Service Pricing: A 5-Step Roadmap
So, how can you transform your own service pricing into a successful subscription model? It’s not as simple as charging a monthly fee. It requires a strategic rethinking of how you package and monetize your offerings. Fortunately, a proven roadmap exists. In the book Price to Scale, Ajit Ghuman and Jan Pasternak outline a comprehensive 5-step pricing transformation framework. This framework, grounded in real-world SaaS and service pricing projects, can guide any service business through the transition. By following these five steps, you can convert your service pricing to subscriptions in a way that is sustainable, customer-centric, and growth-oriented.
Before diving into the steps, we’ll briefly cover the importance of aligning your pricing strategy with your business goals. Then we’ll walk through each step in detail, so that by the end, you’ll have a clear plan for turning your service into a thriving subscription-based business.
Align Pricing with Business Goals (Goal Alignment)
The transition to subscription pricing must begin with clear alignment on your business goals. What are you trying to achieve? Whether it’s boosting profit margins, capturing market share, or accelerating customer adoption, your pricing strategy should support these top priorities.
Start by aligning your leadership team on these goals. Without consensus on pricing direction, you risk designing a subscription offering that pleases no one. Many pricing failures stem from misalignment among product, sales, and finance teams. For example, if the sales team targets a different customer profile than the product team envisioned, even the best pricing model will fall flat due to mismatched expectations.
Clarify your strategic intent. Are you aiming for rapid user growth, lower initial ACV? Or do you want to focus on profitability and improving unit economics? Perhaps you're moving upmarket to enterprise clients, or expanding into the SMB segment. These decisions will inform how you design your subscription pricing. Write down a concise set of pricing goals – e.g. “Increase customer lifetime value and ARR,” or “Expand our mid-market customer base,” or “Simplify our pricing to reduce sales cycle length.” This will serve as your north star throughout the transformation.
Additionally, confirm who your target customers (segments) are as part of goal alignment. Often, revisiting pricing forces companies to update their Ideal Customer Profile (ICP) definitions. Ensure you have a clear picture of the customer segments you plan to serve with your new subscription offerings. We’ll dive deeper into segmentation next, but at the goal alignment stage, it’s crucial to agree on which customer groups and use cases you’re focusing on. Pricing a high-touch enterprise subscription will look very different from a self-service small business offering – so you need consensus on your focus areas.
In short, get everyone in agreement on the “why” and “who” before the “how.” Align the pricing project to your business’s overarching goals and target segments. This upfront alignment will save you from downstream headaches and set a strong foundation for the five steps to follow. With your objectives and audience defined, you’re ready to start executing the framework for subscription pricing success.
(Optional business goal alignment checkpoint: Ensure you have executive buy-in on the shift to subscription pricing, with clear success metrics. Common metrics to track might include Monthly Recurring Revenue (MRR) growth, gross margins, customer retention rate, and average contract value. Align these metrics with your business goals so you can measure the impact of each step.)
Step 1: Customer Segmentation – Define Your Key Customer Groups
The first step in the framework is Customer Segmentation. You need to identify and segment the distinct groups of customers you serve (or plan to serve) as you roll out subscription pricing. All customers are not equal; different segments have different needs, behaviors, and willingness to pay. Segmentation ensures your new pricing is not a one-size-fits-all scheme, but rather tailored to the specific value perceptions of each group.
Start by analyzing your current customer base and prospects. Look for meaningful ways to group customers, such as:
- Firmographics: e.g. company size (freelancer, SMB, enterprise), industry verticals, or geographic regions. For instance, a consulting firm might segment clients into small businesses vs. Fortune 500 enterprises.
- Needs and use cases: Identify why different customers use your service. One segment might value hands-on support and customization, while another prefers a basic, self-service offering.
- Willingness to Pay: Consider if certain groups derive more value (and can pay more) for your service. Larger clients might have a higher willingness to pay for premium features or faster service delivery.
- Behavior or usage: If you have usage data, cluster customers by usage patterns. Example: a digital product platform could segment “power users” who download content daily vs. casual users who download monthly.
Often, it’s helpful to define 2–3 primary segments to focus on initially. You might create an Ideal Customer Profile for each, summarizing their characteristics and needs. For example, a marketing agency shifting to a subscription model might segment clients into “Startups”, “Mid-market Growth Companies”, and “Enterprise Brands.” The startup segment might need a low-cost, standardized package, whereas enterprises need advanced service and are willing to pay a premium for it.
Actionable Tips: How to Segment Your Customers:
- Research and Data: Pull historical sales data to see patterns in deal size or service usage. Survey or interview a sample of customers to understand what they value most and what pain points your service solves for them.
- Distinct Value Drivers: Ensure each segment has unique attributes or value drivers. Ask, “Does this group merit a different pricing or package than another group?” If yes, it’s a distinct segment. If not, you might be splitting hairs.
- Prioritize Segments: Not all segments are equally important. Focus on segments that align with your business goals (from the alignment step); for example, those with the highest growth potential or strategic importance.
- Name and socialize them: Give each segment a nickname that everyone internally can understand (e.g. “Tech SMBs” or “Enterprise Retailers”). Communicate these across teams so that marketing, sales, and product all share a common language about your customer segments.
Step 2: Positioning & Packaging - Create Compelling Subscription Offers
With your customer segments clearly defined, the next step is positioning and packaging your offerings in a way that suits a subscription model. Moving from a traditional service model (e.g., one-time projects, hourly billing) to a subscription model requires a shift in how you deliver value to customers over time. Your packaging should reflect a service that customers continuously engage with, not just a one-off transaction.
Start by thinking about how your service can be delivered regularly or continuously, and then structure your packages accordingly. Rather than using the generic "Good-Better-Best" tiers, tailor your offering based on customer needs and the recurring value they will receive. For example:
- Basic: Aimed at price-sensitive customers, this tier provides essential features or services delivered on a regular, predictable basis (e.g., monthly check-ins or ongoing support).
- Professional: For customers who need more comprehensive service, this tier could include additional features or more frequent interactions, such as bi-weekly consultations or expanded access to resources.
- Enterprise: Designed for large organizations, this premium tier offers highly tailored services with extra support, such as dedicated account managers, advanced analytics, and priority response times.
Make sure each tier reflects an increased level of service. Equally important, avoid “shelfware” in your packages. Shelfware is what happens when customers pay for features they don’t actually use, often a result of throwing every possible feature into the highest tier without considering if the segment needs them. To prevent this, sanity-check each package: Is your target segment likely to fully use and appreciate these features? For instance, if your mid-tier customers never use advanced analytics, don’t include that feature only in the top tier; it might indicate a packaging misalignment. Every package should feel tailored: the segment it’s meant for should naturally gravitate to it and find it neither lacking nor overly bloated. If you discover a package that rarely gets chosen, or features in a package that consistently go unused, adjust your packaging. The goal is to have each customer segment “auto-select” the tier that fits them best.
Positioning goes hand in hand with packaging. This means framing the value proposition of each tier in terms that appeal to its segment. For a consulting service, you might position the Basic plan as “accessible startup support” whereas the Enterprise plan is “strategic advisory for large-scale growth” – same core service, but messaged differently. Ensure your marketing and sales materials clearly communicate the outcomes and benefits each segment gets with the corresponding package.
A great real-world illustration is Design Pickle, a creative services company that initially operated much like a typical design agency, charging per project or by the hour for graphics work. Founder Russ Perry realized the friction and unpredictability of one-off billing, so in 2015 he pivoted to a flat-rate subscription model that gave clients “unlimited” monthly design services for a fixed fee. Over time, Design Pickle introduced multiple subscription tiers to meet the needs of different customer segments:
- Graphics Pro: Designed for customers needing a deeper level of service, this plan could offer more design time or consulting hours, faster turnaround, and dedicated collaboration channels (like Slack).
- Graphics Premium: Created for larger clients with advanced needs, this tier could include multimedia or specialized services (such as motion graphics or in-depth analytics) and higher-touch support.
- Power Plans: For enterprise-level or high-volume clients, this top tier might allow nearly unlimited usage, a fully dedicated team, and custom services based on the client’s brand vision.
This approach replaced irregular, project-based income with predictable monthly revenue, stabilized workflows, and deepened client engagement. Businesses subscribing to Design Pickle could now count on steady, ongoing creative support, while Design Pickle itself scaled rapidly due to that recurring revenue stream. Their success proves that well-defined subscription tiers can be a game-changer for service-based businesses too.
Actionable Tips – How to Design and Position Your Subscription Packages:
- List Your Core Features/Services: Make an inventory of what you offer. This could include service features, support levels, content access, deliverables, etc. Group them by relevance to your segments.
- Design 3 Tiers (Typically): Aim for three main packages (you can add a fourth “premium” tier or an entry-level free tier if it fits your model). Ensure each higher tier adds quantitative or qualitative value (more usage, more features, faster service, higher support). For example, a digital marketing service might offer 5 campaigns/month in Basic, 15 in Pro, and unlimited in Enterprise.
- Map Tier to Segment: Explicitly decide which segment(s) each tier is for. Then craft the package to suit that segment. Ask: “If I am a customer in Segment A, does this package fulfill my typical needs at a fair value?” Adjust until the answer is yes.
- Check for “No Shelfware”: Review each feature in a package and ask if the target segment will use it. Remove or shift features that don’t align. Every included element should drive perceived value.
- Name and Position the Plans: Give each tier a name that resonates (avoid only generic names; consider descriptive names if it helps). Write a one-line value proposition for each, highlighting the key benefit to that tier’s intended customer (e.g. “Enterprise Plan – full-service solution with tailored support for large teams”). Ensure sales and marketing use this positioning consistently.
- Test Internally: Role-play a sales call for each package with your team. Can you clearly articulate why a specific segment should choose that package and be happy with it? If not, refine the packaging or messaging.
Step 3: Pricing Metric – Choose How You Charge (Align Price to Value)
With your packages defined, the next step is to choose your pricing metric, which determines what customers will pay on a recurring basis. This should align with both how customers derive value from your service and how you incur costs.
Common pricing metrics include:
- Per user (seat): Charging based on the number of users (common in SaaS platforms like project management tools).
- Per usage unit: Charging based on the level of usage, such as per project, per transaction, per gigabyte of data, or per hour of service (common for storage, cloud services, and consulting).
- Per feature tier: Pricing based on the access to different features in the service (commonly used for software with tiered functionalities).
- Flat fee for a bundle: Charging a set price for a bundle of services or features, often seen in simpler subscription models.
For example:
- A project management software might charge per user per month.
- A cloud storage service might charge per GB stored.
- A consulting firm might charge based on the number of consulting hours or deliverables per month.
To determine the best metric for your service, consider the following:
- What correlates with customer success? Ideally, your price metric ties to something that increases when the customer gets more value. For instance, if the service is an analytics platform, maybe the number of tracked events or reports correlates with value. For a marketing agency subscription, the number of campaigns run might be a metric. “Link your value metric to customer success – outcomes your customers care about – so they feel the price is fair.”
- What usage drives your costs? If certain usage drives significant cost for you (e.g. API calls that consume server resources), you might need a usage-based component to protect margins.
- What is simple and understandable? The metric must be easy for customers to grasp. Charging per something obscure can confuse buyers. They should be able to predict what they’ll pay as they use more.
- Industry Norms: Look at how similar services price. If all your competitors charge per seat, deviating from that metric could be risky unless you have a clear reason.
Importantly, your pricing metric should align with your segments and packages, but be decided after packaging. The book emphasizes not to intertwine metric and packaging too early: some companies mistakenly differentiate packages only by quantity (e.g. Basic = 5 users, Pro = 50 users, etc.), which signals that the only difference is volume, not feature value . It’s often better to first define packages by feature scope (as we did in Step 2) and then layer the metric on. You can certainly include usage limits per tier (for example, different tiers include different amounts of a resource), but treat the metric choice as a strategic decision in itself.
Many service businesses are adopting usage-based pricing (UBP), where customers pay according to how much they consume (sometimes with a base fee plus additional usage charges).
This can work well when usage varies significantly among customers. For instance, a software company might charge a base fee for platform access and additional fees for extra consumption (like additional data or features used). However, usage-based pricing can be unpredictable, and some customers prefer more predictability in their bills. A solution to this is tiered usage, where each tier includes a certain level of usage, and overage charges apply once the customer exceeds that limit. This approach balances flexibility with the predictability that customers appreciate in subscription models.
Step 4: Rate Setting – Determine Your Subscription Price Points
Now comes the step many think of as “pricing” proper: Rate Setting - deciding how much to charge for your subscription packages (and the metric units, if applicable). This is where you translate all the prior strategic work (segments, packages, metric) into concrete numbers on a page. Finding the right price points is a blend of art and science. It should reflect your value, market dynamics, and business goals.
Here’s how to tackle rate setting in a structured way:
- Assess Willingness to Pay: For each package and segment, gauge how much a typical customer would be willing to pay. You can do this through market research: surveys, interviews, even running a small beta test with varied pricing. Techniques like conjoint analysis or Van Westendorp price sensitivity surveys can provide data-driven insights. For example, you might survey customers asking at what price they’d consider the service too expensive vs. a great deal. This gives a ballpark range.
- Analyze Competitor and Alternative Pricing: Understand the landscape. If you have direct competitors, know their price points. Also consider alternatives your customer might use (even DIY or an internal hire could be the “alternative”). Your pricing doesn’t have to be lower than competitors if your value is higher, but you need to know if you’re positioning as premium or budget. Position relative to competition in a way that supports your value narrative. E.g., if your service delivers more ROI, a higher price might be justified, but you’ll need to prove that value.
- Cost and Margin Check: Calculate your unit economics. Ensure that at the prices you set, you can achieve sustainable gross margins. For services, factor in the cost of delivery (staff time, tools, etc.). Subscription pricing often improves margins over time (due to efficiency and volume), but price points must at least cover costs and target profit per customer. This sets a floor for your pricing – don’t go below what’s sustainable long-term, even if market pressure exists.
- Incorporate Value Messaging: Psychological pricing matters. A price of $99/month vs $100/month can feel significantly different to buyers (even if irrationally so). Think about where you want to anchor the customer’s perception of value. If you have a tiered lineup, having a high-priced “Enterprise” tier can actually make the middle tier look like a great deal in comparison (the decoy effect). Ensure each price feels commensurate with the package’s benefits – this is where your positioning statements help. If your Enterprise plan is, say, $2000/month, you should be able to articulate the ROI a customer gets from that plan (e.g. “saves your team 100+ hours, which is $X in labor, easily justifying the cost”).
- Test and Iterate: Treat rate setting as iterative. Before full launch, test pricing with a small group or A/B testing. Monitor customer reactions to fine-tune the price.
Once you've set your rates, communicate them clearly to your customers. Transparency builds trust and avoids confusion. Now, with the pricing model fully designed (segments → packages → metric → price points), the work is not over, you must operationalize it effectively.
Step 5: Operationalization – Implement and Manage the New Pricing
Designing a brilliant subscription pricing model is only half the battle. The final step is Operationalization: integrating this new pricing into your business’s day-to-day operations and ensuring it actually delivers results.
When moving to a subscription pricing model for a service, here are the key operational areas to address:
- Billing Systems and Tools: You’ll likely need to adapt your billing infrastructure. One-time invoices in Excel won’t scale for subscriptions. Implement a recurring billing system or a lightweight CPQ (Configure-Price-Quote) tool that can handle the complexity of subscription quotes and invoices. Ensure it’s integrated with your CRM (for customer info) and accounting systems so that revenue recognition, upgrades/downgrades, and renewals are tracked accurately. For instance, if you charge based on usage, you need a way to meter that usage and feed it into billing. This might involve instrumenting your product or processes to collect usage data . Many companies underestimate this effort. Depending on complexity, it can take months to get billing systems right, but it’s fundamental to avoid revenue leakage and customer frustration.
- Sales Enablement and Policies: Train your sales team (or account managers, if it’s more of an ongoing client relationship) on the new pricing and packages. They need to understand the value proposition of each tier and be able to explain the pricing metric confidently. Update your sales playbooks: how to handle common objections to the subscription model, how to upsell from one tier to the next, etc. Also establish a discounting policy; what’s the maximum allowed discount, who can approve exceptions, and ensure everyone abides by it . This prevents ad-hoc deals that undermine your carefully set rates. Many SaaS firms create a Deal Desk for this purpose: a small team or process that reviews non-standard deals, custom pricing requests, or large contracts to make sure they align with strategy . For your service business, even if it’s just you initially, set rules for when you’ll deviate from standard pricing (e.g. only for enterprise deals above $X and with management approval).
- Customer Communication & Transition: If you are converting existing customers to the new subscription pricing, manage this transition carefully. Communicate the benefits they’ll get under the new model (e.g. more consistent service, new features included, long-term savings). Provide support for questions or concerns. It might make sense to grandfather some customers on their old pricing for a period or offer migration incentives, to avoid churn shock. From an operational standpoint, keep a close eye on customer retention during the change – track if any customers are at risk of leaving and proactively engage them. The smoother you handle the change management, the more credibility you build. (Ajit Ghuman notes an example of using the ADKAR change management model at Citrix for internal alignment on pricing changes – a reminder that pricing changes involve change management both internally and externally.)
- Monitoring and KPIs: Establish metrics to monitor the performance of your new pricing model. Key indicators include: Monthly Recurring Revenue (MRR/ARR) growth, churn rate (are customers renewing their subscriptions?), average revenue per user (ARPU) or per account (is it trending as expected for each segment?), customer acquisition rate (did the new pricing remove friction or add any?). Also track usage vs. projections if usage-based. Set up dashboards or reports to review these regularly. By closely watching these metrics, you can catch issues early – for example, if churn spiked after introducing the new pricing, investigate why and take action. High-performing pricing teams create feedback loops to adjust if certain packages aren’t selling or if the pricing metric isn’t working as intended.
- Iterate and Optimize: Pricing operationalization is not a one-time project but an ongoing capability. Make sure there is an owner (or team) responsible for pricing strategy long-term. After launch, gather feedback from sales (are they encountering certain pushbacks frequently?), from customers (any confusion or perceived gaps?), and from financial results. Be willing to tweak: maybe you need to adjust a feature in a package, or refine the pricing metric if it’s causing billing disputes. Perhaps the sales compensation plan needs updating – e.g. sales reps might now be paid on annual contract value sold or on retention, which encourages them to focus on subscription quality over quantity. Align incentives accordingly so the team is motivated to grow subscription revenue and customer lifetime value, not just initial sales.
By executing on these operational steps, you’ll bring your subscription pricing model to life. Your service business will have transitioned from ad-hoc or one-time pricing to a well-oiled subscription revenue machine. The result should be smoother processes internally and a better experience for customers, who will now consistently receive value on a recurring basis.
Conclusion: Transforming Services with a Scalable Subscription Model
Converting your service’s pricing into a subscription model is a significant endeavor, but by following the 5-step framework – from segmentation through operationalization – you can do it with confidence and precision. We began with the big-picture rationale: subscriptions offer predictable, scalable revenue and stronger customer lifetime value. If you need any help achieving those benefits consider taking help of our SaaS pricing experts. We at Monetizely, have an overall 28+ years of collective experience working with the best legacy companies like Twilio, Medallia, Narvar, LinkedIn, etc. Our experts can get your free pricing assessment done and help you scale your business to new heights. So, hurry up, your service-as-a-subscription awaits!