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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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Pricing your SaaS product is one of the most powerful, yet underutilized growth levers at your disposal. Done right, pricing fuels revenue and profitability far more efficiently than customer acquisition or cost-cutting. In fact, a McKinsey study back in the 1990s showed that a mere 1% increase in price can boost profits by around 11%, a much bigger impact than a 1% increase in volume or reduction in costs. Despite this, many SaaS leaders still rely on guesswork or “gut feel” when setting prices, effectively leaving money on the table. An independent survey of 2,200 SaaS companies found that only 6% had done sophisticated research on buyer needs and willingness-to-pay, meaning the vast majority are winging it.
For C-suite leaders, the message is clear: treat pricing as a strategic growth driver, not an afterthought.
In this blog, we’ll walk through a structured approach to devising your SaaS pricing strategy, from segmenting your market and packaging your offers, to selecting the right pricing model, setting value-based price points, and operationalizing pricing changes. Let’s dive straight into the practical steps.
1. Segment Your Market and Identify Key Customer Segments
The first step to an effective pricing strategy is understanding your customer segments. Different customer segments (e.g., small business vs. enterprise, or different industries/use cases) perceive value differently and have varying willingness-to-pay. Pricing that’s perfect for one segment may be completely misaligned for another. Many SaaS companies think they have a “pricing problem” when in reality they have a segmentation problem. Even a perfectly calibrated price will fail if your product is targeting the wrong audience. In other words, who you’re selling to dictates what “right” pricing looks like.
To begin, segment your market based on factors such as customer size, industry, use case, or the value each segment derives from your product. For instance, you might divide your market by company size (SMB, mid-market, enterprise) or by user persona (e.g., individual prosumers, small teams, large organizations). Each segment has unique needs, and pricing strategies should be tailored accordingly. Research consistently shows that aligning your pricing strategy with target segments is crucial for maintaining competitiveness and maximizing profitability. Small businesses and large enterprises, for example, often perceive value in radically different ways, making it essential to differentiate your approach.
In practice, this means that your product positioning and packaging must align with the needs of each segment. If done right, your pricing will feel fair and justified to your target market. On the other hand, a mismatch in positioning can make even a low price feel too expensive.
A prime example of this segmentation challenge is seen in GitLab’s early pricing strategy. Initially, GitLab tried to serve a broad audience, from solo developers to large enterprises, using a single multi-tier pricing structure. While this approach might have seemed logical, it led to confusion and inefficiencies. The $4/user "Bronze" tier was priced too close to free and offered more value than the $19 "Silver" tier, leaving many users with no clear incentive to upgrade. This overlap between tiers created a bottleneck that hindered their growth. GitLab’s leadership recognized that their broad, one-size-fits-all approach was actually stalling progress.
Under the guidance of CPO Scott Williamson, GitLab made the tough decision to eliminate the Bronze tier and realign their pricing strategy to clearly differentiate between customer segments. Instead of trying to be everything to everyone, GitLab focused on creating distinct pricing tiers tailored to different customer needs. The result was a more segmented approach that allowed each tier to offer targeted value to specific customer profiles, leading to faster upgrades and more sustainable growth.
The takeaway: Don’t try to be everything to everyone with your pricing. Pick your primary segments and tailor for them.
To apply this step:
- Identify 2-3 core segments that matter most to your business (e.g., startup/SMB, mid-market, enterprise). Analyze how each segment uses your product and the ROI they get.
- Assess willingness-to-pay by segment. Enterprise buyers may pay significantly more for advanced capabilities, security, and support, whereas SMBs are more price-sensitive and need a clear, simple value proposition.
- Position your product differently for each segment. This could mean offering different editions or packages for each, or even separate pricing models. As an example, some SaaS companies offer a self-service, lower-cost plan for SMBs and a higher-touch (and higher-priced) plan for enterprises. The key is that each segment feels the pricing is designed for them.
2. Align Your Packaging and Positioning with Value
Once you know your key segments, craft your product packaging and positioning to align with the value each segment cares about. Think of packaging as the bundle of features, services, and usage entitlements you offer at a given price. Great packaging makes it crystal clear to the customer why one tier costs more or less than another and encourages customers to naturally gravitate to the option that best fits their needs (and budget). Poor packaging, on the other hand, leads to confusion, customers stuck on the wrong plans, or heavy discounting to close deals. Design tiered offerings that map to your segments. A common approach is the classic “good-better-best” tiers (e.g. Basic, Pro, Enterprise), but be careful: simply stacking more features into higher tiers without understanding what each segment truly values can backfire. Every tier should solve a distinct level of customer need. If you throw every advanced feature into an Enterprise plan that your target enterprise customers don’t actually need, you’ll end up either with low adoption of that tier or having to discount it heavily to make sales . Conversely, if your lower-tier plans deliver too much value for the price, customers will have no incentive to upgrade, as GitLab discovered with its old Bronze vs. Silver tiers .
Key principles for effective SaaS packaging:
- Clear Value Differences: Each step up in tier should unlock meaningful additional value (more advanced features, higher usage limits, better support, etc.) that your target segment at that tier truly cares about. If the differences are muddled, customers will either get confused or game the system by choosing the cheaper tier and stretching it. GitLab’s revamp ensured that each tier “offers distinct and increasing value” aligned to user needs, essentially embedding the pricing structure into the product experience. This clarity drove users to upgrade when they outgrew the lower tier’s capabilities.
- Limit Overlap and Complexity: Simplify your packaging wherever possible. Too many add-ons or overly granular feature gating can overwhelm customers. Case in point: Zoom. By 2020, Zoom had over 14 add-on products and more than 1,000 SKUs in its pricing catalog. This proliferation of add-ons made it hard for customers to understand the total cost or value of Zoom’s offerings, hurting conversion rates. Zoom recognized this and streamlined its pricing structure by bundling many add-ons into more comprehensive solutions. This simplification “streamlined the sales process, and attracted new Enterprise and SMB customers”. The lesson: make your packaging simple enough for customers to quickly grasp. If you do offer add-ons, ensure they truly add incremental value and consider bundling commonly used ones into core plans.
- Segment-Specific Packages: Tailor packaging to different segments if needed. Your tiers for SMBs might be structured differently than for enterprises. For example, an enterprise package might include advanced security, single sign-on, dedicated support, and volume discounts – things a small customer wouldn’t need or pay for. DocuSign provides a great example (which is discussed in our Price to Scale Vol2): they started with a usage-based model (charging per envelope/document sent) which made sense early on, but as the market matured and e-signature became a commodity, they shifted to feature-based packages (Standard, Business Pro, Advanced Solutions, etc.) to emphasize their broader workflow and integration features. This pivot was driven by the realization that simply charging per use wasn’t capturing the value of their richer feature set once basic signing was no longer novel. By restructuring packages to focus on features (and effectively segmenting between basic and advanced users), DocuSign could charge for the additional business value of those features provided beyond just the signature count.
3. Choose the Right Pricing Metric (Align Price to Value Drivers)
A critical – and often overlooked – element of pricing strategy is selecting your pricing metric, sometimes called the value metric. This is what you charge for (e.g. per user, per 1,000 transactions, per GB of data, etc.), and it has an enormous influence on how customers perceive value and when they feel the price is “worth it.” The right pricing metric ensures that as the customer gets more value from your product, you earn more; the wrong metric can stifle product adoption or encourage the wrong customer behavior.
Align price to the unit of value that customers get. Ask: what usage of our product correlates most with customer success or value? For many SaaS products, the common answer has been “per user” (seat-based pricing), especially for collaboration or CRM tools where each user added is presumably getting value. Seat-based pricing is easy to understand and budget for, but it isn’t always the best fit. Increasingly, SaaS companies are experimenting with usage-based pricing (UBP) – charging based on consumption of a resource (API calls, data processed, etc.) – or hybrid models (a base subscription + overage fees). In 2022, about 61% of SaaS companies used usage-based pricing in some form, and the trend is accelerating.
Customers today are often comfortable with usage-based models, if they align with outcomes. In fact, companies with usage-based pricing have been shown to grow faster and achieve higher net dollar retention than those with purely static subscriptions, since they can monetize customers’ growth and success more directly.
To illustrate how the wrong pricing metric can negatively impact customer behavior and product usage, let’s look at Mixpanel’s experience. Initially, Mixpanel implemented event-based pricing, where customers were charged based on the volume of events tracked within the product. Each user action, such as clicking a button or submitting a form, counted as an event, and this drove up the costs for customers as they tracked more events.
At first glance, this model made sense because it tied pricing to the amount of data being processed. However, Mixpanel soon realized it had created an unintended side effect: customers began limiting their usage of the product in order to avoid higher costs. As Mixpanel itself acknowledged, "our pricing can stop companies from seeing a complete view of users' behavior… that’s obviously not ideal."
This misalignment between pricing and the value the product delivered was a clear issue. Mixpanel’s customers were essentially reducing the value they were getting from the product in order to save on costs. Recognizing this, Mixpanel made a bold decision in 2019 to switch their pricing metric from events to MTUs (Monthly Tracked Users), charging based on the number of unique users tracked rather than the number of events recorded.
This shift aligned the pricing model more closely with the value customers were receiving: the ability to understand user behavior, regardless of how many events they tracked. This new model not only removed the disincentive for customers to track important events but also made the pricing more predictable and fair. Customers no longer had to worry about their bills spiking due to increased usage of the product, and they could use it more fully, which ultimately benefited both their success and Mixpanel’s revenue.
Here are some tips on selecting a value metric:
- Identify your product’s value driver: What usage parameter most closely reflects the value a customer gets? It could be data storage, emails sent, compute hours, number of contacts, revenue processed, etc. For example, cloud infrastructure providers like AWS charge by resource consumption (GB, CPU hours) because that’s directly tied to the service provided. Communications APIs (Twilio, SendGrid) charge per message or email. Choose something that grows as the customer derives more benefit.
- Ensure it’s measurable and transparent: You and the customer should be able to easily track the metric. It should be predictable or at least trackable in real-time to avoid “sticker shock” surprises. Customers appreciate transparency, e.g. if you charge by API calls, provide usage dashboards. If predictability is a concern, consider a hybrid model: for instance, a base subscription that includes a certain amount of usage, with clear overage rates (much like cell phone data plans). Many SaaS companies do this to blend the best of both worlds (predictable base + pay-for-growth).
- Test for alignment with willingness-to-pay: Talk to customers or simulate bills to see if the metric aligns with what different segments would pay. A good metric means your light users pay less and your heavy power-users pay more, in proportion to value. If a small customer sees an enormous bill relative to the value they got, or a large enterprise is paying way less than the value they receive, there might be a mismatch. Sometimes segment-specific metrics make sense – e.g., some SaaS offer unlimited usage for enterprise seats (charging per seat only) while using metered usage for lower tiers. That’s essentially what DocuSign is moving toward. Historically, DocuSign had a mix of per-user and per-envelope (usage) pricing. They found that enterprise customers disliked worrying about per-envelope limits (it created friction in high-volume use cases). In a recent change, DocuSign tested dropping the per-envelope usage model in favor of per-seat with unlimited envelopes. This simplifies pricing for big customers (no more constant contract amendments to buy more envelope packs) and aligns with how enterprises want to buy (by user or department, without usage caps). The flip side is small clients still get a low-cost entry (perhaps via a lower-tier plan or alternative model). The key insight is adjusting the metric to what different segments perceive as fair and simple.
4. Set Your Price Levels Based on Value (and Update Them Regularly)
With your segmentation, packaging, and pricing metric defined, you can now tackle the actual price points – how much you charge for each tier or unit. This step is about monetizing the value you deliver without underpricing or overpricing, and it requires both art and science. For C-suite leaders, this is where structured thinking is critical: use data to inform your pricing, but also be prepared to adjust and iterate as you learn.
Anchor on Value, Not Cost
SaaS pricing should be value-based, meaning your price reflects the business value your product provides to customers, rather than just the costs incurred. Many companies make the mistake of pricing too low out of fear that higher prices will scare customers away. However, if your product delivers significant ROI, you should charge accordingly. To gauge value-based pricing, use techniques like Van Westendorp price sensitivity analysis or conjoint analysis. These methods can help determine what different segments are willing to pay. Informal approaches like sales team feedback or observing customer acceptance of your price can also indicate if you’re underpricing.
Also, consider leveraging benchmark data from industry tools like OpenView’s SaaS Benchmarks to assess market norms for Annual Contract Value (ACV) by customer segment. While competitor pricing can provide a ballpark reference, don’t blindly copy it, ensure that your product’s unique value is reflected in your price. If you’re offering a differentiated product, you can charge a premium, but clearly communicate that value.
Price Increases When Justified
Pricing should evolve with your product. As your product matures or market dynamics change (e.g., inflation), regularly re-evaluate your prices. In 2023, even in a challenging economy, half of SaaS companies raised prices or changed packaging, citing added product value. SaaS customers are often willing to accept price increases if they’re coupled with increased value. For instance, when GitLab removed its low-priced Bronze tier, it also increased the remaining tiers to better reflect their value, contributing to a 129% net revenue retention.
Practical tips for setting price levels:
- Tier differentiation in price: Commonly, SaaS will use a roughly 2× to 3× price jump between consecutive tiers (e.g., $50/mo -> $150/mo -> $500/mo for basic, pro, enterprise) as a starting heuristic. The jumps should correlate to big jumps in value. In enterprise pricing, the top tier might even be “Contact Us” because prices can be custom (often significantly higher than listed plans, reflecting bespoke packages).
- Localized pricing: If you serve global customers, consider localized pricing strategies. Best-in-class SaaS companies localize prices by region to account for differing willingness-to-pay and economic conditions. For instance, pricing in developing markets might be lower than in North America for the same product, or you might price in local currency to reduce friction. This is more of a scale consideration, but it’s part of the price level strategy for maximizing global revenue.
- Review and iterate: Establish a cadence (perhaps annually, or every product release cycle) to review if your price levels should be adjusted. Look at metrics like conversion rates (are lots of trial users not converting due to price?), win/loss deal feedback, customer ROI case studies, and your financial metrics (LTV, payback period). If your product’s value has increased, or if you’re consistently hearing that your offering is cheap relative to value, it’s a flag to test higher pricing. Conversely, if churn is high because customers “didn’t see the value for the cost,” you may need to either add value or consider if pricing is mis-targeted for that segment.
- Communicate pricing decisions clearly: Internally, ensure Sales, Customer Success, and Product teams understand the why behind your pricing levels so they can convey the value to customers. Externally, transparency builds trust: publish pricing when possible, provide ROI calculators or case studies for high-priced tiers, and frame price changes around the additional value or outcomes customers can achieve. Remember that pricing strategy isn’t about nickel-and-diming customers; it’s about creating a fair exchange where the customer pays in proportion to the value they receive, and in turn you can reinvest in delivering even more value. Set your prices confidently to reflect that value.
5. Operationalize Your Pricing Strategy and Continuously Refine It
Even the best pricing strategy can fail if not executed well. Pricing is an ongoing process that requires alignment across teams and continuous adjustments based on market feedback and performance. For C-suite leaders, this means operationalizing pricing by establishing processes, tools, and governance to manage it effectively.
Here’s how to make pricing an operational strength:
- Establish Pricing Ownership and Cross-Functional Alignment: Designate who “owns” the pricing strategy internally, typically product marketing or a dedicated pricing team, with executive oversight. In 2023, only 94% of SaaS companies handled pricing in-house rather than relying on third-party consultants. Align leadership across product, sales, marketing, and finance to ensure pricing decisions are consistently applied across the organization. Creating a pricing committee that reviews proposals and market feedback regularly can streamline this process.
- Enable Your Sales Team (Deal Desk and Guidelines): For B2B SaaS especially, empower your sales org with the tools and rules to sell effectively at your set prices. This might involve setting up a Deal Desk – a small team or process that approves non-standard deals, discounts, and pricing exceptions. The goal is to ensure discounts are used strategically and don’t undermine your pricing structure. Define discount bands or floors for each tier so sales reps know how far they can negotiate. If reps constantly sell below list price, investigate why – is the list price too high, or do they need better training to sell on value? Sometimes compensation structures can cause misalignment (reps might discount to close faster). Keep an eye on discounting patterns as a feedback loop. In one pricing project anecdote, a company found that some entry-level packages had negative discounts – meaning reps were upselling customers to higher-priced packages at higher than list price because value was obvious. That’s a sign your pricing might even be too low on certain tiers. The opposite – across-the-board heavy discounting – might signal pricing too high or poor value communication. A well-run deal desk can enforce discipline and gather insight on how pricing plays out in real negotiations.
- Invest in Pricing Operations & Infrastructure: As you scale, consider establishing a Pricing Operations function to manage pricing systems (billing, CRM, CPQ software) and analytics. For complex or usage-based models, your systems need to be equipped to handle metering and accurate billing. Zoom, for example, created a dedicated team to manage its pricing structure, ensuring the sales quoting process, billing, and metrics were aligned. A robust infrastructure prevents operational failures, such as incorrect pricing in billing systems.
- Monitor Key Metrics and Feedback: Once your pricing is live, track key metrics like conversion rates, ARPU, and customer lifetime value (LTV). For example, if you introduce a new tier, monitor how customers respond—does it cannibalize higher plans or effectively upsell lower ones? Qualitative feedback from sales calls and customer success teams is also crucial. Use these insights to refine and improve pricing over time. Companies like Zoom have demonstrated that monitoring and adjusting pricing structures based on customer feedback leads to improved customer experience and business outcomes.
- Iterate and Experiment: Embrace a mindset of continuous improvement by experimenting with pricing models. A/B testing, for example, can help determine the best price points or packaging options for self-serve customers. Pay attention to external market trends (e.g., shifts to usage-based pricing) and adapt to stay competitive. Flexible pricing models and freemium options have gained popularity, and being able to quickly adjust your pricing in response to these shifts can set you apart from competitors.
Conclusion & Key Takeaways
Determining your SaaS pricing strategy is one of the most strategic decisions for growth you will make. As we’ve explored, it’s not about picking a random price tag or copying a competitor’s model but about a structured approach that ties your pricing to your product’s value and your customers’ needs. When executed well, a strong pricing strategy can boost expansion revenue, improve profitability, and even strengthen customer relationships (because you’re charging in a way that customers feel is fair for the value received).
To summarize, here are some actionable takeaways and next steps:
- Know Your Customer Segments
- Package and Position for Upsell
- Align Price Metric with Value
- Price for Value (and Review Regularly)
- Build Pricing into Operations
By following this roadmap, you can transform your pricing from a guessing game into a strategic weapon. If you’re looking for more insight or a sanity check on your pricing approach, our SaaS pricing experts at Monetizely are here to help. We’ve guided SaaS companies of all sizes in implementing these advanced pricing strategies, and we’re happy to share what we’ve learned. Pricing might not be taught in business school, but it’s a lesson you can’t afford to skip. So, get in touch with our SaaS pricing consultants today and get your free pricing assessment.