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Estd 4.22.2023
Every 1% change in price can boost profits by up to 11%, yet pricing is still an afterthought for most SaaS leaders. In today’s capital-efficient world, where boards expect predictable growth and strong margins, pricing missteps can derail your entire GTM engine.
The most common mistake? Repeating the past. CXOs often copy-paste pricing models from previous roles, thinking what worked at Amazon or Snowflake will work anywhere. But context matters. Pricing strategies must align with new markets, buyer expectations, and product usage patterns.
Stuck in Old Pricing Playbooks (and Why It Hurts)
Take usage-based pricing (UBP) as an example. It’s a hot trend, adoption of UBP jumped from 30% of SaaS companies in 2019 to a projected 79% in 2023. Companies like Amazon Web Services and Snowflake thrive on pay-as-you-go models, so CXOs assume it’s a silver bullet. But one size does not fit all. In practice, UBP can introduce unpredictable revenue and longer sales cycles if your buyers aren’t used to it. In fact, recent data shows deals with usage-based models took 29% longer to close in 2023 than those with seat-based pricing, and enterprise deals saw the biggest slowdowns (up to 44% longer). The message is clear: blindly chasing the latest pricing fad or sticking to what worked at your last company can backfire badly.
Real-world case studies bear this out. Kustomer, a customer-service SaaS founded in 2015 to rethink how companies manage support. Early on, leadership debated how to charge for their AI-driven platform: emulate cloud infrastructure (a usage model) or stick with the seat-based norm in support software. In 2018, Kustomer launched a pure consumption model, billing per conversation and chatbot interaction. Internally, they believed this would:
- Lower entry barriers (no large license fee up front)
- Reward viral adoption (the more conversations, the more revenue)
- Signal a modern, cloud-native alternative to legacy ticketing systems
But customer feedback told a different story. Prospects said, “We already budget per agent seat, this usage model throws everything off.” As CEO Brad Birnbaum recalled, “When we spoke to buyers, they said they wanted predictable costs that map to their existing budgets, not uncertain usage fees”. By mid-2019, Kustomer switched to a per-user, per-month pricing structure, mirroring how Zendesk and Salesforce bill. Kustomer defined clear tiers (Starter, Professional, Enterprise), each with fixed seat counts and feature sets, and only then layered in optional overage bundles for ultra-high usage.
- Sales cycles sped up by 25%, as buyers could easily compare us to incumbents.
- Procurement approvals jumped, since CFOs saw familiar, line-item seat fees.
- ARR grew 150% year-over-year, culminating in a strategic acquisition by Meta for roughly $1 billion.
The lesson? Pricing must meet customers where they expect to buy and see value. Forcing a cloud infrastructure model (like AWS’s usage charges) onto a completely different market (like enterprise support software) is a recipe for customer pushback.
The Real Costs of Misaligned Pricing
When CXOs stick with an ill-fitting pricing strategy, the damage goes beyond a few lost deals. Misaligned pricing hits the company’s fundamentals, valuation, cash flow, and sales performance. Let’s break down the risks:
1. Unpredictable Revenues = Shaky Valuations
Investors and boards prize predictability. If your pricing model makes revenues volatile or hard to forecast, expect skepticism. For example, Snowflake (a usage-based data platform) had to lower its 2024 revenue outlook twice due to customers consuming less in a downturn, causing a 13% stock drop. Usage-based companies often face this trade-off: great upside in boom times, but murkier forecasts when usage fluctuates. The standard SaaS valuation multiples don’t cleanly apply if your revenue isn’t recurring or predictable.
2. Cash Flow Strain
Pricing affects how and when cash comes in. Reusing a model from a cash-rich giant can starve a smaller firm of oxygen. Imagine a CXO who insists on monthly pay-as-you-go fees because “that’s how AWS does it.” Without annual commitments or base fees, the startup now faces:
- Lumpy cash flows
- Delayed revenue recognition
- Unstable budgets
Bills trickle in slowly, and the finance team can’t plan budgets confidently. Many SaaS businesses actually encourage annual prepayments or at least committed contracts to fund growth and ensure stability. If you misjudge this and adopt a model that delays revenue recognition (or leaves money on the table), you’ll feel it in your bank balance. In short, misjudging how pricing affects revenue recognition and cash timing can starve growth when it’s needed most.
3. Demotivated (and Dysfunctional) Sales Teams
Your sales team lives and dies by hitting targets, and their commission checks. A poorly aligned pricing strategy can throw both into chaos. Take usage-based pricing: if a sales rep closes a big logo but the initial contract value is tiny (because the customer will “ramp up usage over time”), how do you compensate that rep? Likely they won’t be happy with a token commission now and a vague promise of more later.
Top SaaS sales orgs have learned they must tweak comp plans when adopting UBP, often paying reps on leading indicators or account growth, not just initial deal size. If you skip this step, expect sales pushback. Beyond comp plans, pricing misalignment creates friction:
- Reps spend time explaining nonstandard pricing models instead of closing
- Buyers get confused or anxious over complex metrics and unclear value drivers
- Sales cycles drag, UBP deals closed 29% slower in 2023 vs. seat-based pricing, with enterprise deals up to 44% slower
In one case, a VP at Userpilot shared that it took three separate sales calls just to get a pricing quote for a complex offering. That level of confusion is a deal-killer.
Misaligned pricing doesn’t just live on a spreadsheet, it impacts investor confidence, operational cash, and team morale. It’s no wonder many CXOs struggle with pricing; it’s both an art and a science that touches every part of the business. So what’s the way out of this trap?
A Smarter Path: Customer-Value Pricing (What It Is and Why It Works)
To escape pricing pitfalls, savvy leaders are moving away from product-centric or copycat models and embracing customer-centric value based pricing.
The mantra: price according to value, not vanity.
What is Value-Based Pricing?
At its core, customer value-based pricing means setting prices based on the value your product delivers to the customer, rather than your internal costs or a competitor’s price tag.
This involves:
- Understanding the benefit (ROI) the customer gets from your product
- Pricing to capture a fair share of that value
For example: If you help a client save $100,000 a year, charging $20,000-$30,000 still ensures a strong customer win while maintaining healthy margins for you.
That’s the essence of a value pricing model, you charge a fraction of the incremental value you create or costs you eliminate.
Pricing What Customers Actually Value
Value-based pricing also means tailoring your model to what customers truly care about, rather than defaulting to the usual "$X per user."
Some examples:
- AI-driven support platforms found that customers value resolved tickets, not logged-in agents. So, they shifted from seat-based pricing to per-ticket resolved:
- Customers pay based on outcomes.
- Vendors benefit when they deliver more value.
- Slack’s tiered pricing (Free, Standard, Plus) is another value pricing in marketing example:
- Instead of charging by internal metrics like gigabytes or messages,
- Slack aligns pricing with team size and collaboration needs.
- As usage and reliance grow, customers naturally shift to higher tiers.
These are practical value-based pricing model examples, where price is tied to outcomes, scale, and perceived benefit.
Why Value-Based Pricing Works
A well-executed customer value pricing strategy offers clear advantages:
- Fairness: Customers feel they’re paying in proportion to what they receive
- Retention: Clear ROI encourages long-term engagement
- Smart segmentation:
- Lower-value customers pay less
- High-value or power users pay more
- Everyone feels they’re getting value for money
This model also helps avoid the pitfalls of one-size-fits-all pricing, which often leaves:
- Smaller customers feeling overcharged
- Enterprise customers feeling under-served
Instead, value pricing pushes you to know your segments and align your packaging accordingly.
Companies like HubSpot and Salesforce have used this approach for years – multiple editions of their software priced according to the value needs of startups vs. mid-market vs. enterprise. By contrast, a one-size-fits-all price often leaves smaller customers feeling overcharged or enterprise customers feeling under-served. Value-based pricing encourages you to know your customer segments and align your packaging to each.
But it takes work…
Is value-based pricing a silver bullet? Not quite.
It demands deep customer understanding and ongoing iteration, including:
- Market research
- Customer interviews
- Usage and ROI data analysis
- The ability to express pricing in terms customers care about (e.g., “Every $1 you spend on our tool saves you $5 in productivity gains”)
But the payoff is real. You avoid pricing based on gut, precedent, or fear, and instead, ground your model in what drives customer success.
Laying the Groundwork: Segmentation, Packaging, Metrics, and More
How can CXOs start to price intelligently? As we often say at Monetizely, and echoing the Price to Scale IVol 2 framework, pricing isn’t a one-time event, it’s a cross-functional process that blends strategy and execution. Before you ever announce a price change, you need to set a strong foundation across five pillars:
1. Clarify Your Goals and Segment Your Market
Smart pricing begins with knowing:
- Who you're selling to (customer segments)
- What you're optimizing for (your pricing goal)
Segmentation means grouping customers by shared needs and value perceptions. For example:
- SMBs might prioritize simplicity and low upfront cost.
- Enterprises may care about compliance, scale, or deep integrations.
If you force them into a single price, you risk undercharging one and alienating the other. This is often due to ICP drift, when companies lose clarity on who they're actually building (and pricing) for.
Ask:
- Are you targeting freemium users and enterprise buyers?
- Are you optimizing for short-term ARR, land-and-expand, or new-market entry?
Clear segments + clear goals = better pricing guardrails.
2. Align Your Packaging with Customer Needs
Packaging is how you bundle features and price points into tiers, add-ons, or plans. Avoid copying a competitor’s structure, focus on customer fit.
A good packaging strategy:
- Matches tiers to real-world needs (e.g. “Basic” for small teams, “Pro” for advanced users)
- Offers clear value progression across tiers
- Encourages upgrades with logical feature gating or usage limits
Poor packaging leads to:
- Upgrade friction (next tier is 5x the price with features the customer doesn’t need)
- Churn due to mismatched value
Packaging is also where you embed:
- Your pricing metric
- Any “free” usage allowances
- Overage structures or upsell levers
Ask: Does each package resonate with a specific segment? Is there a logical upsell path? Test and refine accordingly.
3. Choose the Right Pricing Metric
Your pricing metric is what you charge for, and many CXOs default to the wrong one.
A great pricing metric is:
- Value-linked: it grows with customer success
- Predictable: customers can forecast costs
- Auditable: usage is trackable
- Familiar: it doesn’t confuse or scare off buyers
Examples:
- Per integration → for a data platform
- Per GB stored → for backup services
- Per ticket resolved → for AI-driven support tools
Avoid vanity or trend-driven metrics (e.g., usage-based for the sake of it). Sometimes, a hybrid model works best:
Base fee + variable component = balance between revenue stability and value expansion
4. Set the Right Price Points (Rate-Setting)
Now that you’ve defined the metric and packaging, ask: How much should we charge?
Avoid gut-based guesswork or matching competitors blindly. Instead:
- Analyze the ROI your product delivers (e.g., time saved, revenue gained)
- Study willingness-to-pay via surveys or A/B tests
- Benchmark against costs and competitive context
A few reminders:
- Premium pricing is valid if your value story holds up
- Underpricing can anchor you low and scare off investors
- Testing (via pilots, experiments, or segment rollouts) is essential
And remember: Price signals value. If you claim to be enterprise-grade but charge like a startup tool, buyers won’t take you seriously.
5. Operationalize and Iterate
Even the smartest pricing strategy fails if you can’t execute it cleanly.
Ensure:
- Your billing systems, CPQ tools, and CRM can handle the new structure
- Usage can be tracked and invoiced transparently
- Sales teams are trained, and compensation plans realigned
Finally, treat pricing like a living product:
- Run quarterly or biannual reviews
- Monitor metrics: conversion, churn, upgrade rates, pricing objections
- Adjust based on feedback and performance
World-class SaaS companies don’t “set and forget” pricing, they evolve it continuously to match value delivered and market dynamics.
Conclusion
Most CXOs “don’t know how to price intelligently” not due to lack of intellect, but usually due to lack of a framework and mindset shift. It’s easy to default to the familiar or copy the trend du jour. But as we’ve shown, that can lead to misalignment with customers and significant business pain. The antidote is a value-based, methodical approach: understand your customers deeply, design pricing around their perceived value, and roll it out with operational excellence.
When you do this, pricing transforms from a headache into a powerful growth lever. It’s time to retire the old playbooks and embrace pricing that reflects how your customers win. In doing so, you win too, with faster growth, stickier customers, and a valuation that rewards your intelligent monetization strategy. Pricing done right is not just a number on a page; it’s a strategic asset for your SaaS business. Let’s price intelligently and reap the rewards.
For more insights on your company’s existing pricing, feel free to get in touch with our experts for free pricing assessment.