
Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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SaaS Pricing
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.
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:
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.
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.
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:
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.
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:
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.
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:
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?
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.
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:
For example: If you help a client save $100,000 a year, charging $20,000-$30,000 still ensures a strong customer win while maintaining healthy margins for you.
That’s the essence of a value pricing model, you charge a fraction of the incremental value you create or costs you eliminate.
Value-based pricing also means tailoring your model to what customers truly care about, rather than defaulting to the usual "$X per user."
Some examples:
These are practical value-based pricing model examples, where price is tied to outcomes, scale, and perceived benefit.
A well-executed customer value pricing strategy offers clear advantages:
This model also helps avoid the pitfalls of one-size-fits-all pricing, which often leaves:
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.
Is value-based pricing a silver bullet? Not quite.
It demands deep customer understanding and ongoing iteration, including:
But the payoff is real. You avoid pricing based on gut, precedent, or fear, and instead, ground your model in what drives customer success.
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:
Smart pricing begins with knowing:
Segmentation means grouping customers by shared needs and value perceptions. For example:
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:
Clear segments + clear goals = better pricing guardrails.
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:
Poor packaging leads to:
Packaging is also where you embed:
Ask: Does each package resonate with a specific segment? Is there a logical upsell path? Test and refine accordingly.
Your pricing metric is what you charge for, and many CXOs default to the wrong one.
A great pricing metric is:
Examples:
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
Now that you’ve defined the metric and packaging, ask: How much should we charge?
Avoid gut-based guesswork or matching competitors blindly. Instead:
A few reminders:
And remember: Price signals value. If you claim to be enterprise-grade but charge like a startup tool, buyers won’t take you seriously.
Even the smartest pricing strategy fails if you can’t execute it cleanly.
Ensure:
Finally, treat pricing like a living product:
World-class SaaS companies don’t “set and forget” pricing, they evolve it continuously to match value delivered and market dynamics.
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.
Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.