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Estd 4.22.2023
Below are some key tips from our SaaS pricing book, Price to Scale, on implementing value-based pricing and quantifying the delivered value:
Directly Tie Price to Value Drivers
As discussed in Price to Scale, one effective approach is to identify the business outcomes your product delivers and then tie pricing to the metrics that reflect those outcomes. For example, rather than just basing fees on the number of users, focus on metrics like the number of customers reached or processed—especially if your module is more aligned with customer outcomes (see the modular pricing discussion on page 193).Use the Good-Better-Best Framework
In our book (page 29), we detail a popular strategy of creating tiered packages—Good, Better, and Best. This approach segments your market by offering packages with varying features and associated value, ensuring that each segment pays a price that aligns with their realized value. This method is particularly useful when serving markets with relatively consistent purchasing capacity, such as SMB or Mid-Market segments.Ensure Your Pricing Model is Simple, Measurable, and Scalable
A robust value-based pricing model should:
- Be Simple: You should be able to explain your pricing metric in a short, clear explanation, even during an elevator ride. Simplicity aids in communication with stakeholders and industry analysts.
- Be Measurable: The metric you choose must be based on quantifiable outcomes. For instance, if you’re not really servicing value on a per-user basis, consider measuring based on customer outcomes or another relevant metric.
- Be Scalable: Your pricing should allow you to capture increasing value as your customers’ demands grow.
- Quantify the Value Delivered
To actually set the right price, you need first to understand and quantify the benefits your product delivers:
- Map out the key value levers (e.g., enhanced efficiency, customer engagement, improved sales outcomes) and quantify these with clear metrics.
- Use customer feedback, usage analytics, and competitive benchmarks to assess the tangible benefits your customers receive.
- Continuously iterate on your model as you gather more data on how features drive outcomes. This iterative process helps ensure that the pricing reflects true business value.
In summary, implementing value-based pricing in SaaS means aligning your pricing strategy with the outcomes that matter to your customers and ensuring that your model is simple to explain, measurable in its metrics, and scalable as your customer base grows. By leveraging frameworks like the Good-Better-Best packaging and by focusing on relevant, quantifiable metrics, you can better capture and align with the value you deliver.