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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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Based on our pricing strategy book, Price to Scale, it's generally more effective to base pricing on what the customer actually uses rather than simply on the potential features available. Here’s why:
• Direct Value Alignment: When you charge based on features used (or measurable product usage), your pricing more directly mirrors the value the customer is receiving. This approach can lead to easier client adoption since customers feel they’re paying in proportion to their benefit.
• Flexibility and Growth: Usage-based pricing allows for revenue to scale with your customers’ usage patterns. For example, if the usage of a particular feature grows, your customer’s bill increases accordingly, which can help capture the full value they derive from your product (as highlighted on page 45 and page 145 of Price to Scale).
• Avoiding the Pitfalls of Capability Pricing: While charging a flat rate for a set of capabilities (i.e., potential features available) can simplify your pricing model, it might leave money on the table or even dissuade certain market segments—especially enterprise customers—from adopting the product. This is because such an approach may not fully reflect the incremental value offered as usage increases.
In summary, Price to Scale advocates for a metrics-driven approach where, if your product’s usage is measurable and closely ties to customer value, a usage-based pricing model is often more beneficial than simply pricing for capability. This ensures that your revenue grows in tandem with your customers’ success and usage of key features.