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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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Value-Based Pricing
Value-based pricing focuses on setting prices based on the perceived value your SaaS product delivers to customers. This approach aligns your pricing with the actual benefits customers receive rather than your internal costs.
Key characteristics of value-based pricing:
- Prices are determined by what customers are willing to pay based on the value received
- Requires understanding customer perception of value through research methods like Van Westendorp surveys
- Often utilizes usage-based metrics that correlate with customer value
- Can combine platform fees with usage components to capture value appropriately
- Allows for different pricing strategies across segments where value perception varies
When implemented effectively, value-based pricing helps align pricing with your go-to-market strategy and allows you to monetize new strategic features based on their value contribution.
Cost-Plus Pricing
Cost-plus pricing uses your cost of delivering the SaaS product as the foundation, then adds a markup percentage to determine the final price. This approach is simpler but often leaves significant value on the table.
Key characteristics of cost-plus pricing:
- Prices are calculated based on development, hosting, and operational costs plus a profit margin
- Focuses inward on company costs rather than outward on customer value
- Usually results in static pricing that doesn't flex with usage or value received
- Often creates disconnects between price and the actual value customers receive
- Less effective at capturing value from premium features or high-value use cases
Strategic Implications
The difference between these approaches is especially significant in SaaS, where:
Scaling dynamics: Value-based pricing allows revenue to scale as customer value increases, while cost-plus remains relatively static despite delivering more value over time.
Market positioning: Value-based pricing enables more sophisticated tiering strategies that target specific customer segments based on their value perception.
Growth potential: Value-based approaches unlock expansion revenue opportunities through metrics tied to customer success (like company revenue or number of users).
Customer alignment: As seen in our case studies, pricing based on value metrics creates better customer alignment, reducing sales friction and objections.
Our pricing frameworks typically guide companies away from simplistic cost-plus models toward value-based approaches using appropriate metrics that align pricing with both customer value and your go-to-market strategy.