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Estd 4.22.2023
Based on our saas pricing book Price to Scale, there are several pricing strategies you could consider, each with its own strengths depending on your market characteristics and business objectives. Here’s a breakdown of the main approaches and insights on choosing the right one:
Good-Better-Best (Tiered Packaging)
• This method involves creating 2–3 distinct packages, each targeting different customer segments.
• Often used for markets where there is less variance in willingness to pay, such as SMB or mid-market segments.
• It simplifies customer decision-making and speeds up deal velocity by matching features to the needs of each segment.
• (Price to Scale, p.29)Modular Pricing
• Here, you assign distinct value to individual features or modules, allowing for a more customized pricing experience.
• This approach is particularly useful in markets where customers have highly varying needs and budgets.
• It gives customers the flexibility to select only the functionalities most valuable to them, thereby maximizing perceived value.Revenue Optimization vs. Market Share Focus
• A revenue-optimization approach focuses on balancing customer count with price, ensuring you capture maximum revenue per customer.
• Alternatively, a market-share approach involves pricing at the lower end to attract a larger customer base, which can be particularly effective for SaaS companies that rely on volume and network effects—this is seen in successful bottom-up SaaS models (think Slack or Yammer).
• Each strategy is often chosen based on factors such as acquisition costs, customer lifetime value, and competitive dynamics.
• (Price to Scale, pp.91–93)Margin Maximization
• In niche or enterprise-focused markets where customer numbers may be limited, companies sometimes focus on maximizing margins rather than volume.
• This approach ensures that each sale contributes significantly to cash flow, which may support further business growth or product pivots.
Which approach makes the most sense for your market depends on several factors:
• If you’re targeting a broad market with varied customer needs, the Good-Better-Best or Modular Pricing approaches allow you to segment pricing according to willingness to pay and feature requirements.
• For enterprise or highly competitive segments with potentially high acquisition costs, a margin-maximizing strategy might be more appropriate to secure necessary cash flow, especially if the market size is limited.
• Lastly, if rapid adoption and virality are key to your growth strategy, positioning your product at a price point that prioritizes market share over individual revenue maximization may yield better long-term results.
In summary, Price to Scale recommends aligning your pricing strategy directly with your overall business objectives and the specific dynamics of your target market. There is no one-size-fits-all answer—selecting the right approach requires a careful evaluation of your cost structure, customer segmentation, and competitive landscape. Consult the specific sections in our book for detailed case studies and further guidance on tailoring these strategies to your situation.