How To Price B2B SaaS Products: Your Definitive Guide

When it comes to running a business-to-business (B2B) SaaS company, your SaaS product pricing can make or break the success of your business.

If you price it too high, you’re going to lose potential customers. If you price it too low, you’ll likely miss out on revenues that could have otherwise been earned.

So you would need to find the “sweet spot” (so to speak) when it comes to coming up with the right price point for your SaaS product.

What’s more, you would also need to determine the right pricing structure that will make the most out of your product’s offering and the overall customer experience.

In this article, we will talk about how to price B2B SaaS products. We will cover how to determine what your price should be, and how to choose the right pricing model.

We hope that by the end of this article, you’ll have a better understanding of how to create a profitable SaaS product pricing strategy for your B2B business.

So let’s get started.

SaaS Pricing Strategies

Finding the right price point for a SaaS product is easier said than done. There are a lot of possible approaches you can take to make sure that you are bringing in significant revenue and/or attracting the right customers.

So let’s talk about a few pricing strategies you can use.

Cost Plus Pricing

Cost plus pricing, also known as cost based pricing, is a pricing strategy wherein you take the cost of creating or procuring your product and add a fixed profit margin to it.

For example, if it cost you $100 to create a product and you want to add a 20% profit margin, then you would sell it for $120.

This is easy to imagine if you have tangible products that you are selling per unit, such as commodities or electronic gadgets. You would only need to consider how much it costs you to produce or purchase each unit and how much markup you want to make in order to come up with your pricing.

However, cost plus pricing can be tricky when it comes to SaaS products for a few reasons:

1) It takes significant capital to research, develop, and maintain the product.

2) Revenue from SaaS products usually comes in smaller recurring payments from multiple users rather than one-time payments.

3) Your total revenue can drastically vary depending on the number of customers you have.

4) You still have other expenses, such as the costs for customer acquisition and your day-to-day operations.

So, if you’re a SaaS business looking to use a cost plus pricing strategy, you will need to consider your cost of goods sold (COGS). This typically includes costs from the following:

• Hosting fees
• DevOps costs
• Salaries, bonuses, and benefits for customer support and customer success teams
• License fees for tools you use for customer support and customer success

To be frank, cost plus pricing isn’t really the most recommended pricing strategy for SaaS businesses.

Although it ensures that you have a profit margin on top of your COGS, you might end up earning significantly less revenue than what you could earn if you use other pricing strategies.

Competitor Based Pricing

Competitor-based pricing, also known as competitive pricing, is a strategy wherein you price your product based on how much the competitors in your industry are charging for similar products.

This method can be useful if you’re trying to enter a saturated market and want to make sure that you don’t either overprice or underprice your product by comparison.

It’s also useful when customers have multiple choices and comparing prices between different vendors is easy.

However, it’s not recommended to use this strategy if competitors aren’t clearly visible (or if there’s only one competitor that everyone competes against).

This might even lead to an unhealthy price war where everyone will be competing with each other until prices become too low, resulting in lower profits.

What’s more, your pricing strategy wouldn’t actually be your own strategy. You’re just basing it off your competitors’ pricing strategies.

Value Based Pricing

Let’s make it clear as early as now that value based pricing is the best pricing strategy for SaaS products.

Unlike cost plus pricing and competitor based pricing, value based pricing is all about your product’s perceived value, or how your typical customer perceives the product’s worth.

Here’s how you can find a value-based price point. 

Research Your Target Market

To have a value-based pricing strategy, you need to research your target customers.

Specifically, this means that you need to take into account how much your typical customer is willing to pay for your SaaS product.

But that’s easier said than done. In reality, this takes a lot of research and market analysis, and customer surveys to get an accurate understanding of how much customers are willing to pay for your product.

You can do that through various activities, such as surveys, focus groups, and interviews. You can outright ask them questions that relate to how much they’re willing to pay or how much value your product adds.

Note that this also entails that you need resources to make this happen.

You would need tools that you might need to pay for in order to create and distribute your surveys to the right people. You will also most likely need to allot some budget for incentivizing your target customers to respond.

What’s more, also note that this research will likely not give you just one price point. If anything, it may give you a pretty wide range of how much customers are willing to pay. But that can be a great starting point.

Research Your Competitors

Part of a thorough value-based pricing strategy is also to find out everything you can about your competitors.

However, you need to dig deep, not just into their pricing strategy. But their SaaS product offering as a whole.

What features and integrations do they have that you don’t? What makes them stand out from the competition? Do they have proprietary technology that you don’t have?

Your research on your competitors must help you estimate the value of the difference between your product and theirs.

This way, you can have both a competitive price point and one that your target customers are willing to pay for.

As you can see, coming up with a value-based pricing strategy takes a lot of time, effort, and resources. But it can help you find a price point that ensures that customers are willing to pay for it and that you would have the best profit margin you can receive.

SaaS Pricing Models

When you think of how to price a SaaS product, it’s impossible not to talk about pricing models.

There are several SaaS pricing models that you can choose from and each of them requires different factors when considering how to price your product.

Let’s talk about them one by one.

Flat Rate Pricing

Flat rate pricing is probably the simplest way to price a SaaS product. It is a pricing model where you offer your SaaS solution at a fixed price.

This means that all customers, regardless of how many features they use, pay the same price every month or every year.

As you may guess, this is not really a popular choice when it comes to pricing a SaaS product. That’s because it may confine you to only a limited segment of your target market.

Still, a flat rate pricing may be a good start if you’re just launching a new SaaS startup or minimum viable product (or SaaS MVP, for short).

This way, you can focus on targeting a specific segment of your market, deliver the best value to them, and expand to other markets when you’re ready.

Freemium Pricing

The freemium pricing model is a combination of two words: free and premium.

In this model, customers get access to basic features for free. But if they want to use advanced features, they would need to pay for them.

One popular example of this is Zoom. A free plan gives users access to basic features like video conferencing for up to 40 minutes per meeting for a maximum of 100 people.

However, if a user wants access to more advanced features like unlimited meetings, unlimited attendees, and other more advanced features, they would have to sign up for a paid plan.

While it is technically a pricing model, the freemium model is often used as a SaaS marketing strategy.

The “free” part attracts users to sign up and try the SaaS product for themselves. This, in turn, would allow the SaaS solution to provide value to them and (hopefully) make them want more.

And with the limits to the free plan, you can ensure that they will eventually upgrade to a paid subscription (or the “premium” part).

User-Based Pricing (Or Per-User Pricing)

The user-based pricing model is a pricing model where customers are charged based on how many users will be using the SaaS product.

This is a common pricing model for SaaS products that cater to teams and big companies.

Examples of these are project management tools, customer relationship management (CRM) solutions, and collaboration platforms.

With a user based pricing model, customers will only pay for how many users need access to the product. And if their team or company grows, they can always scale up easily.

The user-based pricing model is great for companies that want more flexibility when it comes to how much they’ll be paying every month or year. It also allows them to track how much each employee is using the SaaS product on a per-user basis.

However, one possible downside to this pricing model is that it may still charge for inactive users. Any business owner or manager knows that team members come and go. And sometimes, they don’t really have the time to delete user accounts that they no longer use.

And if you’re paying for inactive users, it could be a waste of resources.

That’s why another variation of user-based pricing is the active user pricing model. With it, customers are only charged for their active users. This way, they don’t have to worry about paying for inactive or idle team members.

Tiered Pricing

Tiered pricing is arguably the most common pricing model used by SaaS products today. In this model, customers are offered different options that come with different price points.

This way, customers can choose how much they want to pay depending on how many features they need or how many users will be using it.

A popular example of tiered pricing is Pipedrive. They have three different pricing plans that come with different features and price points.

One of the most common usages of the tiered pricing model is having different sets of features per tier. The more expensive the plan, the more features they will get access to. Although there are other attributes that may differentiate various scales of product usage.

With these different pricing tiers, customers can choose how much they want to pay depending on how many features they need or how many users will be using it.

A tiered pricing model is extremely beneficial if you are targeting multiple buyer personas or customer segments.

For example, let’s say you want to cater to businesses of various sizes, namely small businesses, medium-sized businesses, and enterprises.

You could create a tier for each of these segments in your target market. And each tier would have a set of features and/or other inclusions that best fits the needs of the customer segment it’s intended for.

Usage-Based Pricing

Usage-based pricing is a pricing model that can be beneficial to SaaS products that have certain units that represent a customer’s usage of the platform.

With it, you charge your customers based on how much they use the SaaS product instead of how many users are utilizing it.

For example, let’s say your SaaS product enables users to create AI-generated content, such as text and images. These instances of content generation would need a credit-based economy where every instance of content generation would cost a certain amount of credits.

And when your customers run out of credits to run these tools, they could simply purchase more.

This pricing structure could also go in tandem with the tiered pricing model. One example of this is Dropbox, which has different pricing tiers, but their differences are mainly on the amount of data storage customers can use instead of how many users are using it.

This kind of pricing model would be beneficial for both you and your customer because the customer only pays for how much they use, not how many users are using it.

And much like the per-user pricing model, the usage-based model is also easy to scale. As your customer’s needs grow, they can easily purchase more credits (or other functional value units) as needed.

In turn, this could lead to more sales and higher profits for you.

Custom Pricing

Custom pricing is the most flexible option in terms of how much a customer pays for your SaaS product.

Custom pricing allows you to create custom plans that are tailored to a specific customer’s needs and preferences.

This is most often the approach when you’re offering an enterprise SaaS solution.

Coming up with the best price point would include negotiations between you and the customer, where both parties come to an agreement on how much the customer should pay for your product.

The biggest benefit of custom pricing is that it allows you to create plans that are best suited to a customer’s needs. As a result, customers may be more likely to purchase or renew their subscription since they’re getting exactly what they want at a price they feel is fair.

Custom pricing can also help increase revenue as well since there is always the potential to charge a higher rate than with any other pricing model. What’s more, a highly customized SaaS solution usually entails long-term contracts lasting for a few years or so. 

Hybrid Pricing Model

As you may have seen, each of the pricing models we previously discussed has its own set of benefits and drawbacks.

That’s why the hybrid pricing model is becoming increasingly popular among SaaS companies. With it, you can combine different elements from various models to create a plan that works best for your product and customer base.

For example, you could offer a combination of per-user and tiered pricing models.

In this case, each pricing tier would not only have its set of included features. It would also have a set maximum number of users per account. One tier could have features A to C and up to 5 users. The next tier could have features A to E and up to 10 users. And so on.

Another way to do this could be to scale the pricing for each tier depending on the number of users.

One good example of this is how HubSpot charges for its paid products. By default, its Marketing Hub’s Professional plan includes seats for up to 5 users. But if you want to add more, you would need to pay $90 for each additional user.

Another common hybrid pricing model is having freemium, tiered, and customized pricing models all in one go.

You would offer a free plan, usually for only one user. Then there would be two or three pre-made paid plans intended for small to medium-sized businesses (SMBs). And then the “Enterprise Plan” allows the customer to enter into negotiations with your sales team for custom pricing.

Having a hybrid pricing structure can help you factor in everything that may affect your SaaS product pricing, and therefore come up with the best price points possible.

However, it can also easily get confusing for your potential customers.

If your pricing table is too complicated, people may be put off by how long it takes to figure out how much they need to pay.

So if you’re going to use a hybrid pricing model, be careful to make it as simple and easy-to-understand as possible.

How To Choose The Right SaaS Pricing Model

Now, with all these pricing models to choose from, how do you know which one is right for your SaaS product?

The answer to that question depends on a few different factors, such as the type of SaaS product you’re offering and your target customers. 

Here are some things you can do to help you choose the right pricing model:

Understand Your Product

First and foremost, you need to understand how your product works, the features it offers, and the different ways that your customers use it. This can guide you in deciding which pricing models would bring out the best experience for your customers and maximize your revenue.

For example, if your SaaS product can be used to manage teams of various sizes, you may choose a per-user or per active user pricing model.

Or if your SaaS product’s usage can vary depending on data storage allocation, you may choose to charge your customers based on how much storage they need.

Understand Your Target Customers

Understanding your target market is also key to determining the right pricing model for your SaaS product.

For example, if your ideal customer profile (ICP) includes small businesses, they may opt for pre-made pricing tiers rather than reaching out to your sales team and negotiating a custom plan.

Conversely, if your ICP includes large enterprises, they may have specific and specialized needs that require a customized plan.

And if you’re targeting multiple segments of the market that include both those ICPs, then you could go for a hybrid pricing structure.

Test & Iterate

No matter how well you think you know your product and target market, there is still no guarantee that your pricing model will be the right fit. That’s why it’s important to test different models, track how they perform, and iterate upon them.

If something isn’t working out or if you’re not getting enough signups, don’t hesitate to try different price points. You may also want to think about introducing new plans and features as time goes on.

Final Thoughts: How To Price B2B SaaS Products

When it comes to how to price a B2B SaaS product, there is no one-size-fits-all approach. To find a price point that really reflects the perceived value of your SaaS solution, you need to dig deep and do your research.

As you come to understand your own SaaS product and your target market, you can also find clues as to which pricing model would be best suited for you.

And once you set your price points, don’t forget to test and iterate as needed. Through deeper market research, you may eventually find a better pricing strategy both for your customers and for you.

What’s more, economies and trends undergo changes over time. So be sure to track which events or updates could affect how customers perceive your pricing model — and how it affects sales.

With enough effort and flexibility, you can find the right pricing model to maximize your revenue and build a profitable B2B SaaS company.

Looking for more guides to take your B2B SaaS business to the next level? Check out our blog site here.