Your Complete Guide To SaaS Pricing
Yet it’s also one of the most difficult decisions to get right.
Your SaaS pricing will affect your revenue and conversions. And those two are our main considerations when it comes to pricing, aren’t they?
Is your pricing competitive enough that your typical potential customer would be willing to pay for it? But is it high enough that you can make steady recurring revenue out of it?
You have to find the right balance, which is often easier said than done.
This guide covers everything you need to know about SaaS pricing models, strategies, optimization, enterprise pricing, mistakes, and when to outsource to a pricing consultant.
So let’s buckle up and get started.
SaaS Pricing Models
The first thing you need to think about when it comes to your SaaS pricing is what kind of model you’re going to use. There are several SaaS pricing models that you can choose from:
Flat Rate Pricing
With flat rate pricing, you charge a single price for your SaaS product regardless of how much the customer uses it.
This is the simplest way to price your product, and it’s often used by SaaS startups or providers that have low-cost products with few features.
The main advantage of flat rate pricing is that it’s easy to understand. Customers know exactly how much they’re going to pay each month, so there are no surprises.
The downside is that it doesn’t take into account how much value the customer gets from your product.
A customer who uses your product a lot will get more value than a customer who uses it only occasionally, but they’ll both pay the same price.
With freemium pricing, you offer a basic version of your SaaS product for free, and customers can pay to upgrade to a premium version with more features.
The freemium model is often used by SaaS providers who use a product-led growth model or those that want to attract a lot of customers quickly.
The idea is that you can hook customers with the free version and then upsell them to the paid version later on.
The main advantage of this SaaS pricing model is that it’s a great way to get users in the door. If your product is good, people will be willing to pay for the premium version once they’ve gotten used to it.
The downside is that you might end up with a lot of free users who never upgrade. And if your free version is too good, people might not see the need to upgrade at all.
That’s why you need to strike a balance between providing enough value with the free plan while simultaneously having an enticing offer on the other side of the paywall.
One really great example of this is Zoom.
Its free version is valuable enough to draw a multitude of users. But if someone needs more than 40 minutes of video conferencing, they’re going to have to sign up for a paid plan.
Pay-as-you-go pricing is a pricing model where customers are charged based on how much they use your product.
This kind of pricing is common with SaaS products that have some sort of metered usage, like storage space.
The main advantage of pay-as-you-go pricing is that it’s easily scalable. As your customer’s usage grows, so does your revenue.
The downside is that it can be difficult to predict how much revenue you’ll make each month, which can make forecasting and budgeting difficult.
With feature pricing, you charge customers for each feature they need in their subscription plan.
This model is often used by SaaS providers who have products with a lot of features or those that offer different tiers of service.
The advantage of this SaaS pricing model is that it’s attractive for customers who want to customize their plans. They would only pay for the features they need, so they’re not overpaying for features they’re not going to use.
The downside is that it can be complex to set up and manage. What’s more, it can be hard to keep track of which features each customer is using. And that can put a lot of stress on your invoicing processes.
With per-user pricing, you charge customers based on the number of users they have.
This kind of pricing is common with products that are used by teams or groups, like project management software.
The advantage of this model is that it’s easy to understand and scale. As the customer’s team grows, so does their bill.
The downside is that it doesn’t take into account how much each user actually uses the product. So a customer with one heavy user and nine-light users would pay the same as a customer with ten light users.
With this SaaS pricing model, you charge your customers based on certain units of usage.
This could be in terms of credits, the amount of storage they use, or some other metric.
Usage-based pricing is common with products that have metered usage, like cloud storage space.
The advantage of this model is that it’s directly tied to the value customers get from your product. If they need more storage or functionality, they’ll have to upgrade their subscription.
This is one of the most used pricing models in the SaaS industry.
With the tiered pricing model, you offer different levels of service at different price points.
This model is common with products that have a lot of features or those that offer different levels of support.
The beauty of this pricing model is that you can target your different buyer personas with it.
For example, if you have a project management tool, you could offer a lower-priced tier for small teams who don’t need all the bells and whistles. Then you could offer a more expensive tier for larger enterprises that need more support and features.
The downside of this model is that it can be confusing for customers. They might not know which tier is right for them or they might not need all the features in the higher-priced tiers.
Hybrid Pricing Model
Sometimes, having only one pricing model is not enough for what your SaaS product can offer. In this case, you can use a hybrid model that combines two or more of the models we’ve discussed above.
The most common hybrid pricing model is a combination of per-user pricing and feature pricing. With this model, you would charge customers based on the number of users they have AND which features they use.
The advantage of this model is that it’s flexible and can be tailored to each customer’s needs. It can also maximize your revenue potential by having more than one criterion for pricing.
The downside is that it can be complex to manage and might not be as straightforward for customers to understand.
If it’s too complicated, it might end up intimidating your potential customer and they’ll just go with a competitor whose pricing is simpler to understand.
SaaS Pricing Strategies
While it can be exciting to think of a suitable pricing structure for your SaaS product, there’s still the matter of what your price range will be.
What’s the right amount to charge for your product?
This is where having a SaaS pricing strategy comes in. A good pricing strategy will help you determine the best price point for your product while still being profitable.
Below are different SaaS pricing strategies you can use for your product:
Cost Plus Pricing
This is one of the most common pricing strategies and it’s also one of the simplest.
With cost-plus pricing, you simply add a fixed markup to your costs in order to determine your price. For example, if it costs you $100 to produce your product, you might add a 50% markup and charge $150 for it.
Generally, this pricing strategy isn’t recommended for SaaS products.
But for the sake of giving you all the options for pricing your SaaS product, let’s go through it a bit.
Cost plus pricing makes sense for tangible products since you can easily add a markup to the product cost and sell it per unit.
But for SaaS products, it’s not that simple.
The SaaS business model generates recurring revenue and you don’t sell SaaS products per unit. Plus, what makes this business model appealing is that you can generate a large profit margin on a recurring basis.
Sure, you need to consider your cost of goods sold (COGS) when pricing your SaaS product. After all, you need to cover your expenses for hosting, licenses, office utilities, and employee salaries.
But if that’s the only basis you have, you’re just limiting your potential for growth.
The competitive pricing strategy is exactly what it sounds like. You look at your competitors and price your product accordingly.
For example, if your competitor is charging $100 per month for their project management software, you might charge $90 per month for yours.
This strategy operates on the mindset that says “If customers are willing to pay a certain price for a competitor’s product, they’ll be willing to pay the same (or slightly lower) price for mine.”
The advantage of this strategy is that you can quickly come up with a price point for your product. And if your competitors have done their research, then you can be confident that the prices they’re charging are profitable.
The problem with this pricing strategy is that it’s not really your strategy. It’s theirs. And you’re just following their lead.
Additionally, if your competitor is pricing their product too low or too high, then you risk not being profitable.
This is the most recommended pricing strategy for SaaS products.
With value-based pricing, you price your product based on the perceived value it provides to customers.
In other words, you don’t focus on the cost of running your SaaS product or what your competitors are charging. Instead, you focus on how much your potential customers are willing to pay for it.
That involves A LOT of research. You can do this through surveys, interviews, focus groups, and more.
The advantage of this SaaS pricing strategy is that it allows you to price your product based on its true worth. And if you’ve done your research, then you can be confident that you’re charging a fair price.
The downside is that it’s a lot of work to come up with the right price point. You need to put in the time and effort to really understand what customers are willing to pay for your product.
This strategy (along with the succeeding ones) is more like a psychological tactic that you can use to make your pricing more attractive to potential customers.
With charm pricing, you price your product at a number ending with 9 instead of rounding it off to the nearest dollar.
For example, instead of charging $100 per month, you charge $99 per month.
The thinking behind this tactic is that customers perceive that they’re getting a bargain because the price doesn’t end in a “9.”
And even though it’s only a one-dollar difference, that’s enough to make them think they’re getting a good deal.
Odd-even pricing is when you price your product at an odd number (e.g. $27) instead of a round number (e.g. $30).
That sounds like charm pricing, right? That’s because they share the same principle.
You see, charm pricing has been so overused that most people have already learned to see through it. So businesses needed to come up with a new pricing tactic that would still give them the same advantage.
And that’s where odd-even pricing comes in.
The thinking behind this tactic is that people perceive products that are priced at an odd number as being cheaper than those priced at a round number.
So if you’re selling a SaaS product for $27 per month, customers might think it’s cheaper than one that’s priced at $30 per month (even though it’s only a 3-dollar difference)
Generally, people tend to compare the left digits when evaluating prices. So $27 is perceived to be cheaper than $30 because 2 is less than 3.
From the name itself, this is when you price your product as a bundle instead of selling it as a single item.
For example, let’s say you have a SaaS product that has 3 different features: A, B, and C. You could price them individually like this:
- Feature A: $10 per month
- Feature B: $15 per month
- Feature C: $20 per month
Or you could price them as a bundle like this:
All 3 features: $30 per month
The advantage of this pricing strategy is that it gives your customers a better deal because they feel like they’re getting more value for their money. You, in turn, get a higher revenue per customer.
How To Optimize Your SaaS Pricing Page
Your SaaS pricing page is one of the most important pages on your website. It’s where potential customers go to find out how much your product costs and decide whether it’s worth their money.
That’s why it’s so important to optimize your pricing page to increase conversions.
Here are a few things you can do:
Use A Simple, Clean Design
Your pricing page should be designed in a way that’s easy for visitors to understand. That means using a clean and simple layout with clear pricing tables and easy-to-read fonts.
What’s more, you can also use white space and visuals strategically.
For example, you can use images to highlight key features or use colored buttons to make it easy for visitors to see your CTA.
Localize Your Currencies
Have you ever visited a pricing page where prices are in other currencies? It can be confusing, right? You might have had to convert it yourself.
You don’t want your potential customers to feel the same way.
If you have customers in different countries, make sure to use the correct currency for each one. Or at least provide another version of the pricing table that shows the prices in their currency.
That way, they can immediately see how much your product costs in their own currency without having to do any manual conversion.
The Decoy Effect
The decoy effect is a pricing page strategy that’s based on the idea that people are more likely to choose one option over another when there’s a third, less appealing option.
For example, imagine you have a tiered pricing model with two plans:
- Plan X: $10 per month
- Plan Y: $20 per month
Let’s say Plan X includes 2 key features of your SaaS product, while Plan Y has 4.
But then you add a third pricing plan with 5 key features:
- Plan Z: $30 per month
Now, Plan Y looks like a better deal than before because it’s only $10 more expensive than Plan X but comes with 2 additional features
On the other hand, Plan Z seems less appealing because it’s twice the price of Plan Y but only comes with 1 additional feature.
As a result, visitors will see Plan Y in a more appealing way and are more likely to buy.
Price anchoring is a psychological pricing technique that shows the most expensive options first so that the succeeding and more affordable options seem better.
For example, let’s say you have three plans that cost $30, $50, and $80 per month. With price anchoring, you would show the $80 plan first then the $50 and $30 plans, respectively.
The Center Stage Effect
The center stage effect is based on the principle that people are more likely to whatever option is in the middle.
Taking advantage of this effect on your pricing page would mean highlighting your middle-range plan.
To do this, you can use a bigger and bolder font size or make the button for that plan more eye-catching. You can also add a thicker border around it or use a different color.
You can even take it up a notch and add a tag that says “Most Popular” or “Best Value For Money.”
The goal is to make your middle-range plan stand out from the rest so that visitors will be more likely to click on it.
Slash The Original Price
If you’re offering any type of discount on your pricing, be sure to overcommunicate it on your pricing page.
An effective way to do this is by “slashing” the original price.
For example, if your monthly subscription was originally $30 per month but you’re offering a 50% discount, you would show the original price as $30 and then slash it to reflect the new price of $15.
This makes it very clear to visitors that they’re getting a deal and encourages them to take advantage of it before it expires.
Enterprise SaaS Pricing Strategies
If you’re selling to enterprise customers, your pricing will be different from the standard SaaS pricing models and strategies we’ve discussed so far.
For one, enterprise customers are often looking for customized solutions that are tailored to their specific needs. What’s more, they also need deeper and larger-scale reporting tools that can give them valuable insights across different departments and locations.
As a result, they’re usually willing to pay more for an enterprise-grade SaaS solution.
To help you get started, here are some tips for enterprise SaaS pricing:
Don’t Display Your Enterprise Pricing On Your Website
One common mistake that enterprise SaaS companies make is displaying their enterprise pricing on their website.
Remember that enterprise SaaS solutions are usually customized and tailored to the specific needs of the customer.
Because of this, it’s generally not advisable to post your enterprise pricing on your website because it might not be relevant to the majority of your potential enterprise customers.
Instead, you can add a “Contact Sales” or “Request A Quote” button that potential enterprise customers can click on if they’re interested in your solution.
Lead Interested Visitors To A Relevant Landing Page
When enterprise customers click on the “Contact Sales” button on your website, they should be taken to a landing page that’s specifically designed for enterprise pricing inquiries.
This landing page should include a form where potential enterprise customers can input their contact information and some details about their specific needs.
Once you have this information, you can reach out to the customer and give them a tailored quote that’s based on their specific requirements.
Don’t Be Afraid To Negotiate
Enterprise SaaS deals are usually negotiable so don’t be afraid to haggle and negotiate with potential enterprise customers.
Of course, it’s going to be your sales team that would do most of the talking here. But as the founder or CEO of the company, you should be involved in the negotiation process as well.
You shouldn’t just accept any offer that comes your way. You still need to make sure that the deal is beneficial for your business.
What’s important, though, is to present your offers and counteroffers in a polite and respectful way.
Remember, the goal is to close the deal and not to alienate potential enterprise customers.
SaaS Pricing Mistakes To Avoid
If you’re launching a SaaS startup or doing a new thing with your business, it’s natural to make some mistakes along the way. And you can learn from them.
But that doesn’t mean you need to commit all of those mistakes in order to learn your lesson. You can also learn from the mistakes of others so you can avoid them in your own business.
Here are some SaaS pricing mistakes that you need to avoid:
Hiding Your Pricing Details
Some SaaS companies make the mistake of hiding their pricing from their potential customers.
They think that by doing this, they can get more people to sign up for their free trial because they’re curious about how much the solution costs.
But what these companies don’t realize is that hiding your pricing can actually hurt your business in the long run. It makes you look suspicious and it gives the impression that you’re not confident about your prices.
The best thing to do is to be upfront about your pricing from the start—with the exception of enterprise SaaS and other customized pricing, of course.
This way, potential customers know what they’re getting into and they can decide if your solution is worth the price.
Not Segmenting Your Potential Customers
Remember that not all customers are the same. They have different needs and they’re willing to pay different prices for your solution.
Because of this, it’s important that you segment your potential customers so you can offer them the right price point.
This will help you create subscription plans specifically designed for their needs and budget.
Having Too Many Options
Another mistake that SaaS companies make is offering too many pricing options to their potential customers.
They think that by having a lot of pricing tiers, they can cover more ground and increase their chances of closing a deal.
But what they don’t realize is that having too many options can actually be confusing for potential customers.
And when they see an overly intricate pricing table, they might just decide to leave your website and look for a simpler solution.
The key is to keep your pricing options simple and straightforward. You don’t need to have more than five pricing tiers.
Two or three plans that match well with their target buyer personas should be enough.
Not Reviewing Your Prices Regularly
Another no-no in SaaS pricing is not adjusting your prices regularly.
Remember that your business is always changing and evolving. And as it grows, your pricing should change as well.
Your competitors might also be changing their prices so you need to keep an eye on them, too. This way, you can adjust your own prices accordingly.
Some businesses set their prices when they first launched their product and they never bothered to check if it’s still relevant or competitive.
But the thing is, your pricing should be reviewed and updated on a regular basis.
This way, you can make sure that you’re still in line with the market trends and that your prices are still competitive.
When To Get A SaaS Pricing Consultant
Looking at what we’ve discussed so far, there are really a lot of factors to consider when coming up with your SaaS pricing. And if you’re not careful, you’re bound to make some fatal mistakes along the way.
That’s why it might be a good idea to get help from a SaaS pricing consultant. These professionals can help you come up with a pricing strategy that’s specifically designed for your business.
They can also help you segment your customer base and create subscription plans that meet their needs and budget
Most importantly, they can help you avoid common SaaS pricing mistakes so you can maximize your revenue and grow your business in the long run.
But how do you know that you already need a SaaS pricing consultant?
Here are some pointers:
Launching A New SaaS Product
If you’re about to launch a new SaaS product, it’s always best to get help from a pricing consultant.
They can help you determine the right price point for your product and they can also create a subscription plan that’s specifically designed for your target market.
Expanding To A New Market
If you’re planning to expand your SaaS company to a new market, it’s also a good idea to get help from a pricing consultant.
They can help you understand the new market and they can also create a SaaS pricing strategy that will work well in that particular market.
Not Meeting Your Revenue Goals
If you’re not happy with your current revenue, it might be time to get help from a pricing consultant. They can help you optimize your pricing so you can increase your revenue and grow your business.
Final Thoughts About SaaS Pricing
SaaS pricing can be a tricky thing. There are a lot of pricing models, pricing strategies, and a lot of things to consider.
And when you get to the enterprise market, it’s an entirely new playing field.
One thing is constant, though: you need to price your SaaS product according to the value it provides to your customers.
And when in doubt, don’t be afraid to seek help from a pricing consultant.
These professionals are likely experienced veterans in this arena. And they can provide a lot of useful insights into your business.
Want more guides to help you grow your SaaS company? Visit our blog here.