SaaS Pricing in 2023: Your Comprehensive Guide to Pricing Your Product Right
SaaS Pricing in 2023: Your Comprehensive Guide to Pricing Your Product Right
Denis Shatalin
Founder of SaaS Camp
Believe it or not but almost 100% of SaaS businesses saw positive results by making core pricing policy changes. So, if you can get your pricing and pricing model right from the get-go (or as close to the ideal as possible), it can give you plenty of momentum with hopefully high customer acquisition and retention!
My name is Denis Shatalin, and as the founder of the SaaS camp accelerator, I have a clear understanding of the wide-ranging challenges and obstacles faced by SaaS founders. In this guide, I’ll explain what SaaS pricing is, why it’s important, and the types of SaaS pricing strategies you’ll want to consider. I’ll also provide my top tips for pricing a SaaS product. Let’s go!
My name is Denis Shatalin, and as the founder of the SaaS camp accelerator, I have a clear understanding of the wide-ranging challenges and obstacles faced by SaaS founders. In this guide, I’ll explain what SaaS pricing is, why it’s important, and the types of SaaS pricing strategies you’ll want to consider. I’ll also provide my top tips for pricing a SaaS product. Let’s go!
What is SaaS Pricing?
SaaS pricing is a pricing model where customers sign up for a paid subscription for online/cloud-based software (i.e., software as a service or SaaS).
The ideal pricing model (i.e., subscription model and specific pricing) will vary on a case-by-case basis. Your revenue goals and target market(s) will ultimately play significant roles in shaping the right pricing for your SaaS.
As a SaaS founder, it’s important to be aware of a whole host of considerations, such as ongoing SaaS trends and the best practices for customer success as you develop your specific SaaS pricing model. There are, of course, many other factors to take into account, many of which we’ll explore throughout this article.
The ideal pricing model (i.e., subscription model and specific pricing) will vary on a case-by-case basis. Your revenue goals and target market(s) will ultimately play significant roles in shaping the right pricing for your SaaS.
As a SaaS founder, it’s important to be aware of a whole host of considerations, such as ongoing SaaS trends and the best practices for customer success as you develop your specific SaaS pricing model. There are, of course, many other factors to take into account, many of which we’ll explore throughout this article.
Why is SaaS pricing important?
When pricing your SaaS product, you don’t want to simply go with a value that ‘feels right’. Instead, be more scientific about it. Here are reasons why this is important.
Defines the value of a product
First and foremost, the pricing communicates to your customers how much your product is worth.
Ideally, you’ll want to focus on a market where you can already determine how much customers are willing to pay for a product like yours. Beyond that, you must pay attention to whether or not there is an inelastic demand (i.e., where changing the price will not significantly impact demand).
Impacts customer acquisition and retention
Getting the pricing model correct is also essential to increasing customer acquisition and retention. After all, if your pricing model is too expensive, it will likely deter potential customers.
Impacts business scalability
SaaS pricing can also affect the ease at which you’ll be able to scale your business. On the one hand, you don’t want a pricing model that will cause difficulties with scaling either due to its complexity or rigidity.
Failure to get these aspects right may limit your ability to grow smoothly as a business and potentially restrain any brand-building efforts.
Defines the value of a product
First and foremost, the pricing communicates to your customers how much your product is worth.
Ideally, you’ll want to focus on a market where you can already determine how much customers are willing to pay for a product like yours. Beyond that, you must pay attention to whether or not there is an inelastic demand (i.e., where changing the price will not significantly impact demand).
Impacts customer acquisition and retention
Getting the pricing model correct is also essential to increasing customer acquisition and retention. After all, if your pricing model is too expensive, it will likely deter potential customers.
Impacts business scalability
SaaS pricing can also affect the ease at which you’ll be able to scale your business. On the one hand, you don’t want a pricing model that will cause difficulties with scaling either due to its complexity or rigidity.
Failure to get these aspects right may limit your ability to grow smoothly as a business and potentially restrain any brand-building efforts.
Types of SaaS Pricing Strategies
While the actual price tag matters, employing the right strategy for SaaS pricing is also essential to building a successful campaign.
1. Credit based pricing
This model allows customers to pay for X number of credits, with each credit corresponding to a certain amount of usage. This will enable users a certain amount of usage as needed. Obviously, if customers require more usage, they can simply buy more credits.
Content at Scale is an AI writing tool that uses credit-based pricing. In this case, plans begin at $150 per month. However, customers can avail of more AI-generated content (that bypasses detection) by paying more per month.
Content at Scale is an AI writing tool that uses credit-based pricing. In this case, plans begin at $150 per month. However, customers can avail of more AI-generated content (that bypasses detection) by paying more per month.
2. Cost-plus pricing
When considering pricing strategy, the first option that might come to mind is cost-plus pricing. Put simply, this involves considering all of your expenses and adding several percentage points to determine how to charge users. This approach can ensure you’ll make a profit once you get customers (if you’re particularly concerned about getting off the ground, consider signing up for my SaaS camp accelerator).
US file hosting service Dropbox uses tiered pricing with a fixed cost per user. They’ve also used cost-plus pricing to determine how to charge customers.
US file hosting service Dropbox uses tiered pricing with a fixed cost per user. They’ve also used cost-plus pricing to determine how to charge customers.
3. Competitor-Based Pricing
Where elastic demand applies, competitive-based pricing is key to ensuring your product can attract plenty of customers among a sea of rivals. Competitive-based price means carefully evaluating the prices your competitors have set.
The SaaS industry is full of competitive price models, as there are plenty of tools that offer similar features to others on the market. Take WordPress and WebFlow, for instance, two tools that are constantly at odds with each other to provide the best price.
The SaaS industry is full of competitive price models, as there are plenty of tools that offer similar features to others on the market. Take WordPress and WebFlow, for instance, two tools that are constantly at odds with each other to provide the best price.
4. Value-based pricing
Value-based pricing means largely focusing your SaaS pricing on how much value the average consumer (from the target market) sees in your product/service.
Salesforce is a great example of a SaaS offering value-based pricing. The CRM software provided by Salesforce can let you manage sales, marketing, and customer service processes.
Salesforce is a great example of a SaaS offering value-based pricing. The CRM software provided by Salesforce can let you manage sales, marketing, and customer service processes.
- Notably, while 39% of SaaS companies employ a value-based approach to determine pricing, 38% of SaaS companies employ a usage-based pricing strategy. So, as you can see, there isn’t necessarily one right way to go about things.
5. Hybrid-Pricing
Hybrid pricing combines various pricing models. It can merge usage-based and fixed-pricing models. This can allow you to diversify your revenue streams while improving customer satisfaction.
Naturally, more satisfied customers will usually mean higher customer retention and brand growth (as happy customers are more likely to leave testimonials on customer review sites).
As for customer retention specifically, it may surprise you to know that increasing this figure by just 5% can result in a 25-95% increase in business revenue!
Canadian communications and media company Rogers utilizes a hybrid model (shown above) to factor in their wireless internet-addons for mobile devices.
Naturally, more satisfied customers will usually mean higher customer retention and brand growth (as happy customers are more likely to leave testimonials on customer review sites).
As for customer retention specifically, it may surprise you to know that increasing this figure by just 5% can result in a 25-95% increase in business revenue!
Canadian communications and media company Rogers utilizes a hybrid model (shown above) to factor in their wireless internet-addons for mobile devices.
6. Tier-based pricing
Last but not least, tier-based pricing allows customers to choose from numerous fixed-price packages, each of which offers a different list of features.
The more expensive the tier, the more comprehensive the list of features will be. Often, higher tiers will also come with features that are more sophisticated too. Using tiered pricing to sell your SaaS is a great way to capture a range of audiences, from entry-level customers to high-end professionals seeking an enterprise-level service.
Zapier is a good example of a SaaS employing a tiered pricing model. The remote software company offers a range of pricing tiers ranging from a free edition to the $799/month company tier.
The more expensive the tier, the more comprehensive the list of features will be. Often, higher tiers will also come with features that are more sophisticated too. Using tiered pricing to sell your SaaS is a great way to capture a range of audiences, from entry-level customers to high-end professionals seeking an enterprise-level service.
Zapier is a good example of a SaaS employing a tiered pricing model. The remote software company offers a range of pricing tiers ranging from a free edition to the $799/month company tier.
Best Tips to Price a SaaS Product
When it comes to pricing your SaaS product, it is essential that you take the right steps to maximize your product’s chances of success.
Also, since most SaaS companies spend a mere six hours figuring out their pricing strategy, allocating more time to getting this right may give you an edge when it comes to growth.
Along with pricing your SaaS, there are many other aspects you’ll want to get right from an early stage to give your startup the best chance of success. Through the SaaS camp, I can help you add at least 10-30K MRR to your B2B SaaS.
I can help you develop a fair, but profitable price for your product while also helping you build reliable acquisition channels, teaching you the ins and outs of SaaS sales/marketing and more.
Also, since most SaaS companies spend a mere six hours figuring out their pricing strategy, allocating more time to getting this right may give you an edge when it comes to growth.
Along with pricing your SaaS, there are many other aspects you’ll want to get right from an early stage to give your startup the best chance of success. Through the SaaS camp, I can help you add at least 10-30K MRR to your B2B SaaS.
I can help you develop a fair, but profitable price for your product while also helping you build reliable acquisition channels, teaching you the ins and outs of SaaS sales/marketing and more.
1. Understand your target market
Knowing your target market is critical to choosing the right pricing. Factors you’ll want to take into account include:
Understanding your target market and taking all relevant factors into account will leave you with a clearer sense of what sort of pricing you should offer.
- Market size - First and foremost, you’ll want to know how large your market is exactly. This will play a key role in helping you determine how profitable this market will likely be.
- How competitive your market is - Another key consideration is the level of competition you’ll be up against. After all, a small to medium market with relatively low competition will probably offer more chance to profit than a large market overflowing with well-established rivals.
- Purchasing power of your leads and potential customers - Last but certainly not least, you’ll want to gauge how much your leads and potential customers can spend. This can be time-influenced. After all, if you were to launch during a recession, your target market will likely have significantly lower purchasing power than in boom times.
Understanding your target market and taking all relevant factors into account will leave you with a clearer sense of what sort of pricing you should offer.
2. Determine your value proposition
A value proposition can help distinguish your SaaS from rivals. Value proposition is a short statement designed to inform potential customers as to why they should pick your SaaS over others.
It’s best to write this out and then communicate the meaning (or at least spirit) of the statement marketing and sales messaging. However, you can also publish your value proposition as a single written statement on your website too.
It’s best to write this out and then communicate the meaning (or at least spirit) of the statement marketing and sales messaging. However, you can also publish your value proposition as a single written statement on your website too.
3. Choose the right pricing model
It’s important to get your pricing model right too. Options include the flat rate model, usage-based pricing, and a pricing model based on user numbers. Of course, the right pricing model for you will be whichever option gives you the strongest opportunity of attracting future customers and growing your business.
4. Offer different pricing tiers
As touched on, tier-based pricing can help attract a wide range of new customers with distinct needs and expectations.
Of course, you’ll want to ensure you get the pricing right for each model. If you charge too little, you risk limiting your profit margins but charging too much may alienate potential customers, or/and push them toward your competitors.
Of course, you’ll want to ensure you get the pricing right for each model. If you charge too little, you risk limiting your profit margins but charging too much may alienate potential customers, or/and push them toward your competitors.
7. Conduct pricing experiments
The best way to know whether you’ve set your prices right is with some testing. You can do this with simple A/B testing and identify which prices customers respond well to while ensuring you still get a good chunk of profit.
You can do this by setting up different landing pages for your SaaS, though it’s important to note that your landing pages need consistency. You aren’t testing design or language changes here, and you don’t want to alter the conversion rates of your pages anyway, as this can skew your data.
You can do this by setting up different landing pages for your SaaS, though it’s important to note that your landing pages need consistency. You aren’t testing design or language changes here, and you don’t want to alter the conversion rates of your pages anyway, as this can skew your data.
8. Be transparent
Transparency is important for maintaining (and increasing) both customer satisfaction and customer retention over time.
Being open and unambiguous about your pricing strategy can build customer trust, making it more likely that they will re-subscribe time and time again. Moreover, by establishing trust with users of your SaaS, you’ll increase the chances that your brand’s image will grow into a more authoritative and trusted force in your industry.
I also recommend making customers aware of any upcoming changes to your pricing strategy. You may not feel comfortable telling your customers that a certain pricing tier will be more expensive when re-subscribing, but ultimately it’s better than them finding out on the day.
Being open and unambiguous about your pricing strategy can build customer trust, making it more likely that they will re-subscribe time and time again. Moreover, by establishing trust with users of your SaaS, you’ll increase the chances that your brand’s image will grow into a more authoritative and trusted force in your industry.
I also recommend making customers aware of any upcoming changes to your pricing strategy. You may not feel comfortable telling your customers that a certain pricing tier will be more expensive when re-subscribing, but ultimately it’s better than them finding out on the day.
Prepare your SaaS For the Future
To date, the SaaS accelerator program has led to an average 28% increase in paid plan conversions and a cumulative $1 million in revenue generated by all startups who have gone through acceleration within the SaaS camp!
Sign up for the SaaS camp today and prepare your SaaS to shoot for the stars! I will teach you to find, convert, and predictably sell to B2B buyers who will pay 10-20x more for your SaaS and become repeat customers!
Sign up for the SaaS camp today and prepare your SaaS to shoot for the stars! I will teach you to find, convert, and predictably sell to B2B buyers who will pay 10-20x more for your SaaS and become repeat customers!
+240K ARR Playbook
How you can add $240K ARR to your B2B SaaS in less than 6 months using a Hybrid Customer Acquisition System (without increasing your marketing budget)
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