How do I Set the Right Price for my SaaS Product?
Ah, the age-old question, how do I price my SaaS product? You’ve poured your heart (and likely a good few late nights) into building something brilliant, but deciding on your SaaS pricing can feel like trying to hit a bullseye with a blindfold on. Hit the right number, and you’re golden. Miss it, and it’s darts to the wallet.
Today, we’re diving into the art (and a bit of science) of SaaS product pricing—how to set the right price for your SaaS product without needing a degree in finance. It’s easier than you think, and a lot less painful than explaining to your investors why you undersold (or overshot) your software.
TL;DR
Focus on value-based pricing by determining what your SaaS product is worth to customers, not just covering costs.
Study competitors' pricing for benchmarks but avoid copying them—tailor your pricing to your unique value proposition.
Experiment with SaaS pricing models (tiered, usage-based, freemium) and use price anchoring to nudge customers toward higher-tier plans.
Continuously test and adjust your pricing while clearly communicating the value your product delivers to customers.
Source: Pragmatic Institute
Step 1: Know Your Value, Not Just Your Costs
First up, let’s debunk a common myth: pricing isn’t just about cost. Sure, you’ve invested money in development, but if you set your price based purely on costs, you’ll either end up in the bargain bin or scare off potential customers.
The secret sauce? Value-based pricing. This approach revolves around asking yourself, “What is my SaaS product worth to my customers?” If your software saves them hours, boosts their efficiency, or makes their workday feel like a breeze, that’s value—and value is what customers pay for.
Key Tip:
Ask your users directly! Surveys, interviews, and casual customer conversations can give you powerful insights into how much they’d pay. Don’t be afraid to hear their honest feedback. It could be the key to unlocking the perfect SaaS pricing model.
Step 2: Study the Competition (But Don’t Copy Them)
Next on the list: your competitors. Yes, it’s always a good idea to peek at how they’re pricing their software, but remember they aren’t you. Looking at SaaS product pricing in your industry gives you a baseline, but blindly copying others is a recipe for mediocrity.
Instead, use competitor pricing as a benchmark. How do you stack up in terms of features, benefits, and overall value? Are you offering a streamlined solution at a lower price point, or are you delivering premium features worth paying extra for? Your SaaS pricing should reflect the unique value you bring to the table.
Step 3: Experiment with SaaS Pricing Models
Now we’re getting into the fun part - SaaS pricing models. Choosing the right model is just as important as picking the right price. There’s no one-size-fits-all, so don’t be afraid to play around and experiment.
Let’s look at the usual suspects:
Flat-rate pricing: One price for everything. Simple and straightforward, but it may not offer enough flexibility for a varied customer base.
Tiered pricing: Offer multiple pricing levels, like small, medium, and large. This tiered pricing strategy allows customers to choose the package that best fits their needs (and budget).
Usage-based pricing: Also known as pay-as-you-go or metered pricing, this model charges customers based on how much they use. It’s perfect if your product usage scales with value.
Freemium: Give away a basic version for free, then charge for premium features. It’s a great way to get people hooked, but make sure your free users eventually see the need to upgrade.
Each of these models has its pros and cons, and the best way to figure out which one works is to test them. No one said software pricing has to be rigid—be flexible and adapt as you go!
Step 4: The Magic of Price Anchoring
Let’s talk psychology for a minute. Price anchoring is a simple yet highly effective trick to guide customers toward the pricing tier you want them to choose. How? By positioning your “best value” option next to a more expensive one that might feel a bit over the top.
Here’s how it works: when customers see a super-premium option, the mid-tier starts to look like a bargain. In reality, you’ve nudged them towards your preferred pricing plan. It’s the same principle behind why you go for the medium popcorn at the cinema—it just seems like a better deal when compared to the massive bucket.
Step 5: Test, Tweak, and Test Again
Here’s the thing about SaaS product pricing—you’ll never truly know if it’s right until you test it. A/B test your pricing page. Experiment with different models and price points, and don’t be afraid to make changes based on feedback and performance.
No SaaS pricing model is perfect right off the bat. You’re likely going to adjust it as your product evolves and your customer base grows. Keep an eye on how your pricing performs and be prepared to make tweaks over time.
Step 6: It’s Not Just About Numbers—Sell the Value
Last but not least, don’t forget to communicate the value of your SaaS product, not just the price. When your customers hit your pricing page, they should instantly understand what they’re getting and why it’s worth it.
Highlight the pain points your product solves, the time it saves, and the results it delivers. Show them the value, and suddenly, the numbers start to make sense. Remember, people don’t buy on price alone—they buy solutions. Make your pricing a reflection of the transformation your product offers.
Conclusion: Finding the Best Way to Price Your SaaS Product
Pricing your SaaS product doesn’t have to feel like a guessing game. By focusing on value-based pricing, experimenting with different SaaS pricing models, and continually testing and tweaking, you can hit that pricing sweet spot.
The key is to balance value with affordability and find a price point that feels like a win for both you and your customers. So, go ahead, experiment, get feedback, and remember—pricing is just as flexible as your software.
