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SaaS Pricing Strategies for Fast-Growing Startups

SaaS pricing strategy

Figuring out how to price your product is one of the trickier aspects of running a SaaS business. And when your growth really takes off, which is common for B2B SaaS startups, you'll be asking when and how you should increase prices as your offerings develop and expand. In other words, the SaaS pricing model that's best for your startup right now might not be optimal in a year or two as your company matures.

Where do you start? Below, we guide you through SaaS pricing strategies and how to adjust as you grow.

SaaS Pricing Best Practices

SaaS pricing best practices

First you'll want to gather information that helps you choose the best SaaS pricing model out of the gate. Your goal is to identify a price (or prices) that isn't too high or too low. Don't expect to hit the magic number the first time—or maybe you will—that's not the point: just don't pull a dollar amount out of thin air!

Rule #1: Cover your costs but don't undersell your value.

The initial pricing strategy you choose will point you in the right direction for the future, which will make pricing adjustments easier as you learn from deeper relationships with your customer base. It's a winning recipe for gaining traction as you grow.

SaaS pricing should take into account a range of factors which might include:

  1. Your product’s value to customers

  2. Market conditions

  3. Competitor landscape

  4. Target customers and customer segments

  5. Customer acquisition cost

  6. Customer lifetime value

  7. Customer conversion targets

  8. The type of SaaS pricing model you’ll be using

  9. Billing cycles

  10. Your sales process

The most important part of any strategy involves listening to your customers every step of the way.

Rule #2: Give careful consideration to the "freemium" strategy.

Freemium,” a combination of “free” and “premium," is a popular offering for many SaaS businesses because it supports rapid user adoption and can make it easier to win big enterprise accounts.

With freemium pricing, the customer pays nothing to use basic product features, but needs to subscribe to unlock advanced features and to get the most value out of a product.

From a customer standpoint, this is a huge plus—you can see if a SaaS solution is going to work with little risk and low effort, without any budget. From a business perspective though, freemium is obviously not going to pay your bills if nobody moves up to a paid plan.

This strategy isn't right for every SaaS startup. Some questions to ask yourself before you decide to offer a free version of your product:

  1. How much are you willing to give away for free?

  2. Can you offer enough incentive for customers to upgrade?

  3. Will you have enough paying customers using your product to cover at least some of the cost of the free offering?

  4. Will your free users get enough value out of your product to start referring others?

  5. Can your startup keep improving and offering new, innovative features that entice free users to upgrade?

  6. Does your customer lifetime value make up for the sacrifices you'll make for free users?

saas pricing model graph

Image source:

Dropbox is a good example of a freemium model that works. Sign up and you get an awesome 2 GB of free storage space. This is perfect for keeping basic documents in the cloud, but once you start backing up photos and other media you’ll hit your storage limit fast. The need to upgrade to a paid plan becomes fairly obvious at that point. Dropbox have also expanded and introduced new features over time to increase conversions and encourage late adopters to sign up for paid plans.

Another downside to the freemuim model, aside from what it can cost you in revenue, is the impact of bad user experiences. If people don't understand how to use it, aren't successful using it, or just don't see the value, you'll never see them again. While it may be hard to believe that people won't immediately LOVE your software when they try it, it's a considerable risk for young, growing startup.

Rule #3: Test and optimize pricing.

Getting your prices as close to “right” as possible at the outset is what everyone aims for, but it’s by no means the end of your a pricing journey.