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How to Choose the Best SaaS Pricing Model for Your Startup

SaaS Pricing Models for Growing Startups

Once you’ve got a solid SaaS product to bring to market, it’s time for the next big step–pricing.

Getting your pricing right out of the gate could be the difference between becoming yet another failed startup and generating enough growth to ensure your survival in a crowded digital marketplace.

However you approach your first round of pricing, the most important word to keep in mind is value.

How to Develop SaaS Pricing

How to develop SaaS pricing

So, where do you start? How do you know if you’re aiming too high (or too low)? What if your product is something nobody has seen before? Should you price a bit lower than your closest competitor? Can you just Google it?

The right answer is (surprise!) that there is no right answer. Every product, every startup, and every industry will have its own particular strategy for developing pricing out of the gate. What’s most important is that you don’t resort to pulling imaginary numbers out of thin air.

Your initial pricing will become a baseline that points you in the right direction for future adjustments as you gain a better understanding of your customer base. The goal is to start out in the right ballpark and refine as you learn more.

Defining your product's value

While not directly related to the SaaS realm, this popular meme captures the power of perceived product value in the eyes of a customer.

value based saas pricing

Customers rarely care about the physical cost of a product but instead focus on the value it brings to their lives. Is your product somehow better than your competitors? Is it faster, more powerful, or easier to use? If you can clearly pinpoint the unique value and differentiating factors of your product, you can begin to place a higher value on it.

It’s important to note that you shouldn’t make direct comparisons with your competitors in an attempt to win customers. If you’ve got your heart set on making pricing comparisons on your website, make sure you emphasize the value of your products relative to your competitors’ offerings (e.g. benefits, customer support, or plan flexibility).

In terms of value, you also need to consider the value of a customer to you. Your sales process, the amount of time it takes to acquire each customer, and the value of that customer’s account all need to be worked into your pricing.

The graph below sets out the relationship between sales process and pricing strategy for some well-known SaaS companies.

saas model pricing example

Image source: Intercom

You’ll notice that the lower right quadrant is a ghost town. That’s because no business can survive in an environment where a complex sales process is rewarded by pennies from its customers. It’s a recipe for certain doom.

SaaS pricing is an iterative process

Successful SaaS startups have leaders who are vigilant and take quick action to adjust their pricing strategy when there's an opportunity to deliver a higher value proposition.

Imagine a hypothetical SaaS startup that initially sells one program with four major features. By year three, when they have 15 major features, they should already be adjusting their pricing model to account for the value they’ve built.

“When you add on, you become more of a solution to a bigger problem as opposed to being just a point problem-solver,” says Lighter Capital CEO BJ Lackland. Those who solve big problems—perhaps whole categories of problems—are providing a much greater value above and beyond the smaller problems they solve along the way.

So how do you choose the best pricing model for your SaaS startup? Let's explore the options and a few examples.

SaaS Pricing Models and Examples

Pricing Strategy

One price fits all?

In the world of SaaS, it’s not recommended to have one price tag on your product. An online environment makes it too easy for customers to Google your competitors and choose the cheapest option–leaving you out of money and out of business.

A single price point might also leave your customers feeling like you don’t really care about them. Should your small business customers have to pay the same amount as a high-use or enterprise customer? Could they even afford it? And would your enterprise customers feel like they’re using a second-rate budget product if they’re on a $10 plan with