Basics of SaaS Pricing Strategy

Basics of SaaS Pricing Strategy

Basics of SaaS Pricing Strategy

Published on May 1, 2021, by Jan Kuzel

I have read 50+ books, ebooks, articles, and other resources on SaaS pricing, so you don't have to, why? Because I wanted to make sure that, as a Head of Growth at SatisMeter, I am not leaving revenue on the table as most companies do, by not thinking about pricing that much.

Originally I wanted to hire a specialized consultant, but so far, qualified SaaS pricing consultants are the most expensive professionals I have ever come across. They charge higher hundreds of dollars per hour, so although I am not afraid to pay for quality work, this is a bit too much. The answer was clear, I need to learn SaaS pricing strategy myself.

Why It Matters

If you read content about startups and software companies, visit conferences or you're just in the business yourself and know other companies personally. Then you know that there is an obsession over certain topics: acquisition, retention, and lately maybe product-market fit.

source: The Anatomy of SaaS Pricing Strategy by Profitwell
source: The Anatomy of SaaS Pricing Strategy by Profitwell

Those things are all important of course, but the omnipresent obsession with acquisition is just insane because it is by far not the only way to create more revenue. Work done on pricing has been over and over again proven, to influence profit in the most dramatic way.

Source: Mastering SaaS Pricing by Kyle Poyar at OpenView
Source: Mastering SaaS Pricing by Kyle Poyar at OpenView

Besides impacting your bottom line, by consciously setting up the pricing strategy in the correct way, you can align it with your general business goals and achieve better results. I am saying that because the common excuse of founders to not touch pricing for years, is that they focus on growth, not squeezing every dollar from their current state of things. Well, there are different pricing strategies for different business goals, and you should make sure, it's all aligned.

Why Is Pricing a Problem

So what is the real issue with pricing? It tends to be heavily ignored and under-represented in companies' focus. If you ask an average company, who owns their pricing strategy, you will often get some dodgy answer, that's it is the job of CEO, CMO, Head of Growth, Head of Product or something like that, but usually there is little internal clarity and it's not being regularly worked on.

Source: The State of SaaS Pricing by OpenView
Source: The State of SaaS Pricing by OpenView
Source: Monetization & Price Intelligently by Profitwell
Source: Monetization & Price Intelligently by Profitwell

Pricing is all too often an ad hoc gut decision that does not receive the serious attention, analysis, and testing required for optimization. SaaS organizations make thoughtful, data-driven decisions in all aspects of the business, but pricing is a blind spot.

source: The Anatomy of SaaS Pricing Strategy by Profitwell
source: The Anatomy of SaaS Pricing Strategy by Profitwell

Systemizing Your SaaS Pricing

Pricing strategy is a massive topic and while there are a lot of questions to answer in terms of different pricing models which I won't cover here, possibly the most impressive framework I came across is the Value Matrix by Profitwell. It tells you what customers like and what they also get behind to with their wallets.

Source: Monetization & Price Intelligently by Profitwell
Source: Monetization & Price Intelligently by Profitwell

The Value Matrix is made of two data sets. A Relative Preference survey ....

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And Price Sensitivity survey ...

Source: Monetization & Price Intelligently by Profitwell
Source: Monetization & Price Intelligently by Profitwell
Source: Monetization & Price Intelligently by Profitwell
Source: Monetization & Price Intelligently by Profitwell

Those two together can then be plotted on the Value Matrix and tell you what features are worth focusing on and also how to construct your pricing plans in a way to naturally support upgrade progression.

Source: Monetization & Price Intelligently by Profitwell
Source: Monetization & Price Intelligently by Profitwell

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Jan Kuzel