Optimal Pricing Strategies for SaaS Businesses

In this article, I’m going to walk you through developing a pricing strategy for your SaaS business.

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You Are Not Doing Enough

To grow your SaaS business, you can focus on one of three levers: customer acquisition, retention, or monetization. Now think about your SaaS. Where do you spend the most effort? Chances are that most of your energy goes into new customer acquisition, followed by retention. Don’t worry, you’re not alone. Most companies focus on the first two and tend to neglect monetization.

The good news? It's ripe with opportunities. Read on to find out how to create a pricing strategy at every stage of your SaaS business.

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First, What Is a Pricing Strategy?

In a nutshell, it’s the strategy that describes how your SaaS will generate revenue. This includes:

• Buyer personas (who you are selling to)
• Pricing model (how your pricing scales)
• Pricing and packaging (your plans, add-ons, prices, and discounts)

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How to Get Started?

It depends on the stage of your SaaS. In this article, we’ll break it down into three stages: starting with the initial product launch, to a mature product, and finally, a multi-product SaaS.

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First Product Launch (Pre-Product Market Fit)

Before product-market fit (PMF), you are still trying to figure out the value of your product, so don’t stress too much about price as it will change multiple times before you land on something that works. The important thing at this stage is to charge something from day one.

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PLG Sales

If your go-to-market strategy is Product-Led Growth (PLG), then it should be easy, as there are likely other PLG companies with public pricing pages. So check them out. Competitors’ pricing pages will inform you of what options your buyers have today. This will give you a baseline. There are PLG companies in almost every category - check out PricingSaaS.com for help.

Now figure out where you want to come in - lower, higher, or on par. If your product is solving something in a better way, then you can charge a premium. If your product is a point solution that is solving a narrow problem and your competitors have a richer feature set, you can charge a fraction of their price.

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Enterprise Sales

If you are an enterprise company and all your competitors hide their prices on their website, then you have to take a different approach - research and test pricing through prospect conversations.

Every prospect call effectively counts as pricing research. In pre-PMF startups, this is typically handled by the founders. On these calls:

• Learn about the customer value you’re creating.
• Find out what competitors are charging.
• Test your pricing with a proposal offer.

Now get ready to iterate! As you pivot around, looking for product-market fit, your Ideal Customer Profile (ICP) will be a moving target. So change your pricing frequently to see where you are getting traction. If the price point is causing friction, try a lower price point. If nobody is complaining about it, try doubling it.

At some point, this should stabilize, at which case you can move on to the next phase.

Existing Product (Later Stage Startup)

If your product has gained clear PMF and you have a bunch of customers, your pricing strategy can focus on optimizing existing models and opening up new monetization avenues from your product or services.

In SaaS, your main monetization goal is to grow Monthly Recurring Revenue (MRR), which is made up of two components: Average Revenue per User (ARPU) and the total number of customers.

MRR = ARPU x Number of Customers

Therefore, there are essentially two ways to increase MRR: either get more customers or increase revenue per customer. Or both.

So, here are some pricing strategies to consider:

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Customer Growth

To grow the number of customers, you can either focus on optimizing the existing customer segment or go after new segments (e.g., solo freelancers, SMBs, etc.).

To optimize existing segments, see if there is further segmentation you can do (e.g., different verticals). You may find that they have different needs and different willingness to pay, so through either positioning or pricing & packaging you attract more customers.

To go after new segments, ideally, you can repurpose 80-90% of your product and add a few specific features for this segment, then go after it with targeted positioning, pricing, and packaging.

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DocuSign Example:

DocuSign has done both. They added a second segment - Developers, but also went deeper into their core base, with eSignature for real estate.

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ARPU Growth

To grow ARPU/ARPA, you are basically trying to get your customers to spend more money with you. There are a few ways to accomplish this:

• Get them to purchase more seats/licenses or consume more units (if you have usage-based pricing).
• Create an upgrade path to a higher-tier level.
• Create add-ons.
• Raise prices.

Your strategy can incorporate more than one of these tactics, and ideally, it’s aligned with your product roadmap. This way, as you add new features, you are planning the monetization of those features along the way, not as an afterthought.

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HubSpot Example:

HubSpot is the master of upsells. When you sign up for a product, such as CRM, you keep coming across features that have an “↑" icon, indicating it’s a premium feature. This leads to a feature gate that prompts you to upgrade.

Multi-Product Company

Once you have an established product, with a consistent revenue stream and a solid customer base, you may discover opportunities to solve additional problems to gain a “larger share of wallet.” This often means replacing other products that your customers are using and offering a consolidated solution.

The pricing strategy here needs to consider how you sell individual and combined products to your customers.

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ChartMogul Example:

ChartMogul started as a SaaS analytics company. After many years, they recently launched a CRM for SaaS, their second product.

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Existing Customers

When launching your second product, the best place to start monetization is with your existing customers. That’s because they already engage with your original product, so you can use it to introduce them to the new product without having to spend money on marketing and advertising.

When launching a product to an existing customer base, consider the following:

• Cross-sell funnel: when they engage with the existing product, consider the best places to introduce and transition them to the new product.
• Intro offers and bundles: make existing customers feel like you are rewarding them for their loyalty. Consider both special pricing, as well as bundles for signing up for more than one product.

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New Customers

When selling multiple products to a customer, the most important consideration is their ability to evaluate and integrate them. When they come to your website, they are likely solving a specific pain point, so do not try to sell them everything at once, but rather focus on solving their primary pain point first.

Going back to the ChartMogul example, if someone comes to their site because they’re struggling with their SaaS financial analytics, it’s unlikely that they have the bandwidth to switch their CRMs at the same time.

Therefore, a multi-product monetization strategy for new customers should focus on the following:

• Create awareness upfront.
• Make it easy to try the additional product (free trial or freemium).
• Remove friction in the upgrade and billing process.

Lastly, if you have a strong brand (like HubSpot), you can offer bundles of products upfront to incentivize customers to plan ahead and purchase everything at once to address current and future pain points.

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Wrapping Up

Investing in a pricing strategy will help your SaaS business grow faster. Your pricing strategy needs to evolve as your business matures. At the beginning, the focus should be on quick iterations to learn what works and what does not. As your product matures, the focus should switch to aligning your pricing strategy with your product strategy and customer segmentation. Finally, as you start getting really big, consider how to create new products to sell to your customer base.

For inspiration or if you need help, check out PricingSaaS.com