SaaS Pricing Strategy Best Practices: We Ask the Experts

“Hey Siri, change my pricing strategy.”

Let’s be real. If you are a SaaS founder, there has probably been a point in time where you wished that changing your pricing strategy could be as easy as asking your smartphone to do it for you. Selecting the right pricing strategy for your SaaS business is important for many reasons, but ultimately it will only lead to positive results for your company if you execute it correctly and appeal to your customers. It is crucial that you take a step back, reflect on your customer base and decide the best path moving forward.

If you clicked on this article, it is safe to assume you are interested in the world of SaaS and are considering building a product or have been contemplating changing up your pricing strategy—if that’s you, welcome. We have asked three experts for their advice on choosing a SaaS pricing strategy and in this article, we have laid out the nitty-gritty of switching it up—why it matters and the steps you can take to get there.

Things to Consider Before Switching Up Your Pricing Strategy

Before you switch up your SaaS pricing strategy, or if you are starting at the very beginning of your pricing journey, it is important for you to ask yourself the following questions:

  1. Where do you want your SaaS to be positioned in the market? Make a list of your competitors. What are they charging? How are they appealing to their customers? Would it be possible for you to charge that amount and still generate revenue? Will you be profitable if you charge this price?
  2. Is there any room for you to position your product differently than the other players in the game? What is your competitive edge?
  3. Have you offered a lower price and more usage to allow customers to see if the product is worth their while? Although you lose money doing this in the beginning, you can hook more customers in the long run.
  4. What is your goal? Keep in mind that the goal is to get your customers accustomed to using more of the product so that when the time comes and you do switch up your pricing strategy, they do not convert to your lower-tiered offering.
  5. Why are you modifying your pricing structure? How will it improve the product? How will it positively impact your customers?

The answers to these questions are crucial for any SaaS founder looking to change their pricing strategy. Here are a few things to consider when making decisions on pricing tiers, as laid out in our comprehensive guide to how SaaS companies make money.

How to Set an Effective Pricing Strategy 

You’ve answered the previous questions and you’ve realized you are in a good place to switch up your SaaS pricing strategy. Now, let’s dive into SaaS pricing strategy best practices.

Do market research to know how much you can charge without losing customers and how little you can charge to do an effective bait and switch. Make sure that the price of your product covers all of your costs. Your company (and your product) won’t stay afloat if you do not have the correct revenue to keep the company going. Make sure your price is competitive but also make sure that your price reflects the actual value of the product.

Research your customers: Make sure that your product functions in a way that customers cannot live without it. Jump on forums and ask your current customers real questions. The best way to know how your product is doing is by hearing from the people using it. Understand how much your pricing change will affect your current customers. What you might consider valuable isn’t the same for your customers, so ask them.

Be very selective with your tiered pricing. You only want to do this if it makes sense for your product and can be differentiated throughout with additional features. Nothing is worse than a more expensive pricing tier that offers essentially nothing different from the freemium version.

Figure out a way to accommodate the customers that were using your product before the pricing change. Your customers are the most valuable part of your business and will show loyalty when you do not forget about them as you grow. Set up a plan, like grandfathering them into previous plans but do not just randomly throw a new pricing plan at an existing customer. It will catch them off guard and it might turn them off from your product.

Know your ‘why’. When you are ready to communicate your pricing plan, make sure you are transparent about the changes.

Pros and Cons of Changing Up Your SaaS Business’ Pricing 

Why Pricing Adjustments Are Important 

  • You can handle existing customer concerns. This is a great way to prove that you listen to them.
  • You can protect your business’s health.
  • You can reposition yourself in the market.
  • You can boost subscriber rates.
  • You can hit profit goals.
  • You can raise retention rates.

The Dark Side of Pricing Adjustments

  • You run the risk of negatively impacting customer loyalty. Remember: not everyone loves change.
  • It requires a lot of market research, especially if you are a solo founder or have a small team. Read: you might not have the capacity for it.
  • It can be a tedious process. You must handle it correctly to avoid affecting cash flow and/or messing up your revenue goals.

Let’s Hear from The Experts

Every entrepreneur is different and no SaaS pricing strategy is one size fits all. That is why it is important that you understand your product, what you are offering and what your customers will be willing to pay. Also, will they stick around if you switch up pricing? Only you know the answer to those questions.

A great way to do further market research is to learn from other entrepreneurs who operate in a similar niche or have different, but still valuable, experiences. Speaking to others will enable you to make the most well-rounded decision out there. The following entrepreneurs have found many successes (and failures) while switching up their pricing strategies but they have all ultimately found a common result: a price they, and their loyal customers, can agree on.  

Don’t Be Afraid to Change Your Pricing Early On—Jane Portman

Pricing your product is often a challenge that every SaaS founder runs into, both early on and later down the road, so it is imperative that you do the grunt work, in the beginning, to figure out what will be best for your company. Of course, you can (and should) revisit your pricing strategy from time to time. You should always be testing out your pricing, making sure that you are sticking to what works and kicking what doesn’t work to the curb.

Jane Portman, the co-founder of Userlist, regretted that she and her co-founders didn’t change their SaaS offering’s pricing plan early on. Changing the pricing plan early on would have removed friction between their business and its customers because the pricing changes would have come gradually—not all at once—and they could’ve avoided a customer service frenzy with questions constantly pouring in about billing.

“We started out with three pricing tiers. There were steep jumps between the plans and we spent a great deal of effort upgrading and downgrading people,” explained Jane. “When new users jumped on board, a $99 plan could become a $199 plan overnight, and this was understandably frustrating for the customers. So, we switched to metered pricing with a single flexible plan about a year ago, and we never looked back.”

Userlist started out with a nearly free plan ($9) and realized soon after why it was not a great idea. Many of the customers turned away the minute they began the transition to a regular plan.

“When you pay $9 for something, unfortunately, you tend to associate the value you’re going to receive from the product with the price you pay. It doesn’t signify any commitment to the tool. You run it in the background for $9 a month and you think to yourself, ‘Oh, I’ll just work on it next month.’ 99% of those accounts didn’t go anywhere, so we removed that plan three months after launching it,” Jane shared.

She also advises using caution when recommending freemium to B2B SaaS companies. She believes that when a customer invests their money into a product, they are more likely to invest their time. There is a direct correlation, in her experience, between customers paying a price and customer success with a product.

Be Familiar with the Competition and Nail Down Your Audience—Volker Schulze

You need to spend time understanding your audience. Knowing who your customer is imperative to a successful pricing strategy. Volker Schulze, CEO of Accxia has managed the development of a vast portfolio of Atlassian apps. He advised “You need to identify the profile of who is using the app and who is buying the app. You must attract both the user and the buyer. The user needs to say, ‘I like this app’ to the buyer who says, ‘I will buy it’. Or the decision-maker needs to ask, ‘what is there in the market?’ and the user goes to the Atlassian Marketplace to find the solution. It goes both ways.”

If you know the who and the why behind their choice to use the app, you will be able to adjust pricing plans around your actual customer needs. Knowing who your audience is will help you communicate the value of your app, and by doing so you will be able to build trust when the time comes to change your pricing on them.

Volker also noted to not wait too long before marketing your app. If you work on marketing your app early on, you will be able to charge more for your product in the early days. Volker also spoke about another benefit of marketing, “Over time the prices [of Doublecheck for Jira] went up and if we had done more marketing, we could have accelerated the price increase. What we sold for $50 is now sold for $3,000.” If you invest in marketing early on, know your audience intimately and understand your competition you will see significant growth in your business.

Don’t Be Afraid to Test Pricing Often—Nemanja Popovic

You need to know what your audience will pay and what features they are looking for.

To know what your audience will pay, and what features they are hooked on, you will need to test your pricing plans often. Nemanja Popovic, founder of StorifyMe, believes founders should test their pricing strategies often and suggests customizing pricing based on what customers need and want. Nemanja shared an example of how he did this with his previous venture, AmpifyMe, “I built the apps and bundled the concepts to work in tandem, but they were each priced separately. I decided I could capitalize on this opportunity and cross-sell across markets. I had a set price for each and had different tiers for each of them.”  He went on to explain the positive side of having a freemium option. “I had a freemium option and that helped because you don’t really have to do marketing when you have a freemium option. People check out the app themselves and then they see if they like the return on investment—if they do—they upgrade. As customers would move to higher tiers, I would add more and more features. The early adopters often had ideas on how I could improve the app so I would make modifications based on their feedback, providing more value to the customer.” He finished his thought by adding, “When you do this, it makes it more likely that they are going to pay so it really helps to have a freemium tier. Then, start upgrading them slowly.”

Going From Good to Great

Changing up your pricing strategy is key if you are looking to scale your SaaS business and grow it to its fullest potential. Every SaaS offering is different and each customer will require something different, but it is important that you view SaaS pricing strategy advice through a lens of what works for you and what can be stored on a shelf for later. Make the choices that benefit your customers and your business, and don’t feel the pressure to offer something just because another successful SaaS has chosen to implement it. At the end of the day, your pricing model needs to reflect your product, your business and ultimately the goals that you have set out from the get-go. Our hope is that you would take some of this advice and adjust your pricing model to go from something that is good, to something that is great.

If you are looking for more expert advice, or are curious about the ins-and-outs of an acquisition, check out a few of the stories of SaaS founders who have successfully divested of their business through FE International:

Exiting a Growing SaaS: Lessons from MyShopManager

Using Passion to Tackle a Problem in the Shopify Niche

The Key to Scaling Your Business and Overall Success: Delegating