Value-based pricing in SaaS
Pricing is one of the most critical factors you have to consider when growing a SaaS product. The price you charge for your product can make or break your business. However, you can always change the pricing on the fly, based on your customer feedback and market conditions, so if you are still in the launching phase of your product the pricing should not be a priority, insted focus on creating achieving product market fit (PMF).
- Value
- Communicate
- Deliver
- Understadand the Competition
- Iterate
Value
One of the most effective ways to price your product is by using value-based pricing, instead of feature-based pricing. Value-based pricing means that you charge your customers based on the value they receive from your product. This approach focuses on the customer's perspective, and how much value your product creates for them. When the customer gets more value they are usually more willing to pay. A customer should be experiencing value quickly and often when using your product.
To implement value-based pricing, it's crucial to understand your customer's needs and wants. This means taking the time to research and understand what the customer wants, and what they are looking for in your product. Once you understand your customer, it's essential to communicate the value that your product provides, and how it solves their specific problem.
Communicate
When communicating the value your product delivers, focus on the outcomes they can expect, such as increased productivity, cost savings, or improved customer satisfaction. You should be transparent about the value proposition your product creates, don't hide it behind a sign-up or your sales team. If you are using a pure SLG strategy it can be tempting to require a meeting with the sales person to get more information about the value, I would still recommend you to instead focus on communicating the value in advance.
If you are using a PLG strategy you should be able communicate the value 1. in your marketing, 2. on your website, 3. let the customer experience the value as soon as possible already before making the purchase decission, this could be achieved with a free trial or a freemium version of your product, but better yet, offer a version that does not even require a registeration. You can think at it as a path where you prove more and more value as the customer progresses towards the purchase decission.
Deliver
It's also important to deliver on your promises. If you have communicated the value that your product provides, and your customers are paying for that value, it's crucial that you deliver on that promise, this usually requires manual work from your customer success/support team before you have had time to develop the required functionality. There is no shame in doing it manually until you have enough proof that the feature is worth building.
Understand the Competition
Understanding the industry standard pricing and beeing able to change it rapidly when the market changes is crucial. This can be done by monitoring your competitors' pricing. It's essential to be aware of the pricing strategies of your competitors in your market, and how they position their products in comparison to yours. This will give you an idea of the pricing range that is typical for your market and can help you to make informed decisions about your own pricing strategy. With the information, you can make data-driven decisions about your pricing strategy, and adjust it as necessary to stay competitive. This is why I built a SaaS Pricing Tracker.
Iterate
It's also important to remember that value-based pricing is not a one-time event, it's an ongoing process that requires constant monitoring and adjustments. As you continue to improve and update your product, the value it provides to your customers may change, and therefore, the pricing should be reviewed accordingly.
So to summarize:
- Understand (what your customer want)
- Communicate the value
- Understand your competition
- Deliver
- Iterate
Wait, we did't talk about the actual price yet. When you know how much your product brings value, you can, as a rule of thumb charge 10% of that. So if your product brings the company 100k$/year you could charge 10k$/year for it. Just make sure to talk to enough customers to understand the value you bring to the table.
In summary, pricing is a crucial aspect of growing a successful SaaS product. By focusing on value-based pricing, you can ensure that your pricing strategy aligns with the value your product creates for your customers. By understanding your customers' needs, communicating the value of your product, delivering on your promises, and monitoring and adjusting your pricing strategy, you can ensure that your SaaS product is priced correctly and will be successful in the long run.