Pricing Strategies for SaaS
Establishing an effective pricing strategy is paramount for the success and sustainability of any Software-as-a-Service (SaaS) business. Unlike traditional software, SaaS operates on a recurring revenue model, making pricing a continuous and evolving process that directly impacts customer acquisition, retention, and overall profitability. This introduction will explore various common SaaS pricing models, including subscription-based, per-user, usage-based, tiered, and freemium, while also delving into key considerations such as value-based pricing, competitive analysis, and the importance of aligning pricing with customer needs and perceived value.
Pricing is Not Just Math — It’s Strategy
Most first-time SaaS founders undervalue their product. They price too low, fearing users won’t pay.
But good pricing is not about what it costs you to build — it’s about what it’s worth to the customer.
“Charge for the outcome, not the features.”
You can raise prices, lower churn, and grow revenue faster with the right model — even if your product stays the same.
SaaS Pricing Models (Overview)
| Model | Description | Example |
|---|---|---|
| Flat Pricing | One price for all users | Basecamp: $99/mo |
| Tiered Pricing | Multiple plans with different features or limits | Notion, Slack |
| Usage-Based | Charge based on consumption (API, emails, etc.) | Twilio, AWS |
| Freemium | Free plan with paid upgrades | Canva, Grammarly |
| Per-User | Pricing based on team size | Zoom, Figma |
Value-Based vs. Cost-Based Pricing
💸 Cost-Based Pricing:
- You calculate how much it costs to host/support a user and add a markup.
- ✅ Easy to justify
- ❌ Ignores perceived value
💎 Value-Based Pricing:
- You charge based on how valuable the solution is to the customer.
- Example: If your app saves 10 hours/month, pricing at $29/mo is justified.
- ✅ Higher margins
- ✅ Scales with user perception
Always aim for value-based pricing — even if it feels bold.
Creating Effective Pricing Tiers
Use the Good / Better / Best model:
| Plan | Price | Target Customer | Common Features |
|---|---|---|---|
| Starter | Free or $9 | Individual users | Basic features, usage limits |
| Pro | $29–$49 | Small businesses | Extended limits, integrations |
| Business | $99–$299 | Agencies/Teams | Advanced features, priority support |
Tips:
- Anchor the pricing with your highest tier
- Limit key features to upsell users (e.g., reports, export, integrations)
- Add value over time (monthly updates, new templates, etc.)
Should You Use a Free Trial or Freemium?
| Model | Works Best For | Goal |
|---|---|---|
| Freemium | Tools with daily value (e.g., design, writing) | Growth, referrals |
| Free Trial | Tools with clear ROI (e.g., analytics, B2B) | Convert serious users fast |
💡 If you expect people to need your tool to do their job, try a 14-day free trial instead of giving it away forever.
Psychological Pricing Tactics
- Use 9s: $29 feels cheaper than $30
- Anchor high: Show a $99 plan to make $29 feel like a deal
- Use contrast: Highlight savings when billed yearly
- Add urgency: “10 spots left at this price”
- Limit choices: 3 tiers convert better than 5
Real-World Pricing Examples
Notion
- Free for individuals
- $8/user/mo for teams
- Enterprise plan for large orgs
Fathom Analytics
- One simple $14/month plan
- Focuses on transparency and privacy
Loom
- Freemium with 5-minute video cap
- Paid unlocks longer videos and features
Each of these aligns pricing with user needs, not just features.