Your SaaS product's ready to go to market and it's time to get your users to pay for it. But where do you start? How do you determine your first pricing?
Pricing decisions influence your entire business: from sales, to marketing, to product, to customer success and even to development (they have to build in the pricing mechanisms!). They can determine whether your business fails or succeeds: saying they're important is an understatement.
1. Set your targeting 🎯
Confirm your user persona and the most strategic use case you want to encourage and price. This will guide all your pricing strategic decisions and make the whole process much more efficient.
2. Determine your value metric🎖
This is probably the most important step. You need to have a clear understanding of your product value to find the relevant pricing value metric aka where your user perceives value from your service. This is essential for your pricing strategy to stay coherent with your users' behavior and expectations. To determine the value your product brings to your targeted users, go through these three criteria:
Is your value metric:
- Aligned with customer's need?- Straightforward?
- Able to grow with the customer (to ensure you’re increasing your MRR in a predictable manner)?
Keep in mind that the more your product is integrated in your user's day to day work, the more value you'll deliver and the more you should price.
3. Explore Pricing Strategies and Models 👊
There are many different pricing strategies and models to explore to help you come up with your SaaS pricing strategy.
- - Cost-based: calculate the cost of your product and go from there.
- Competitor-based: what are your competitors doing? Benchmark what's out there and position yourself where you want to be in the market.
- Value-based: basically according to your customers and your determined value metric. This is the most common strategy in SaaS.
There isn't an infinite number of pricing models and each one has pros & cons depending on your value metric. These are some of the most common SaaS pricing models:
Determine your pricing based on the number of users using your product. You could either set plans that give a specific limit of users per plan or simply charge per user per month. This totally depends on your product. For example, if it's a product that's meant to be used as a team, it can make very little sense to have plans that limit the number of users since the idea is to encourage more users on the platform.
Speaks for itself: create a pricing strategy based on the different features you offer. Once you start to build complex features into your product, you can start dividing plans into standard, pro, enterprise features.
You can design your pricing based on usage. This again depends on your product and most importantly, your value metric.
Example: Slack, Airtable
None of these are mutually exclusive! Your pricing model can be a mix of a limited number of users and features.
Example: Hubspot, Front
Freemium vs Free-Trial
It could be misleading at first sights but the distinction is pretty simple. Freemium is a marketing strategy unlike Free Trial. Indeed, if you opt for freemium it is because you to make it part of your acquisition strategy among others channels. A Freemium plan is here to help marketing attract and convert more customers as active users. You offer a free access to your product in a certain limit which is not time. If it's about time it is a free trial.
Freemium drives more traffics, more users more feedbacks and data but keep in mind that it doesn't mean it will generate more revenue and more qualified users. A lot of users are never likely to convert.
It also implies that you need strategy about how to convert these users in customers later in your app. You have to put your cursor at the perfect balance. Don't offer too much and they will never convert, don't offer too less or they won't be convinced by the value they get.
FreeTrial offers a full experience of your product but in certain limit of time. The difficulty here is to know if you offer enought time to make your product convince. As timing is not always perfect for testers, it is usually frustrating when you reach this limit but your decision is not made. Free Trial should easier secure a revenue stream.
Think of how long is takes for your users to adopt and feel the value of your product. Ask yourself do you want to generate traffic, do you want to secure revenue,..? This is adapted to the target you want to sell?
4. Set criteria 📌
For example at Slite, we set these criteria. We want a pricing that:
- Preservs virality through land and expand tactics
- Gives an almost full experience of Slite but limit in usage and to some specific features.
- Is consensual for the different use cases but focus on our most important persona
- Relevant regarding the competition
- Seamless and not sales-y
5. Ask your team 👥
Get more insights and possible cases that you didn't think about by involving your team. Especially marketing (positioning), sales (pricing), product (packaging), management (pricing strategy). If this is your first pricing strategy, chances are that your team is small: take full advantage of that and get everyone involved: this what you're all working towards, after all.
6. Ask your future customers 🗣
Then it's time to get insights from your best asset: your users! By the time you launch a pricing strategy, you'll probably already have a base of loyal first users. Present the pricing strategy and model ONLY to the users you want to be your customer and interview them. Stay as objective as possible in order to avoid influencing their choice cause the truth is, they'll be on their own the day they decide whether or not to pay. Here are some guidelines:
- Always talk to the purchase decision-maker
- Talk to your earliest users but also the most recent
- Talk to users who have different use cases of your product
Here are some question examples:
- Which aspect of the product would they calculate to understand the value they're getting (ex: number of transactions, number of contacts, number of notes created...)?
- How much as they most likely to pay? As the minimum and maximum amounts and if you've already set a price, present that one too to see their reactions.
- For which tools, are they already paying?
- Present a pricing model
7. Send out a survey 💌
If you feel like you already got clear insights by talking to some of your most representative users, this isn't crucial but it can be great to get actionable answers and insights without the fluff of conversation. However, this means your questions need to be straightforward and lead to clear conclusions. You wouldn't bungee jump without verifying if the rope holds your feet right? Do the same with this survey and pricing in general.
Questions should allow you to pinpoint who your user is, their use cases and ask closed questions, dropdown lists, yes/nos etc.
8. Review your final pricing 🔍
Verify if what you come up with matches with your criteria and proceed to the pros and cons. You can also A/B test your pricing.
9. Stay strong & confident 💪
Easier to say than done but stay confident and keep a step back from customers opinions.
10. Take the leap & stick with your final version ✂️🥖🤝
And most of all remember: this is just your first pricing strategy! It is not forged in forever, nor is it eternal. As your product grows, the value you deliver will increase and your strategy will likely evolve.
But at least now you ripped the band-aid and went through your first pricing strategy!