Build a pricing strategy for SaaS products
1. Use popular research techniques to determine value, pricing, and collect customer feedback.
Gabor-Granger Technique: Ask people a series of questions like, “Would you buy at [price]?” and increase or decrease the price based on the response. Repeat 2-3 times until the consumer won’t go higher or lower to determine the maximum price people would pay, the optimal price, and maximum revenue. Van Westendorp’s Price Sensitivity Meter: Use this technique for subscription products with multiple tiers to determine price elasticity and an accurate range of effective pricing for a product by asking respondents 4 questions: At what price would you consider the product to be priced so low that you feel that the quality can’t be very good? At what price would you consider this product to be a bargain – a great buy for the money? At what price would you say this product is starting to get expensive – it’s not out of the question, but you’d have to give some thought to buying it? At what price would you consider the product to be so expensive that you would not consider buying it? Brand Price Trade-off: Use this competition-based pricing technique to measure your relative brand value or brand equity and answer how much your market is willing to pay for your brand relating to similar products from other competitors. Conjoint Analysis and Discrete Choice Analysis: Use conjoint analysis to determine how people product attributes independently of each other (feature, function, benefits); and discrete choice analysis to evaluate the product configurations simultaneously. Create an attractiveness rating for each possible product configuration and sort the configurations to identify the most preferred and profitable configuration.
2. Use your research to define your pricing tiers and organize them from high to low - offer multiple tiers for different customer personas.
Typically, use 3-5 tiers, but adjust based on the customer variations you want to target.
3. Offer a short free trial instead of a free tier to support growth.
4. Offer an annual plan with a discount to secure more business upfront, increase cash flow, and reduce churn.
For example, using a discount like X months free works better than X percent off.
5. Reevaluate your pricing performance and change pricing periodically, staying under a 10% increase.
For example, revise your pricing every three months and change pricing every 6–9 months.