Design pricing models

Combine value, competitor, and cost analysis into a predictable forecasting model to increase customer monetization.

Starting Price

A product’s starting price is the first anchor that positions your products in customer’s minds as a potential solution to their problem. Through a variety of models (free trials, partnerships, and enterprise sales) this “sticker” experience can be managed on a per-case basis for the best possible outcomes, more tailored to customer’s values instead of the entire market at once, but the starting price will still be the largest defining anchor in your customer’s mind, as all other pricing changes will be anchored to it. This is why shrinkflation works for consumer goods.

Pricing Methods

Cost pricing is the easiest as you define costs to run the service plus profit expectations and determine a price.

In B2B SaaS, competitor pricing is also accessible through software review sites in the self-serve category, or by competitor research techniques like new customer interviews or partnership outreach.

Value pricing is the most difficult as it requires complete understanding of value from the customer’s perspective. We start value pricing using the Van Westendorp model to determine acceptable price ranges with the questions:

At what price would you consider [product] to:

  1. be so expensive that you would not consider buying it?
  2. be priced so low that you would feel the quality couldn’t be very good?
  3. starting to get expensive, so that it is not out of the question, but you would have to give some thought to buying it?
  4. be a bargain—a great buy for the money?

Price Scaling Model

Any product pricing should scale related to the value it delivers through value-based pricing. While an Enterprise sales model will allow for quick, repeated trial and error, starting with a customer-anchored usage mechanism will deliver the best scaling results. Common models to scale include transactional usage, user seats, or feature tiering.

Free Trials, Features, and Tiers

In the modern SaaS world, a free trial or demo account is often required to get customers to the initial “Aha moment” for new products. Since new account costs remain minimal, free trials are often used to acquire new customers and ease the adoption cycle.

Feature tiering of products enables completely free tiers for single user seats or minimal features, which enables SaaS companies to build an internal champion before real organization adoption occurs.

Subscription

The majority of SaaS products are built using a subscription model for predictable revenue. Enterprises can often transform their bespoke billing to subscription-based using Zuora, while more modern organizations can scale well simply using subscription functionality found in Stripe’s APIs. B2B software often uses yearly payment terms or multi-year commitments as discounts, while offering a monthly option for smaller tiers (less users). The subscription approach should be tied to perceived value, purchasing cycles, and time to value constraints for the best customer relationships.