SaaS Pricing Tactics

We re-read Pricing Intelligently’s report entitled “The state of B2B SaaS pricing in 2023.” The insights are fantastic; below are the bits that really stood out to us. Download the report directly from their site: https://www.paddle.com/price-intelligently/state-of-b2b-saas-pricing-in-2023

A committee should review pricing often. “Assign a designated leader or committee that

owns pricing and packaging and drives action. They will have an overall understanding of

your company goals, whether it’s to get more customers, improve your unit economics, or

position for a successful exit.”

Changing pricing could mean changing packaging. “Your monetization strategy can go beyond just changing prices; it can include various tactics such as refining value metrics and adjusting packaging.”

Common inputs. The most common inputs into pricing research are competitor pricing, current customer feedback and market research. Relying on competitors is highly circular and should not be a guide.

Common strategies. 38% of survey respondents priced based on competitors, 33% priced on value, and 30% did cost plus. Similar to the comment above, relying on competitors is highly circular and in our view should not be a guide. “If you look at the most common pricing strategies by annual revenue, we see that more mature companies shift both to value-based pricing and product-led tactics. Large companies are most likely to employ value-based pricing, because they have the most resources to do the proper research to figure out their value.” This is a sign that as soon as you can do value based pricing based on smart customer research, do it.

Issues with basing pricing on competitors. “The problem with competitive pricing is that you are putting a higher value on your competitors than your customers. Your customers don’t care about your competitors, they care about you. It often leads to or shows a lack of product differentiation meaning you and your competitors are interchangeable and you risk turning products into commodities. Instead of being able to articulate the unique value of your product, and position yourself better for certain user segments, you’re only able to articulate how your products are different in price to your competitors.” If your competitors are using your pricing as a guide, then it’s the blind leading the blind.

Issues with cost plus. “It’s simple and will cover your costs but it’s not without its flaws. Just as you do in competitor pricing, cost-plus ignores what’s valuable to customers, and often signals that you’re only paying attention to your own day-to-day operations.”

Value based pricing emphasizes your customers’ view. “By placing a premium on the opinions of your customers and buyers, you are focusing on the people who will eventually be deciding if your pricing and packaging is correct. Vale based pricing forces you to differentiate yourself from competitors and be able to articulate that difference in everything from your product development to your messaging. It requires that you understand how your customers get value from your product. This puts you in a better position to deliver on that value, acquire customers and retain them.”

Freemium is complex. “The product or feature you give away for free or for a limited time has to have value. If it doesn’t, then people aren’t going to use it even if it doesn’t cost anything. The upsell that you are charging for has to have additional value over the free offering, enough to make upgrading worth it to the customer.” It’s hard enough to figure out pricing of your product, much less what should be in the freemium and what should be the upsell. If you figure out freemium, it’s a big sales lever, but you have to have resources and a lot of research.

Freemium vs free trial vs reverse trial. “For a wide market segment (micro-SMB up to enterprise) — freemium works well to cater to small companies. As they grow, they will upgrade to pay for features they need. This is particularly true when there’s a version of the product that caters to individual end users. On the other hand, if you operate in a narrow market and users can realize

value relatively quickly, free trial may work better. Reverse trials are helpful if you want to get people hooked with a sticky product early on.”

When pricing needs a real re-think. “If your pricing strategy has become adhoc where you find yourself with lots of add-ons, tons of value metrics, and constantly charging overages, it is time

to revisit your strategy. The likelihood is that you might have lost sight of what your customer values, and are making purchase decisions complex for buyers.”

Research is key. “Most companies are still held back by overemphasizing competitor analysis and underemphasizing market research to measure what brings customers value.”

Thank you again to Price Intelligently for the report.

Thank you for your readership. See more blogs and SaaS data at blossomstreetventures.com. Email the author at sammy@blossomstreetventures.com.