A SaaS pricing strategy is your plan for setting the price of your software subscription. It’s a thoughtful process that involves analyzing your market, understanding your customers, and aligning your pricing with your product’s value and your business goals. More than just a number, your pricing strategy reflects your product’s positioning and is a key lever for growth.

A well-designed strategy ensures you can cover your costs, generate profit, and scale your business. It directly impacts your ability to attract customers, compete in the market, and build a sustainable revenue stream.

It’s easy to confuse pricing models with pricing strategies, but they serve different purposes. A pricing model is the structure you use to charge customers, while a pricing strategy is the logic that informs the price points within that model.

• Pricing model: This is the “how”—the mechanics of billing. Examples include flat-rate, tiered, and usage-based models.
• Pricing strategy: This is the “why”—the thinking behind your pricing. It could be to penetrate a new market, maximize profit, or win market share from competitors.

Think of your pricing model as the blueprint for your house and your pricing strategy as the architectural vision that guides it. You need both to build something that lasts.

Choosing the right pricing model is the first step in building your strategy. Each model offers a different way to package and sell your product. Here are some of the most common approaches:

• Flat-rate pricing: A single price for a single set of features.
• Tiered pricing: Multiple packages with different features and price points.
• Usage-based pricing: Costs are based on how much a customer uses the product.
• Per-user pricing: A set price for each user on an account.

Let’s explore each in more detail.

Flat-rate pricing is the simplest model: one price for all features. This model is easy for customers to understand and for you to communicate.

• Pros: Simplicity in selling and billing.
• Cons: It can be difficult to serve different types of customers. A small startup and a large enterprise pay the same price, which might leave money on the table or deter smaller customers.

Tiered pricing is one of the most popular SaaS pricing models. It involves creating two or more packages with different features and price points, often labeled “Basic,” “Pro,” and “Enterprise.”

• Pros: Allows you to appeal to different customer segments and provides a clear upgrade path as a customer’s needs grow.
• Cons: Can be complex to manage. Too many tiers can lead to analysis paralysis for potential customers.

With usage-based pricing, customers pay for what they use. This model aligns the price with the value a customer receives. For example, an email marketing platform might charge based on the number of emails sent.

• Pros: Directly links cost to value, which can feel fair to customers. It also scales naturally with your customers’ businesses.
• Cons: Revenue can be less predictable, and it can be difficult for customers to forecast their costs.

Per-user pricing is straightforward: you charge a fixed price for each user on an account. This model is common for team-based tools like project management software.

• Pros: Simple to understand and predictable revenue.
• Cons: Can be a deterrent for large teams or companies that want to roll out the software widely. It can also encourage password sharing.

Once you’ve chosen a model, you need a strategy to set your prices. Your strategy should be guided by your business goals. Here are three common approaches:

1. Penetration strategy: Setting a low price to enter a competitive market and quickly gain market share. The goal is to attract a large volume of customers and then potentially raise prices or upsell later.
2. Skimming strategy: Launching with a high price to attract early adopters who are willing to pay a premium. This strategy focuses on maximizing revenue from the start and can create a perception of high value.
3. Maximization strategy: Continuously adjusting your prices to maximize revenue from different customer segments. This often involves a mix of tiered and usage-based models to capture the most value.

Building a pricing strategy is an iterative process. Here’s a step-by-step guide to get you started:

1. Analyze your market and competitors: Understand what your competitors are charging and how their products compare to yours. This isn’t about copying them, but about knowing where you fit in the landscape.
2. Understand your customers: Talk to your customers. Find out what they value most about your product and what they’d be willing to pay for it. Use surveys and interviews to gather this data.
3. Identify your value metric: Your value metric is what you charge for—for example, per user, per gigabyte of storage, or per contact. A good value metric aligns with how your customers derive value from your product.
4. Position your product: Are you a premium solution or a budget-friendly alternative? Your pricing should reflect your positioning. Don’t be afraid to charge more if you offer more value.
5. Test and iterate: Your first pricing strategy won’t be your last. Continuously monitor your metrics, gather feedback, and be prepared to make changes.

Pricing is hard, and it’s easy to make mistakes. Here are some common pitfalls to avoid:

• Setting prices too low: Many startups underprice their products out of fear of losing customers. This can devalue your product and make it difficult to build a sustainable business.
• Copying your competitors: While it’s important to be aware of your competitors, their pricing strategy may not be right for your business. Focus on your own value proposition.
• Not updating your pricing: Your product, market, and customers will change over time. Your pricing should evolve with them. Plan to review your pricing at least once a year.
• Making pricing too complex: If customers can’t understand your pricing, they won’t buy. Keep your models simple and your tiers easy to differentiate.

Kinde makes it easy to experiment with and implement different pricing strategies. With Kinde’s billing and subscription features, you can quickly set up and manage tiered pricing, flat-rate plans, and more without writing custom billing code.

By connecting your pricing plans to Kinde, you can automate your subscription management and focus on building your product. Kinde provides the flexibility to test different price points and models, so you can find the perfect strategy for your startup.

• The Kinde billing model
• Pricing models
• Build a pricing table