Optimizing Your SaaS Pricing Strategy

how-much-should-you-charge-saas

 

Focusing on acquisitions and landing page conversions is all good and well, but as a business your ultimate goal is typically to translate those users into paying customers and generate as much profit as possible from them. Sometimes you can drastically increase your profit without any new acquisitions just by carefully evaluating your pricing.

Segmentation

Not all buyers are created equal. They have different personas from startups to enterprises to freelancers. Each of these buyers will be willing to pay a different amount- for example a self-employed person will be much more price conscious than someone who is employed by a large company because it comes directly out of their pocket. Each of these types will have a different Lifetime Value (how long you can expect to retain them as a customer), different customer acquisition cost, and will value different features and outcomes from your product. It is important to identify what customer groups you have so you can market and set prices effectively.

Identify Features

It is crucial to determine what features are valued by each of your customer types so that you can include those features in plans targeted at those groups for the right price. This data can be attained through surveys or observing which features your segments interact with the most when engaged with your product. You may find that you don’t have many differential features, which is still valuable as you may discover features you could build into your product for particular segments that don’t exist at present.

Anticipate Upgrades

Knowing where your customer segments are growing and evolving is key to retention and getting those customers to upgrade in the future. Again, this can be determined by surveys and data analysis.

Feature Pricing

Once you’ve determined which segments want which features you can bundle them and offer those particular features in whatever quantity for the right price for that particular segment. For example, you may find that having only 1 user account ¬†being able to use the application is fine for the freelancer but unlimited user accounts to be more desired by an enterprise.

Price Perception

It’s important not to make assumptions when it comes to pricing your product or else you may be charging too much or too little. A price that is too high may alienate the majority of your potential customers while a price that is too low may undermine the perceived quality of your product. Here are four main questions to ask when finding your pricing sweet spot:

  • When does my product become so expensive that most customers won’t purchase it?
  • When is my product expensive but still purchasable if there is sufficient need?
  • At what point is my product considered a bargain?
  • When does my product become so cheap that customers may begin to question the quality?

In most cases your ideal product price will fall somewhere in-between being considered a bargain and being a justifiable cost.

Once you have determined who is using your product for what purpose and what they are willing to pay it will be much easier to price your product. Don’t be afraid to ask your customers what they want, most of them are not naive to the fact that you are operating as a business and will not be put off by your request for feedback.