Few things cause more anxiety for a SaaS founder than setting a price. It feels like a monumental, irreversible decision. What if you charge too much and nobody buys? What if you charge too little and leave money on the table? This fear can lead to weeks of procrastination.
Here’s the truth: your first price will probably be wrong. And that’s okay. Pricing is not a one-time event; it’s a process of discovery. This guide will give you a simple framework to make an educated first guess and iterate with confidence.
The Golden Rule: Price on Value, Not Cost
The most common mistake is to base your price on your costs. For a software product, the cost to serve one additional customer is often close to zero. Cost-plus pricing doesn’t work here. You must price based on the value you provide.
Value-based pricing means your price is a fraction of the value your customer receives. Think about it this way:
- If your software saves a business 10 hours of manual work each month, and that business values its time at $50 per hour, you are providing $500 of value every month.
- Charging $49 a month for that solution is an easy decision for the customer. The return on their investment is 10x.
Your job is to understand and quantify that value.
The Three Main SaaS Pricing Models
Most SaaS products use one of three models. Understanding them will help you choose a starting point.
1. Flat-Rate Pricing
This is the simplest model: one price for one package of features.
- Pros: Easy to communicate and sell. Customers know exactly what they are getting.
- Cons: One size rarely fits all. You will have some customers who would have paid more and others who are priced out.
- Best for: Simple, single-purpose tools where all users have very similar needs.
2. Tiered Pricing
This is the most common model. You offer 2-4 plans with different features, usage limits, or levels of support.
- Pros: Allows you to appeal to different types of customers (e.g., a freelancer, a small team, a large enterprise). It provides a clear path for a customer to upgrade as their needs grow.
- Cons: Can become confusing if you offer too many tiers or the differences between them are not clear.
- Best for: Most SaaS products. It’s a flexible model that can adapt to a wide range of businesses.
3. Usage-Based Pricing
Also known as pay-as-you-go, this model ties the price directly to consumption.
- Pros: The price is perfectly aligned with the value received. It has a very low barrier to entry, as customers can start small.
- Cons: Can lead to unpredictable revenue for you and unpredictable bills for your customers. This can be a deal-breaker for businesses that need a fixed budget.
- Best for: Infrastructure or API products where usage is the core value metric (e.g., API calls, data storage, or bandwidth).
What Are You Actually Charging For?
The “per user, per month” model is a default for many, but it’s not always the best choice. The feature or limit that your pricing is based on is your value metric. A good value metric should grow as your customer’s business grows.
- An email marketing platform might charge per subscriber.
- A video hosting service might charge per gigabyte of bandwidth.
- A project management tool could charge per project.
Ask yourself: what metric best reflects the value my customer gets from my product? Charging per user can sometimes penalize a company for growing its team.
A Practical Plan to Set Your Price
- Research Your Competitors. Don’t copy their pricing, but understand the landscape. Are they charging $10/month or $1,000/month? This gives you a rough idea of what the market is willing to pay. Make a simple spreadsheet and note their pricing models and value metrics.
- Talk to Potential Customers. Don’t directly ask, “What would you pay for this?” People are bad at answering that. Instead, ask questions to uncover value. Try these:
- “How are you currently solving this problem?”
- “How much time or money do you think this would save you?”
- “What would happen if you didn’t solve this problem?”
- Pick a Model and a Price. Make an educated guess. A tiered model is often a safe bet. For your first price, err on the side of being too high. It is almost always easier to offer a discount than to raise a price later.
Pricing is a journey, not a destination. The goal is to start learning. Be prepared to be wrong, and be open to changing your mind as you learn more about your customers and the value you provide.
As you adjust your pricing and grow your revenue, track your milestones on BuildVoyage. Your pricing journey is a valuable story that other founders can learn from.