SaaS value-based pricing is an important part of your SaaS product journey. For every SaaS business, it is important to have the right pricing strategy in the GTM strategy. Value-based pricing is the key to your SaaS success. In this article, we will know what value-based pricing is, how to add value to the product, the pros, and cons of value-based pricing, and is value-based pricing right for your business.
What is SaaS Value-based Pricing?
Value-based pricing is a model that determines how you will charge for SaaS products or services. When you are looking to calculate how much you must price your product, you need to keep value in mind. This value needs to include how much is the cost of production, resources, labor costs, and more. SaaS value-based pricing models work for certain offerings. Value-based pricing is when you charge customers for the value of the product. This is the rate at which customers are ready to pay.
The Key Influences of Value-Based Pricing
- A market that shows how much the customer is ready to pay for the product
- How do competitors set their pricing for a similar product
- Noticing if there is inelastic demand
- The brand image of the product where prestige plays a premium part
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Value-based pricing: How to Set the Price for your Product
When looking to choose value-based pricing, you need to understand the product. The key stakeholders in the product include-
It becomes of higher value If your SaaS product is connected to other systems. Integrations with HubSpot or other CMS platforms can increase the product’s value. You need to build custom solutions to integrate with HubSpot and more platforms. It should be easy to integrate, making adding value important. You need to save the customer time, money, and effort by having easy integrations in place. This will enhance the value and overall returns.
Users or consumers
Your product users are super valuable stakeholders. If more customers choose a company, you will know why they did that. This could be due to better customer support or product features. You need to get more users to the platform by understanding the customers better. This will help you align the services and products to customers correctly.
Your SaaS product needs to have splendid features and facets. Your features need to be functional for customers and add value to them. One good way to do that is through the freemium model. You get a taste of how the product works and why you need to subscribe for all the features. Maybe a free trial offers you a glimpse of the products, but a paid one will offer 24/7 support. You need to know which features and integrations work with each other best.
Pros of SaaS Value-based Pricing
When you bill customers based on value, there is a lesser chance of churn reduction. You can get a loyal customer base who understands the product’s value and are ready to pay a premium. You can also set price points to meet specific needs.
Improves Customer support
With value-based pricing, you can offer better customer support. This is because you know what customers want and why they are associated with the product. You can enhance customer relationships and show how they can gain with the product.
Product is optimized
Value-based pricing helps optimize products. You know which aspects are offering value and which are not. You can develop a higher quality product and estimate how it aligns with customers’ need. With customer feedback, you can improve the product. This makes it easier to improve the product in the long run.
Cons of SaaS Value-based Pricing
Value can keep changing. It varies from region to region, economic, social, and technological conditions. You cannot be sure that your product will not see any value drops. Even if the product is popular in the market, there may be a drop in its value. In the long run, higher revenue may lead to decreased value.
Mark up issues
In many businesses, it may be difficult to set a high markup price. While some costs may be high, some resources may be low. You need to know what makes your product special and why it deserves a separate price. Price needs to be justified for the value it offers according to the customer. You need to ensure markups are done in the right manner.
Is Value-based Pricing Right for your SaaS Business?
You can choose a value-based pricing model based on some critical factors.
- How the market thinks of your business
- Are there any competitors?
- How much your customers are ready to pay for the product
- By running sales forecasts on revenue points
- What pricing strategy was followed earlier
- Are the consumers loyal to the business
Value-based pricing will help you understand the market in a better format.17
In every which way, the right pricing model is important for your business. it could be freemium, subscription, or value-based pricing. However, you need to consider how your business delivers value to customers and work around that. The more value you deliver to customers, the more likely they will spend more on your business. This increases customer retention and lifetime value in the long run.
Stanley Deepak is an accomplished sales and marketing professional with 15+ years of experience. He loves tech products and book reading. He writes on philosophy and culture on LinkedIn.
Published July 14, 2022, Updated March 02, 2023