Guest post by Jan Gajl

Wouldn't it be great if there was a plug-and-play pricing plan that worked for any product out there? Just add your branding, dot some "i"s, cross some "t"s, and voilà – conversions go through the roof!

The truth is that there is no one-size-fits-all pricing strategy. The sooner you realize that the sooner you can start putting in the work to find the pricing strategy that actually works for your product.

Different products require different pricing plans

The pricing plan that will generate the most conversions is unique to the product you’re selling. Different strategies work for different target audiences. The approach varies depending on whether the product is dedicated to businesses (B2B) or consumers (B2C), the product's sector, and the competitive landscape, to name just a few factors.

And it’s not just the price itself that needs to be nailed down. There’s so much more to a pricing plan beyond just getting "the number" right.

Pricing model

Before choosing the price itself, you need to figure out what you are actually charging for.

*For example,* *Upvoty, a user feedback tool for SaaS products, uses tier pricing.*

There are several pricing models to consider, each with its benefits and considerations:

Flat Rate Pricing: This straightforward model charges customers a fixed amount for using your SaaS product, regardless of usage. It provides simplicity and predictability for both you and your customers, making it easy to understand and budget for. However, it might not accommodate varying usage levels or provide the best value for customers with different needs.
Tiered Pricing: With tiered pricing, you offer different service levels at varying price points. This model is ideal for targeting different customer segments based on their usage requirements. It enables customers to choose a plan that aligns with their needs, while also allowing you to capture a wider range of customers and increase revenue.
Per-User Pricing: Here, pricing is determined by the number of users accessing your SaaS product. This is suitable for collaboration tools and platforms where multiple users from a single organization will use the software. It can be a reliable source of revenue as businesses grow and add more users.
Pay-as-You-Go Pricing: This model charges customers based on their actual usage, offering flexibility and cost-effectiveness. It's well-suited for SaaS products that have varying levels of usage over time, but it might make revenue projection more challenging.
Freemium Model: In the freemium model, you offer a basic version of your SaaS product for free, while charging for premium features and functionalities. This allows users to experience your product before committing to a paid plan, potentially increasing conversions and building a loyal customer base.
Usage-based Pricing: Similar to pay-as-you-go, usage-based pricing charges customers according to specific metrics, such as data storage, API calls, or the number of transactions. This model works well for SaaS products with variable usage patterns, giving customers the flexibility to pay for what they actually use.

Pricing strategy

Once you’ve figured out the model, the next step is to decide on strategy. A well-thought-out pricing strategy considers various factors influencing customer behavior and market dynamics. Here are a few basic pricing strategies to consider:

Penetration Pricing: This strategy involves initially setting a lower price to gain market share and attract a large customer base quickly. It's effective for entering competitive markets or introducing a new product. As your SaaS gains traction, you can gradually increase prices.
Value-based Pricing: Centering your pricing around the perceived value your SaaS brings to customers is a potent strategy. By thoroughly understanding your customers' pain points and demonstrating how your product addresses them, you can justify higher prices and capture customers willing to pay for the benefits.
Competitive Pricing: In this approach, you set your prices based on the prevailing rates in the market. This strategy can help you remain competitive, but it's crucial to ensure that you're still offering unique value to stand out from the competition.
Bundle Pricing: Bundling multiple features or services together at a single price point can encourage customers to opt for higher-tier plans, as they perceive more value in the bundle. This strategy can also help cross-promote different offerings.
Time-based Pricing: Offering different pricing levels based on subscription duration (monthly, annually, etc.) can incentivize longer commitments by offering discounts for extended plans. This strategy helps secure a more predictable revenue stream and encourages customer loyalty.
Freemium to Premium: Starting with a free version of your SaaS product and gradually introducing premium features can effectively convert free users into paying customers. This strategy leverages the "try before you buy" concept and nurtures customer trust in your product.

Psychological pricing tricks

On top of all that, it never hurts to sprinkle your plan with a few psychological tricks. These subtle yet effective tactics leverage cognitive biases and human behavior to make prices appear more appealing and entice conversions. Here are a few psychological pricing tricks that can shape customer perceptions:

Charm Pricing: Employing prices just below rounded numbers, such as $9 instead of $10, taps into the "left-digit effect." Customers perceive the price as significantly lower, even though the difference is just a single dollar. This strategy creates a sense of value and affordability.
Prestige Pricing: Setting high prices can evoke the perception of premium quality and exclusivity. Customers often associate higher prices with higher quality, making them more willing to pay a premium for perceived excellence.
Scarcity and Urgency: Creating a sense of scarcity or urgency by displaying limited-time offers, limited stock, or countdown timers can prompt customers to make quicker purchase decisions to avoid missing out on a perceived opportunity.
Price Anchoring: Presenting a higher-priced product or option before showing the actual product you want to sell can anchor customers' perceptions around a higher value. As a result, the final price might seem more reasonable and attractive in comparison.
Limited Tier Strategy: Offering a basic tier that's free or very low-cost can make higher-priced tiers appear more valuable by comparison. Customers are more likely to choose a mid-range option when they perceive it as a balanced compromise.

Pricing table visuals

On top of all that, there’s also the visual aspect of things. Once you know your customers and who you’re trying to reach (and convert), you can make design decisions accordingly. For instance, you might want to evoke different emotions using different colors by color psychology.

In addition to that, there are various UI aspects, such as layout, positioning, font, and size, that can be applied to your pricing plan with varying levels of attention. All of these factors are important when it comes to conversion rates.

Pricing plan should evolve as the product evolves

Phew, that's a lot, isn't it?! Undoubtedly, figuring out a pricing plan that works for your product is no small feat! And we have only scratched the surface in terms of the possibilities.

Let’s take it a step further.

When do you consider your product done?

If you answered “never”, you are correct. A SaaS product is never finished. It’s constantly being improved, tweaked, and developed to better serve its customers in the dynamically and rapidly changing market. Clearly, as the product changes, the pricing plan should change with it. This is something every startup must understand, right?

Wrong! According to research conducted by Paddle, an average startup spends 6 hours on its pricing strategy in the entire history of its existence. Not six hours a week. Not six hours a year. Six hours IN TOTAL.

It’s not possible to define, test, and optimize a pricing plan for a finished product in a few hours. Let alone for a product that’s constantly growing.

That’s why a pricing plan should evolve as the product evolves.

How do I create a pricing plan that works?

The most important lesson is that creating a converting pricing plan is a process. And a never-ending one at that.

You have to start somewhere, though. Analyze your competition, talk to your (potential) customers, and make an educated guess. Only then does the real work start.

When working with your pricing strategy, make sure you keep testing, experimenting, and adjusting. Make decisions based on the data you gather and learn what makes your pricing plan work. It's too complex an issue to take someone else's word for it. Your product is unique, and so should the pricing.

Bonus: To simplify the technical aspects of setting up the scene, you can use a tool like PriceRocket. It helps you start quickly, test different variants, gain insights, and make informed decisions.

Bonus: One way to know if you’re on the right track with pricing is to look at the cost/benefit ratio. Ask your users for feedback with a tool like Feedefy and know what to build next in order to justify your pricing (and to raise pricing).

SaaS Pricing: A plan that works every time