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Estd 4.22.2023
Pricing can make or break a SaaS business. In today’s efficient-growth era, investors and executives have zero tolerance for pricing missteps. In fact, leaders are pushing pricing to the top of the agenda as a critical lever for revenue and margin growth. Yet many SaaS companies still fall into the same traps that stunt growth and leave money on the table. We at Monetizely have seen these pitfalls firsthand and helped companies course-correct using our pragmatic, 5-step pricing framework.
In this post, we highlight five “Don’ts” of SaaS pricing strategy - mistakes you should never do - and how to avoid them. Let’s dive in.
1. Don’t Underprice - Undervaluing Your Product Undermines Your Business
The reason for very low prices is not prudence, but fear. One of the most common mistakes (especially among early-stage SaaS startups) is setting prices painfully low in an attempt to attract customers. While it might feel safe, underpricing can backfire badly. Why? For one, it plants doubt about your value - prospects may ask “Why so cheap? What’s wrong with it?”. This is especially true when selling to enterprises. Larger companies are less price-sensitive and care more about ROI, risk, and reputation than getting a bargain. If your price is far below the perceived value, it signals a lack of confidence and can erode trust.
Underpricing also means leaving serious money on the table. You might win some deals quickly, but you’ll struggle to grow sustainably. In a First Round State of Startup’s report, founders who struggled to raise capital were 3x more likely to say they monetized too late. Low prices can stunt your revenue growth and even scare off investors who worry you’ll never “monetize” effectively. As SaaStr founder Jason Lemkin puts it: if you have customers willing to pay $100K, don’t be timid about charging $150K for the next one - big customers can pay more, so don’t sell yourself short. Your price should reflect the value and reliability you deliver, not undercut it.
What to do instead: Instead of underpricing your product, focus on value-based pricing. This strategy is all about understanding the real value your product delivers to customers and pricing it accordingly. Begin by doing customer research to gauge willingness-to-pay rather than guessing. If customers buy “too quickly” with no hesitation, it’s a red flag your price is likely too low. It’s often possible to raise prices (gradually and with clear communication) without spooking customers - especially if you’ve added features or proven value. B2B buyers will pay for outcomes and stability. The key is to collect data and test. For example, roll out a higher price to new customer cohorts and measure conversion and churn. If you do it right, you can often increase prices and almost double margins while keeping customers happy. Monetizely’s Rate Setting process (Step 4 of our pricing framework) uses market data, value metrics, and iterative testing to find the optimal price point - one that captures fair value without sacrificing growth. Remember, underpricing not only saps revenue but can also signal low quality. Charge with confidence when you deliver real ROI. You’ve earned it.
2. Don’t Get Trapped By Dogma In Picking Your Pricing Metric
Never base your pricing on a value metric that doesn’t align with how your customers derive value. In SaaS, what you charge for (the unit or metric) is just as important as how much you charge. Whether it’s per user, per API call, per GB of data, or any other unit - choosing the wrong metric will wreak havoc on your growth. One big mistake is blindly copying a competitor’s pricing model. Don’t assume competitors got it right - they might be charging per seat, but that may not suit your product at all. If you simply mimic their pricing, you also send a message to the market that your product is the same as theirs (when presumably you offer unique value). This can commoditize you and “warp” the perceived value of your solution.
The danger of a misaligned metric is that it creates friction and misincentives. Imagine a powerful analytics SaaS that prices per user seat. If one customer has 100 users but just 3 power-users generate 95% of the value, charging for all 100 seats makes the price go up without equivalent value - a clear mismatch. The extra 97 users add little benefit, so the customer will balk at paying for them.
Similarly, a wrong metric can stifle adoption: if your pricing is tied to a metric that users naturally try to minimize, they’ll use your product less (or seek ways to avoid that charge). We’ve also seen companies stick with a familiar metric (e.g. per-license) even as their product delivers value in new ways - resulting in missed revenue.
On the flip side, chasing the latest pricing fad can be just as damaging. Usage-based pricing (UBP) is a hot trend - adoption of UBP jumped from 30% of SaaS companies in 2019 to a projected 79% in 2023, but it’s not a silver bullet for everyone. In practice, UBP can introduce variability and longer sales cycles (29% longer on average than seat-based sales in 2023) if your buyers aren’t ready for it. In fact, enterprise deals with UBP saw the biggest slowdowns. The lesson: one size does not fit all in pricing metrics.
What to do instead: Align your pricing metric to customer value. The right metric will scale with the value a customer gets, be easy to understand, and encourage usage - not hinder it. To find it, brainstorm a range of potential value metrics and evaluate each against criteria like:
- Value-based (does it track with customer outcomes?)
- Scalable
- Predictable
- Auditable
- Customer-friendly
For example, if your product saves time by automation, charging per seat might penalize the very efficiency you create, whereas charging per transaction or usage unit might correlate better with value delivered. Don’t just follow the herd or the latest trend here. Resist the urge to change your metric just because others are - focus on what your customers value most. If a pure usage model doesn’t fit, consider hybrids (e.g. base subscription + usage tiers) that capture value while providing predictability.
Monetizely’s Pricing Metric design (Step 3 of our pricing framework) helps SaaS teams identify the optimal value metric through data and testing. We often start by examining how your power users get value, and what usage correlates to successful outcomes, and then align pricing there. In short, we help you price the way your customers win.
3. Don’t Make It Hard to Buy (Friction and Complexity Will Repel Customers)
Never put unnecessary barriers between your customer and the purchase. If your pricing model or sales process makes buying your SaaS product complicated or opaque, you're likely losing business. In today’s product-led world, software buyers expect a smooth, self-service experience. They want to easily start using your product (often via a free trial) and see its value before committing to a larger spend.
A major mistake here is hiding your pricing or requiring excessive sales intervention for a simple purchase. For instance, a VP at Userpilot expressed frustration at having to attend three separate sales meetings just to receive a pricing quote. An opaque, gated process (often accompanied by “Contact us for pricing”) is a quick way to turn modern buyers off. If prospects have to jump through hoops just to learn the cost, many will abandon the process.
The other side of making buying hard is overwhelming the buyer with complexity. Yes, flexibility in pricing and packaging is important - but too many options, add-ons, and fine print will confuse and paralyze customers. According to McKinsey, the average software company offers 7+ pricing schemes and over 10 different pricing metrics across its products. Some companies have 15+ metrics (!), resulting in bills so confusing and unpredictable that customers complain about surprise charges. Too much complexity not only frustrates buyers, it also slows down your sales cycle and fuels mistrust. Internally, it makes it harder for your team to manage pricing and prevent discounting chaos.
What to do instead: Streamline and simplify the buying experience. Make it as easy as possible for a qualified prospect to try and buy your product. A few tips:
- Offer a Free Trial or Freemium option if feasible: Let customers start using a basic version at no cost - this reduces risk on their end and proves your value early. 91% of large SaaS firms ($50M+ ARR) have adopted product-led growth models with free trials/freemium, showing how prevalent this is.
- Be transparent with pricing for standard plans: Publish prices for your entry-level and mid-tier packages. Reserve “call us” only for truly enterprise custom deals. This transparency builds trust and lets lower-level champions at a company advocate for your tool without immediate procurement involvement.
- Keep your packaging simple: Avoid an explosion of editions and ala carte add-ons that require a PhD to decipher. Research shows companies with just a few clear tiers (e.g. a “Good / Better / Best” packaging) and fewer than 5 add-on options are nearly 30% more likely to have effective pricing and enjoy high growth versus those with extremely complex pricing. Simplicity sells. It’s fine to have a tailored enterprise package, but for most customers, streamline your core offerings.
- Align pricing with how customers buy: If your target users prefer monthly self-service purchases on a credit card, don’t force annual contracts only. Conversely, if you’re selling to enterprises, provide options like invoicing, multi-year commitments with opt-outs, etc. Design pricing and plans around customer needs, not internal constraints.
Monetizely’s Positioning & Packaging expertise (Step 2 of our framework) focuses on finding the right balance between flexibility and simplicity. We recommend a “land and expand” approach: a low-friction entry point (e.g., a free trial, starter tier, or pay-as-you-go model) combined with a clear upgrade path as customers grow. By simplifying your pricing structure and reducing the effort to buy, you’ll increase conversion rates and widen your funnel. Remember, every extra step or ounce of confusion in pricing is an opportunity for the customer to drop out. Make buying a no-brainer. Make buying a no-brainer.
4. Don’t Neglect Expansion and Upsells (Avoid a Broken Upsell Path)
Never assume that a one-time sale is enough - or that customers will naturally expand on their own. In SaaS, the real money is not just in customer acquisition, but in customer expansion. The beauty of the model is that you can land a customer and then grow that account’s revenue over time through upsells, cross-sells, and increased usage. But this doesn’t happen by accident - your pricing strategy needs to enable and encourage expansion. A critical mistake is failing to plan an upsell path in your pricing. If your packaging doesn’t offer logical upgrades (e.g. from a basic plan to a pro plan, or add-ons for additional usage or features), customers hit a ceiling. They can’t give you more money even if they want to, unless they churn to a competitor. No upsell path = you’re effectively capping your Customer Lifetime Value (CLV).
The gold standard for SaaS has been to achieve net-negative churn (net revenue retention > 100%), meaning expansions outpace churn. These days, investors expect even more - top SaaS companies aim for 110%+ net revenue retention annually. (In fact, the median NRR for public cloud companies is around 108-110%.) If you’re not set up to hit that, you’re falling behind. A broken upsell strategy is often evident if you see flat expansion revenue or low upgrade rates. Common culprits include: having only one plan (no tiers), so there’s nowhere to upgrade; not packaging premium features into higher tiers; or charging by a fixed seat count such that a customer pays the same no matter if their usage doubles. In contrast, the fastest-growing SaaS businesses typically have multiple expansion levers. For example, they might charge per user and also have a usage-based component (so as a customer’s usage or data grows, their bill grows), and/or they sell additional modules or add-ons. If you lack these, you’re leaving expansion revenue untapped.
What to do instead: Build a clear, value-driven upsell ladder into your pricing. Think of your pricing as a journey: initial landing point, then steps that deliver more value for more investment. Some proven approaches:
- Tiered “Good-Better-Best” Packaging: This model works because it aligns with natural customer segments. Create at least three tiers (e.g., Basic, Pro, Enterprise), with each tier offering increasingly valuable features or usage limits. The middle tier should provide meaningful upgrades that customers are willing to pay for as they grow.
- Usage-Based Expansion: Incorporate a usage-based component that scales with customer growth (e.g., data, transactions, API calls). This way, your revenue grows alongside your customers. Many of the top SaaS firms, such as Snowflake, have achieved exceptional net revenue retention through this model by monetizing increased usage. Even if you charge per user, consider adding overage fees or additional usage packages for larger customers.
- Add-On Modules or Cross-Sells: Have optional add-ons for complementary features, premium support, additional seats, etc. Don’t give everything away in the base plan. An upsell path could be as simple as: customer starts on a small team plan, then pays extra per additional team or for unlocking a new module as their needs grow.
- Pricing that Scales with Company Size: Align your pricing model with customer segments. For instance, SMB-focused plans and an enterprise plan can naturally guide customers to higher-paying segments as they grow. Don’t hesitate to charge more for enterprise plans, these customers often require more features, security, and support, justifying a premium.
At Monetizely, we emphasize Expansion Planning as part of our holistic approach. Our framework ensures that Packaging (Step 2) and Pricing Metrics (Step 3) are aligned to encourage high net retention. We help you map out your customer’s growth journey, ensuring that upsells feel natural and valuable at every stage. A happy customer is often willing to invest more over time, if you continue providing them with value.
Don’t leave expansion revenue untapped. Always think about the next value you can offer and how it translates into monetization. As one pricing expert put it, "pricing strategy doesn’t sleep." Make sure your upsell path is clear, and both you and your customers will benefit from sustained growth.
5. Don’t ‘Set and Forget’ Your Pricing (Static Pricing is a Silent Killer)
One of the most damaging mistakes in SaaS pricing is treating it as a one-time task. Complacency is a silent killer - setting your pricing once and leaving it unchanged for years can cause serious long-term issues. In the fast-paced world of SaaS, your product, market, and customers evolve continuously, and your pricing should evolve with them.
A static pricing model can lead to significant problems: outdated pricing that doesn’t reflect new product capabilities, or a model that worked at $1M ARR but no longer fits at $20M ARR. Companies often wake up to find themselves grossly undercharging or misaligned with how value is delivered, scrambling to adjust under pressure.
Another key aspect of static pricing is the absence of a dedicated pricing function. In many SaaS businesses, pricing is managed ad hoc - perhaps a founder or PM set the prices initially, but no one owns it now. According to McKinsey, about 75% of software companies lack a dedicated pricing function and rely on ad hoc approaches. The result? No one is systematically tracking if pricing is working, no one is enabled to adjust it, and it often gets ignored until there’s a serious problem. Worse, over 55% of SaaS companies still set prices based on guesswork instead of data, leading to frequent mispricing, lost revenue, and higher churn.
If you don’t revisit pricing regularly with a data-driven approach, you risk missing market shifts or competitive moves. For example, if your competitors have moved upmarket while your price remains low (or high), you may be mispricing based on outdated assumptions. A static approach will cause delays, and by the time you react, the damage may already be done.
Leading SaaS companies treat pricing as an ongoing process - continuously experimenting and refining. In 2024 alone, over 3,500 top SaaS companies recorded 339 pricing and packaging changes, including 126 price adjustments and 213 packaging updates. Iterating on pricing is the new norm, and if you're not adjusting your prices regularly, you're falling behind competitors who optimize their pricing quarterly. Companies that build a long-term pricing advantage see it contribute 15-25% to total profits. Why leave that on the table?
What to do instead: Make pricing a continuous, data-driven process and assign clear ownership. Treat your pricing strategy as a living, breathing aspect of your business that you refine over time. Steps to take:
- Assign a Pricing Owner or Team: Appoint someone who is dedicated to pricing - whether a pricing manager or a cross-functional team. This person should gather insights from product, sales, finance, and market research to ensure pricing is optimized. Accountability is key. Simply assigning ownership is a major first step.
- Invest in Pricing Operations and Infrastructure: High-growth companies are 1.4 times more likely to have a dedicated pricing team than slower-growth peers. You don’t need a huge team, but you do need resources to conduct surveys, analyze usage data, run pricing experiments, and maintain pricing tools. Establish processes for updating price lists, communicating changes, and training the sales team. This is a critical aspect of Monetizely’s Step 5 (Pricing Operations), where we help companies build the infrastructure to manage pricing as an ongoing function.
- Review and Iterate Regularly: Schedule a pricing review at least annually (ideally quarterly). Look at key indicators: Are too many customers on your lowest tier with overage usage? Is your win rate changing versus competitors? Use data from A/B tests, surveys, and cohort analysis to adjust your pricing. Even small tweaks, like a slight price increase, introducing an add-on, or simplifying a bundle, can drive major results. Top companies treat pricing as a work-in-progress, constantly improving it.
- Stay Agile to Market Changes: If economic conditions shift (e.g., customers become more cost-sensitive in a downturn or your cloud costs rise), be prepared to adjust your pricing accordingly. Those who proactively adapt their pricing to market changes - including inflation or new value offerings - perform better than those who stick to outdated models.
Monetizely’s 5-Step Pricing Framework culminates in Operationalization (Step 5) - we help companies implement the tools, team, and cadence to manage pricing as a dynamic strategic function, not a one-time project. Our approach is pragmatic: we don’t just recommend a new pricing scheme; we work with your team to execute, monitor, and refine it. By continuously improving your pricing (just as you continuously improve your product), you capture maximum value and stay ahead of the competition. Don’t let your pricing sit idle - the best SaaS companies certainly aren’t.
Conclusion
Pricing is one of the most powerful growth levers in a SaaS business - but only if you avoid the pitfalls that can undermine it. To recap, the five “Don’ts” you should never do are:
- Don’t undervalue your product with bargain-basement prices (instead, price confidently for the ROI you deliver).
- Don’t mis-align your pricing metric or copy competitors (instead, choose a value metric that fits your product and customer value).
- Don’t create friction in the buying process with complex or opaque pricing (instead, simplify and let customers buy the way they want).
- Don’t ignore the upsell path and expansion opportunities (instead, build tiers and options that encourage customers to grow with you).
- Don’t set and forget your pricing as if it’s static (instead, treat it as a continuous, data-driven optimization, with ownership and process).
Avoiding these mistakes will directly translate into higher revenue, better customer retention, and a stronger market position. Monetizely brings deep operational expertise and a pragmatic, cost-effective approach to help you execute on all of the above. Our 5-step framework (Segmentation, Packaging, Pricing Metric, Rate Setting, Pricing Ops) is a proven roadmap to transform your pricing strategy and drive sustainable growth. We’ve helped SaaS companies like Twillio, Narvar, Medallia, Zoom, etc correct these mistakes. Don’t leave money on the table or let hidden mistakes stifle your growth. Get a free pricing assessment from experts today. Our experts will evaluate your pricing against best practices (including the five areas above) and provide actionable recommendations - no strings attached. It’s the first step toward a pricing strategy that accelerates your ARR and your company’s ambitions.