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Estd 4.22.2023
Business school might teach the basics of pricing strategy - supply and demand curves, cost-plus formulas, competitive benchmarking - but the real world of SaaS pricing is a different ballgame. Pricing is not a one-time decision or a simple formula. It’s an ongoing, strategic lever that can accelerate growth or stifle it. In fact, pricing impacts everything from your ability to raise capital to your net retention and customer lifetime value. Yet many of the most crucial pricing lessons rarely make it into the MBA curriculum.
This blog post explores five overlooked or advanced insights about SaaS pricing that business school didn’t cover.
1. Price for Value, Not Just Costs or Competition
Business school pricing is too geared for FMCG products and for those products cost plays a big role. In SaaS, those approaches often fall flat. The real key is pricing based on customer value and willingness to pay. B2B SaaS buyers are usually far less price-sensitive than you’d think - they care most about the ROI, risk mitigation, and reputation impact of your product.
If your software delivers significant value (saves money, increases revenue, solves a painful problem), many customers will pay a premium for it. In other words, don’t underestimate your product’s value or underprice out of fear. Charging too little not only leaves money on the table, it can also signal low value. It’s no coincidence that companies who struggled often say they waited too long to monetize or chose the wrong model.
Actionable Guidance:
Shift your mindset to value-based pricing. Talk to your customers and quantify the outcomes your software enables - for example, does it save 100 hours of labor or increase conversion rates by 20%? Use that to anchor your pricing. Test higher price points with new customers or new features, and collect data on willingness-to-pay. Many startups find that raising prices (gradually and with clear communication) has little impact on churn if the value is there.
In fact, a majority of SaaS companies raised prices in the past year, with 73% planning price increases in 2024 (up from 54% in 2023). The enterprise video platform Zoom, for instance, initially gained traction with a generous free plan, but as its value became mission-critical during the pandemic, businesses proved willing to pay for premium plans and added features.
The lesson: if you deliver 10x value, don’t be afraid to charge a fair share of that. B2B buyers will pay for outcomes (3 R’s: ROI, risk, and reputation), not just features, as long as you can prove the ROI. So align your price with the value and impact you create.
2. The Pricing Metric Can Make or Break Your Model
Another thing you won’t learn in school is that how you charge can be as important as how much you charge. In SaaS, choosing the right pricing structure and value metric (the unit by which you charge - per user, per API call, per project, etc.) is a strategic art. Many MBA courses gloss over this, but in practice a misaligned pricing metric can create friction, slow growth, or spur churn. Don’t just copy a competitor’s pricing model assuming they got it right. Your pricing should reflect how your product delivers value.
For example, Twilio charges per message/API call, directly tying cost to usage, while Slack famously only charges for active users to ensure teams feel they’re paying for actual value received.
The analytics company Mixpanel learned this the hard way - they initially charged based on events tracked, which worked for small customers but led to pushback from larger ones as event volumes (and bills) grew without clear incremental ROI. In 2019, Mixpanel switched to a Monthly Tracked Users (MTUs) model to better align price with value (charging by the number of unique users engaged, rather than raw events). This change simplified conversations and improved customer satisfaction, because the metric was more intuitively tied to the value clients got from the product.
Actionable Guidance: Select a value metric that aligns with your customers’ success. Brainstorm all the possible metrics (users, API calls, data usage, transactions, etc.) and evaluate them against criteria like:
- Value-based: Does it grow with the customer’s perceived value?
- Flexible: Can it accommodate different sizes or use cases?
- Scalable: Will it allow revenue to scale up as customers grow?
- Predictable: Is it reasonably predictable (avoids surprise bills)?
- Feasible: Is it technically and operationally feasible to measure?
Rarely one metric will tick all boxes, but aim for the best trade-off. If needed, use a hybrid model (e.g. base fee + usage) to balance predictability and value capture. Monitor feedback closely - if customers constantly complain about pricing or if you see usage growing faster than revenue, those are red flags that your metric might be wrong. Be willing to adjust. Keep in mind, the industry is trending toward more usage-based and hybrid pricing: around 61% of SaaS companies now have some usage-based component.
This can unlock growth and expansion revenue, but it also comes with challenges like longer sales cycles (enterprise deals with usage-based pricing took ~29% longer to close in 2023 than seat-based deals). Manage those trade-offs by offering commitments or tiers to give heavy users predictability. The bottom line: choose your pricing metric deliberately. The right metric aligns price with customer value and usage, making your model naturally scalable - the wrong metric can alienate customers or cap your growth.
3. Packaging Is a Strategic Growth Lever (Not an Afterthought)
Think back to any pricing lecture you had - did anyone talk about how to structure product packages or tiers? Probably not in detail. In practice, how you package features and offers is just as critical as the price point. Packaging isn’t just a marketing bundle; it’s a strategic tool to align your product with different customer segments and to drive expansion revenue.
One-size-fits-all pricing often fails to capture the full revenue potential or alienates certain customers. That’s why many SaaS companies adopt tiered packaging models like “Good-Better-Best.” (GBB)
- Entry-level plans provide an accessible option for smaller or new customers.
- Mid-tier plans deliver added value for growing businesses willing to pay more.
- Top-tier or enterprise plans target high-value customers with advanced needs, capturing the upper end of willingness-to-pay.
This structure works better than a singular plan because it differentiates by customer sophistication and WTP, offers clear upsell paths as usage grows, and simplifies decision-making for buyers. At the same time, we don’t only advocate for GBB, we advocate for the right packaging for the right segments. Even GBB is not a default pick.
Actionable Guidance:
- Design Tiers for Customer Archetypes/Segments: Create packages tailored to distinct customer segments or use cases:
- A “Starter” tier for small teams or individuals.
- A “Pro” tier for scaling businesses.
- An “Enterprise” tier with advanced features like enhanced security, analytics, and dedicated support.
Ensure each tier delivers clear incremental value that resonates with its target audience, justifying the higher price.
- Leave Room for Add-ons: Avoid bundling every feature into your top tier. Instead, offer premium capabilities as optional add-ons (e.g., advanced analytics, extra API calls, or additional modules). This approach maximizes upsell opportunities while maintaining flexibility.
- Monitor and Adjust Packaging Performance: Regularly review how your packages are performing:
- If you notice churn at specific tiers or feedback like “we’re outgrowing the medium plan but the enterprise plan is too much,” consider introducing intermediary tiers (e.g., a “Lite” plan) to retain customers who might otherwise downgrade or leave.
- For power users consistently pushing the limits of your highest plan, explore premium tiers or custom pricing to monetize their advanced needs without impacting other customers.
- Enable Smooth Upsell Paths: Design packages that naturally encourage upgrades as customers derive more value from your product. This could involve higher-tier plans or usage-based charges that scale with customer growth. The best SaaS companies achieve net-negative churn (often targeting 110%+ net retention) by ensuring their pricing evolves alongside customer usage.
4. Willingness to Pay Is Fluid - Keep Testing the Ceiling
Economics 101 teaches willingness-to-pay (WTP) as a static concept on a demand curve, but in the SaaS world WTP is a moving target. Customers’ willingness to pay evolves with market conditions, alternatives, and the value you add to the product over time. What they would pay last year might not be what they’ll pay today. This is especially true in fast-changing markets or when you’re continually releasing new features (think of the surge of AI features being added to software in 2023-2024, which has altered customers’ value perception). Business schools rarely cover how to systematically gauge and adapt to WTP in an ongoing way.
In reality, SaaS companies need to constantly feel out the market’s willingness to pay - through pricing experiments, customer research, and observing buying behavior - and adjust accordingly.
For instance, during high inflation or booming economic times, customers might tolerate broader price increases; in tighter economic conditions, buyers scrutinize value much more. Overall economic trends (growth, inflation, interest rates) directly impact customers’ willingness and ability to pay. In the post-2021 higher-interest climate, many buyers expect price increases to be moderate and clearly tied to additional value - the era of raising prices “because everyone else is” has ended. This means you must earn your price by continuously delivering value.
Actionable Guidance:
- Research and Test Regularly: Use direct methods like surveys, interviews, and conjoint analysis, as well as indirect methods such as A/B testing price points or packaging options for specific segments. Pay attention to signals:
- Fast-closing sales without negotiation may indicate your price is too low for that segment.
- Frequent pushback or stalled deals suggest you might be exceeding perceived value or need better packaging strategies.
- Segment Your Market: Different customer profiles have varying WTP based on the value they derive from your product:
- A freelancer might afford $20/month for basic functionality, while a Fortune 500 company could pay $200k/year for enterprise-scale deployment with robust support.
Ethical segmentation captures these differences through tiered pricing plans or custom enterprise packages.
- A freelancer might afford $20/month for basic functionality, while a Fortune 500 company could pay $200k/year for enterprise-scale deployment with robust support.
- Leverage Geographic and Contextual Insights: Geographic factors also influence WTP, offering regional pricing or discounts in emerging markets can help align with local affordability. Additionally, context matters: urgency or scarcity can significantly increase perceived value.
- Adapt Pricing Dynamically: Treat WTP as dynamic data rather than a fixed input. Revisit pricing at least annually (or quarterly) by asking: “Has our product value increased? Has the market context shifted? Could we charge more, or do we need adjustments to stay aligned with customer expectations?”
For example, when Zoom introduced new AI-powered features in 2023, they (like others) had to determine how much extra those features were worth to customers and whether to bundle them or sell separately. On the flip side, as pandemic-era usage normalized, some customers’ WTP for unlimited video calls may have tempered, leading Zoom to introduce usage limits on free plans to prompt upgrades. By continually measuring and testing WTP, you can find the pricing sweet spot - high enough to capture value you deliver, but not so high that it cancels out that value in the customer’s eyes.
Just communicate transparently and give customers options, and many will accept reasonable changes if they see the added value.
5. Pricing Is a Team Sport and a Continuous Process (Operational Excellence Required)
Perhaps the biggest thing business school overlooks is the execution side of pricing. In class, pricing might seem like a one-time decision you make before a product launch or a number you tweak in a spreadsheet. In real SaaS operations, pricing is an ongoing, cross-functional process that requires proper ownership and enablement.
Leading SaaS companies treat pricing as an ever-evolving strategy - they assign dedicated pricing or monetization teams or at least a pricing owner, and they invest in tools and processes to iterate quickly. This is crucial because your product, market, and strategy will evolve, especially as you scale from startup to enterprise; your pricing must evolve in tandem. Stagnant pricing is a recipe for lost revenue or eroding margins. It’s telling that in today’s SaaS environment, pricing and billing discussions are happening earlier than ever - investors now expect even young startups to have a pricing strategy and the infrastructure to support it, almost from day one.
Actionable Guidance:
- Establish clear ownership and cross-functional collaboration for pricing: Assemble a small team or committee with stakeholders from Product (for value and feature insights), Finance (for modeling and margins), Sales/CS (for ground-level customer input), and Operations/RevOps (for systems and enablement). Decide who “owns” pricing decisions - it could be a Head of RevOps, a product marketing leader, even the CEO - but make sure someone is accountable to drive the pricing process. This ensures you balance perspectives: too often, Finance might push for cost coverage, Product might focus on feature value, Sales might fear price increases - together, they can hash out a cohesive strategy.
- Set up a cadence for revisiting pricing (e.g. major review every 6-12 months, or when a significant product update or market shift occurs). Importantly, invest in pricing operations: make sure your billing systems, analytics, and tools can handle changes. If your tech stack can’t support usage-based billing or new packaging experiments, prioritize solving these bottlenecks. Many companies now adopt flexible billing platforms and pricing software to enable faster iterations.
- Enable Your Go-to-Market Teams: Train Sales and Customer Success teams on the rationale behind pricing changes so they can effectively communicate value to customers. Provide enablement materials like pricing calculators, ROI examples, and FAQs to ensure alignment across teams. Empower Customer Success to handle upgrade/downgrade conversations seamlessly.
Closing Takeaway
SaaS pricing is one of the most under-taught yet powerful skills in building a successful SaaS business. It’s not just a one-time set price; it’s a dynamic lever for growth, a reflection of your product’s value, and a capability to develop within your organization. Understanding and embracing these principles can have a direct, profitable impact.
Start by asking: Which of these five areas is my company weakest in today? Maybe you’ve never done a proper willingness-to-pay analysis and are guessing at your price. Or your packaging hasn’t changed in three years despite a vastly expanded product. Perhaps no one is explicitly in charge of pricing. Pick one area and begin improving it - interview some customers, run a pricing experiment, convene a pricing task force - whatever moves the needle. Continuous small improvements in pricing can compound into significantly higher ARR and profitability. The beauty is that pricing changes, unlike many growth tactics, go straight to the bottom line with very little incremental cost.
Finally, don’t go it alone. If you’re looking for more insight or a sanity check on your pricing approach, our SaaS pricing experts at Monetizely are here to help. We’ve guided SaaS companies of all sizes in implementing these advanced pricing strategies, and we’re happy to share what we’ve learned. Pricing might not be taught in business school, but it’s a lesson you can’t afford to skip. So, get in touch with our SaaS pricing consultants today and get your free pricing assessment.