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Estd 4.22.2023
Investors and executives are increasingly laser-focused on SaaS pricing as a key growth lever, especially in today’s era of efficient growth. Yet, many companies still fall into the same traps, leaving massive amounts of money on the table and stalling their growth.
As Ajit Ghuman from Monetizely points out in his book “Price to Scale”, the tech landscape is full of great products that failed, while some patchwork solutions thrive simply because they nailed their go-to-market strategy and pricing for the right buyers.
In this post, we’ll pull back the curtain on some underrated, often overlooked truths about SaaS pricing, the “ugly” realities that founders, product leaders, and GTM teams must face. Each truth is backed by insights from industry experts and includes practical takeaways to help boost metrics like ACV, net retention, and overall growth.
Ugly Truth #1: Underpricing Is Undermining Your Growth (Fear vs. Value)
One of the ugliest (and most common) pricing pitfalls is charging too little for your product. Often, rock-bottom prices aren’t a savvy strategy – they’re a symptom of fear. Early-stage SaaS startups frequently set prices painfully low to attract customers, but this can backfire badly. Why? For one, pricing too cheap signals low value. Prospects (especially enterprises) start wondering, “Why so cheap? What’s wrong with it?”. Ironically, larger companies are less price-sensitive; they care more about ROI and reliability than getting a bargain. So a too-low price can erode trust and make your product seem like a toy rather than an enterprise-grade solution.
Underpricing doesn’t just hurt your image, it directly saps revenue and growth. You might close deals quickly. It’s no surprise that in a First Round survey, founders who struggled to fundraise were 3x more likely to have monetized too late or set prices too low. Investors worry you’ll never “monetize” effectively if you start with bargain-basement pricing. In fact, if prospects are buying too easily with zero pushback, that’s a red flag your price is probably too low. You haven’t found the ceiling of their willingness-to-pay.
Takeaway:
- Stop undervaluing your product.
- Shift from fear-based pricing to value-based pricing.
- Quantify the ROI you deliver, e.g. hours saved, revenue added, risk mitigated, and price to reflect that value, not undercut it. If you truly deliver a 10x benefit, you’ve earned the right to charge a fair share of that.
- Test higher price points gradually (especially for new customers or new features) and gauge the impact on conversion and churn.
Ugly Truth #2: $20 or $200,000? The Same Product Can Sell for 100x More (Segmentation & Perceived Value)
Here’s a pricing truth many ignore: the “right” price is highly relative. The exact same SaaS product can be priced at $20/month for one customer and $200,000/year for another, and both can be good deals. It all comes down to perceived value, packaging, and segmentation.
For example, Ajit Ghuman, who worked at Medallia from 2011 to 2016 during its high-growth phase, recalls how enterprise pricing varied significantly across different industries. Medallia, known for its Customer Experience Management software, offered the same capabilities to different clients, yet the prices they paid could differ wildly. A financial services company could pay 3-4 times more than a retail client for the same product, simply because the product was viewed as mission-critical for the bank, which relied on it for key business decisions. Retailers, on the other hand, saw it as a “nice-to-have,” so they were willing to pay less.
The key takeaway? Context is king. What’s a “nice-to-have” for a small or mid-sized business might be mission-critical to an enterprise. The perceived value changes depending on the customer’s size, scope, and needs, which determines how much they are willing to pay.
This dynamic highlights how businesses should tailor their pricing to different segments. A large enterprise might justify paying significantly more for an enterprise version with advanced features, support, and compliance needs. It’s essentially the same product, but the value it delivers—and the problems it solves—are packaged and priced differently.
As SaaStr aptly puts it,
“$1,000 a month is a lot of money for a widget... But $12,000 a year is dirt cheap for anything that solves a true problem.”
This quote sums up the ugly truth: pricing is about framing and positioning. If your software is seen as a “widget,” even $1K/month might feel expensive. But when framed as a solution to a mission-critical problem, that same $12K/year becomes a bargain.
The real opportunity comes when you shift from selling just the product to selling outcomes. By demonstrating how your solution saves time, cuts costs, or prevents churn, you can justify charging much more for the same product.
Takeaway:
- Don’t trap yourself with one-size-fits-all pricing. Instead, create tiered offerings tailored to different customer archetypes. Almost every successful SaaS employs some form of tiered or “Good-Better-Best” packaging for a reason: it lets you capture the full spectrum of willingness-to-pay without alienating any segment.
- Offer a low-tier plan for startups or individuals, a mid-tier for growing businesses, and an enterprise tier for large customers with advanced needs. Ensure each tier provides clear additional value that justifies the step-up in price.
Ugly Truth #3: How You Charge Can Matter More Than How Much (Pricing Model Misalignment)
Another overlooked truth in SaaS pricing is that your pricing model (the “metric” or basis of charge) can make or break your growth. It’s not just what price you set, but how you charge.
Many companies have learned this the hard way: even if the dollar amount seems fair, charging on the wrong basis can alienate customers or limit your upside. In SaaS, common pricing metrics include per user seat, per API call, per GB of data, per transaction, etc. The trap is blindly copying a competitor’s model or defaulting to an easy metric like “per seat” without thinking it through. If that metric doesn’t align with how your customers derive value, you’re in trouble.
Misaligned pricing metrics create friction and churn.
Take the example of Mixpanel: the analytics company initially charged based on events tracked. That worked fine for small customers, but as larger clients’ event volumes exploded, so did their bills – without a clear link to incremental ROI. The result was growing pushback. Mixpanel realized their pricing was punishing successful customers without reflecting actual value, so in 2019 they switched to a Monthly Tracked Users model (charging by unique users engaged, not raw events). This tweak made pricing more intuitive and fair. Customers could see the correlation between what they pay and the value (active users) they get, rather than feeling penalized for event counts.
Similarly, Slack famously only charges for active users in a workspace (you don’t pay for idle seats), which builds trust that customers are paying for actual usage and value received. The bottom line: a bad metric can make a good product feel expensive or unpredictable, whereas a good metric makes the value clear.
Takeaway:
- Choose your pricing metric deliberately. Ask yourself: what unit best aligns price with the customer’s success? The ideal metric grows with the customer’s value, scales as they scale, but is still easy to understand and predict.
- Test different metrics and be willing to adjust. Look for usage patterns that align with customer value, and avoid defaults that don’t reflect what customers care about.
Ugly Truth #4: Willingness to Pay Is a Moving Target (Always Test the Ceiling)
Economics 101 treats willingness to pay (WTP) as a static curve, but in SaaS it’s anything but static. One ugly truth is that many companies set their price once and forget it, assuming the market’s WTP is fixed. Meanwhile, the market and your product are constantly evolving. Customers’ willingness to pay changes over time with factors like new features, competitors, economic conditions, and the urgency of the problems you solve. What a customer was willing to pay last year might not be what they’ll pay today, it could be more, or it could be less. Ignore this reality, and you’ll either leave money on the table or eventually price yourself below market value.
A great example is how rapid innovation (like the surge of AI features in software during 2023-2024) can raise the value bar. When Zoom introduced new AI-powered features in 2023, they had to assess how much extra those capabilities were worth to customers and whether to charge separately or bundle them in. At the same time, as pandemic-era usage normalized, some users’ WTP for unlimited video calls actually dropped – prompting Zoom to impose limits on free plans to nudge upgrades. The point is, WTP is dynamic: it can increase when you deliver more value or when the customer’s need becomes more acute, and it can decrease if the product’s perceived importance wanes or budgets tighten. Broader economic trends matter too – in boom times or high-inflation periods, buyers may tolerate across-the-board price hikes; in lean times, they scrutinize every expense and expect clear ROI for any increase.
What’s encouraging is that many SaaS companies are waking up to this and getting more proactive. 73% of SaaS companies planned price increases in 2024, up from 54% in 2023, reflecting an industry realization that pricing cannot be static. In practice, the best companies continuously probe the ceiling of WTP with careful experiments. They’ll test a higher price point on new customers, or trial premium add-ons, and see how it impacts conversion. They’ll survey customers on how much more they’d pay for additional features or better service levels. If deals are closing too easily, they interpret that as a sign they could charge more; conversely, if a significant portion of deals stall on price, they investigate whether value communication or pricing is off.
Takeaway:
- Continuously gauge and push your customers’ willingness to pay, carefully and ethically.
- Make pricing reviews a regular habit, not a one-time project.
- Use both qualitative and quantitative methods: talk to customers about value, run surveys or conjoint analysis to reveal WTP ranges, and observe sales data for patterns.
For instance, set triggers: if your sales win rate is near 100% with no negotiation, that likely means you’re priced too low for that segment. Try raising prices or introducing a higher-priced edition and measure the effect on win rates and customer satisfaction.
Conversely, if you’re seeing frequent discount requests or “price too high” objections, that might indicate you’re outkicking your coverage on value – perhaps you need to add more value, better segment your pricing, or improve how you communicate ROI. The goal is to find the sweet spot where you’re capturing maximum value without impeding growth. Don’t wait years to adjust – the market moves fast. Many top SaaS firms now do pricing tweaks quarterly or biannually.
In fact, we recommend a quarterly pricing review cadence as a best practice. Regular small adjustments (with transparent communication to customers) will keep your monetization in line with market WTP and your product’s evolving value. The companies that treat pricing as an ongoing experiment are often the ones that see their ARPU and net retention soar, while those that stand still get left behind.
Ugly Truth #5: Pricing Is a Team Sport, Not a One-Time Decision (Operational Excellence Required)
Perhaps the biggest truth that gets overlooked: Pricing is not a set-and-forget spreadsheet exercise – it’s a continuous, cross-functional process. Too many teams think pricing is decided once at launch or revisited only in a crisis. In reality, leading SaaS companies treat pricing as an ever-evolving strategy that needs ownership, iteration, and alignment across the organization. They even form dedicated pricing or monetization teams (or at least assign a pricing owner) and invest in pricing operations to support agile changes.
Why does pricing require a team effort? Because it sits at the intersection of product, sales, marketing, and finance. To get it right, you need input from all sides: Product knows the value and roadmap, Sales and Customer Success hear the objections and see what customers value on the ground, Marketing understands positioning, and Finance minds the margins and growth targets. A cohesive pricing strategy balances these perspectives.
For example, Finance might push for higher prices to cover costs, while Sales worries about sticker shock: the optimal answer often lies in creative packaging or pricing models that address both concerns. Without a cross-functional approach, pricing changes often fail in execution: Sales might not buy in, or systems (billing, analytics) might not support the new model, leading to chaos.
That’s why top SaaS companies establish a regular pricing review process (e.g., a pricing committee that meets every 6 or 12 months, or every quarter for high-growth scale-ups). They ensure their billing infrastructure can handle changes – whether that’s usage billing, regional pricing, or new bundles. And critically, they enable their teams when changes roll out: training Sales on the new pricing rationale, equipping them with ROI calculators and FAQ sheets, and prepping Customer Success to manage upgrade/downgrade conversations smoothly. This operational diligence is the unsexy side of pricing, but it’s absolutely essential to capture the benefits of a great strategy.
The upside to building this “pricing muscle” is huge. Organizations that regularly revisit and refine pricing tend to grow faster and more profitably. Recall that Paddle data: making pricing a quarterly exercise was literally the difference between business-as-usual vs. hypergrowth in their 4,000-company study. It’s such a needle-mover that their advice was blunt: schedule recurring pricing reviews: schedule recurring pricing reviews – seriously, do it now.
Takeaway:
- Make pricing an ongoing, team-driven process in your organization.
- Assign a clear owner (or small team) for pricing strategy who can convene input from Product, Sales, Marketing, and Finance.
- Establish a regular cadence (quarterly is ideal in a fast-changing market, but at minimum annually) to review your pricing performance and decide on any adjustments.
- Invest in the tooling and infrastructure (billing systems, analytics, etc.) that let you experiment and change pricing without operational nightmares.
And when you do adjust pricing or packaging, align your teams: educate your sales reps on the “why” behind the change so they can communicate it confidently, and arm them with data (like case studies or ROI calculators) to justify the new pricing to customers.
By treating pricing as a continuous cycle of Plan → Execute → Learn → Adjust, you create a sustainable advantage. You’ll be quicker to capitalize on new value you create, faster to respond to market shifts, and better at extracting revenue in line with the true worth of your product. In short, you’ll build a pricing culture that turns this once-taboo topic into a powerful growth engine.
Closing Thoughts
SaaS pricing is one of the most under-taught yet powerful levers in building a successful software business. The ugly truths above may be uncomfortable, but embracing them can transform your growth trajectory. If you suspect your company has room to improve on any of these fronts:
- Perhaps you’ve never done a proper WTP analysis
- Your packaging hasn’t changed in years
- No one is accountable for pricing
Make it a priority to act. Even small, incremental improvements in pricing strategy can compound into significantly higher ARR and lower churn. Remember, in SaaS, “good enough” pricing isn’t good enough anymore. The market leaders are squeezing every drop of value from their pricing strategy, and their results show it.
So get serious about pricing, rally your team around it, and don’t be afraid to experiment. Your future ARR will thank you. Also, if you need a second opinion maybe from pricing experts, we at Monetizely are there to help. Our extensive 28+ years of experience at companies like Twilio, Medallia, Narvar, LinkedIn, etc, can help you get the best pricing model for your business. Don’t wait, talk to our experts and get your free pricing assessment done today!