A 1% price increase generates an 11% profit increase on average.1 Pricing is the most powerful lever in your business—and the most often neglected.

Most SaaS founders underprice significantly. They’re afraid of losing customers, so they leave money on the table. Meanwhile, their competitors charge more for similar products and invest the difference into growth.

This guide covers SaaS pricing comprehensively: the major models, how to choose between them, pricing psychology, and practical implementation steps.

The Three Pricing Strategy Approaches

Before choosing a pricing model, understand the strategic approaches available.

Cost-Plus Pricing

Calculate your costs, add a margin, and that’s your price.

How it works: If your cost per customer is $10/month, charge $20/month for 100% margin.

Pros: Simple math, guaranteed margin.

Cons: Ignores what customers value, leaves money on the table, creates race to the bottom.

Verdict: Avoid for SaaS. Your costs don’t correlate with customer value.

Competitor-Based Pricing

Match or undercut what competitors charge.

How it works: Competitors charge $50/month, so you charge $45/month.

Pros: Easy to justify, market-validated price points.

Cons: Assumes competitors priced correctly, ignores your differentiation, encourages price wars.

Verdict: Use competitor pricing as input, not as your strategy.

Price based on the value customers receive.

How it works: If your product saves customers $1,000/month, charging $100/month is reasonable—they get 10x ROI.

Pros: Maximizes revenue, aligns your success with customer success, justifies premium pricing.

Cons: Requires understanding customer value, harder to calculate.

Verdict: Best approach for most SaaS products.

Core SaaS Pricing Models

Per-User (Per-Seat) Pricing

Charge a fixed amount per user per month.

Examples: Slack, Salesforce, Asana, Figma

How it works:

Basic: $10/user/month
Pro: $25/user/month
Enterprise: Custom pricing

Pros:

  • Predictable for both you and customers
  • Simple to understand and communicate
  • Revenue scales with customer growth
  • Low barrier for small teams to start

Cons:

  • Encourages seat sharing (login sharing)
  • Can limit adoption (cost concern limits inviting teammates)
  • Value may not correlate with user count

Best for:

  • Collaboration tools (Slack, Notion)
  • Team productivity software (Asana, Monday)
  • Tools where more users means more value delivered

Usage-Based Pricing

Charge based on actual consumption.

Examples: AWS, Twilio, Stripe, OpenAI

How it works:

First 10,000 API calls: Free
10,001-100,000: $0.001/call
100,001+: $0.0005/call

Pros:

  • Low barrier to start (pay only for what you use)
  • Scales directly with customer success
  • Perceived as fair
  • No “shelfware” problem (paying for unused licenses)

Cons:

  • Revenue is unpredictable
  • Customers fear bill shock
  • Requires usage tracking infrastructure
  • May discourage usage (cost avoidance)

Best for:

  • Infrastructure and API products (AWS, Twilio)
  • Products with highly variable usage patterns
  • Developer tools
  • AI products (compute costs vary by usage)

Tiered/Feature-Based Pricing

Multiple plans with increasing features at higher price points.

Examples: Most SaaS products

How it works:

Starter: $29/month - Core features
Growth: $79/month - Advanced features + integrations
Scale: $199/month - Everything + priority support
Enterprise: Custom - White-glove service + SLA

Pros:

  • Captures different willingness to pay
  • Clear upgrade path as customers grow
  • Simple to communicate
  • Works for diverse customer segments

Cons:

  • Feature gating decisions are difficult
  • Can feel arbitrary to customers
  • Requires ongoing optimization

Best for:

  • Products with clear feature differentiation
  • Diverse customer base (SMB to Enterprise)
  • Most B2B SaaS

Freemium

Core product is free; premium features require payment.

Examples: Dropbox, Notion, Zoom, Slack, Figma

How it works:

  • Free tier with usage limits or feature restrictions
  • Paid tiers unlock full functionality
  • Upgrade triggers: storage limits, team features, advanced capabilities

Pros:

  • Massive top-of-funnel acquisition
  • Viral potential (users invite others)
  • Product-led growth engine
  • Lower customer acquisition cost

Cons:

  • Typical conversion rate: 3-5%2
  • Free users cost money to serve
  • Can devalue paid tiers
  • Revenue is delayed while building free user base

Best for:

  • Products with viral loops
  • Consumer or prosumer markets
  • Products where usage creates switching costs
  • Well-funded companies that can afford serving free users

The freemium math:

100,000 free users
× 4% conversion rate
= 4,000 paid users
× $50/month ARPU
= $200,000 MRR

But: Serving 96,000 free users costs money

Hybrid Models

Combine multiple models for more accurate value capture.

Example (HubSpot-style):

Marketing Hub Pro: $800/month base
+ $45/month per additional user
+ Overage charges for contacts above 2,000

Pros:

  • Captures value from multiple dimensions
  • More accurate alignment with customer value
  • Flexibility for different use cases

Cons:

  • Complex to communicate
  • Harder for customers to predict costs
  • More billing complexity to manage

Best for:

  • Products where value comes from multiple dimensions
  • Enterprise-focused SaaS
  • Complex product suites

Determining Your Value Metric

A value metric is the unit you charge for. It should correlate with the value customers receive.

Good Value Metrics

Product TypeValue Metric
Email marketingSubscribers or emails sent
CRMUsers or contacts managed
API productsAPI calls or requests
StorageGB stored
Project managementUsers or projects
Video conferencingParticipants or minutes

The Value Metric Test

Ask these questions:

  1. Does it scale with customer success? When customers get more value, does the metric increase?

  2. Is it easy to measure? Can you track it accurately without complex instrumentation?

  3. Is it easy for customers to understand? Can they predict their costs?

  4. Does increasing it increase your costs? If serving more correlates with your costs, the metric is sustainable.

A metric that passes all four questions is a strong value metric candidate.

Pricing Psychology and Tactics

Anchoring

The first price a customer sees influences how they evaluate subsequent prices.

Application: Show your highest-priced plan first. Enterprise pricing makes Pro look reasonable.

Decoy Pricing

Add an option that makes your target option look better by comparison.

Example:

  • Basic: $29/month (3 features)
  • Pro: $79/month (10 features) ← Target
  • Advanced: $89/month (11 features) ← Decoy

The Advanced plan makes Pro look like great value—only $10 less for nearly the same features.

Charm Pricing

$99 instead of $100. Works in B2C, less effective in B2B where buyers are more sophisticated.

Application: Use for lower-tier plans targeting individuals. Skip for enterprise pricing.

Annual Discount

Offer 15-20% discount for annual payment.

Benefits:

  • Improves cash flow (collect revenue upfront)
  • Reduces churn (commitment creates stickiness)
  • Standard positioning: “2 months free” when paying annually

Pricing Page Best Practices

  • Highlight recommended plan: Visual emphasis on your target tier
  • Use comparison table: Show features across all tiers
  • Show both monthly and annual: Let customers choose
  • Include social proof: Logos, testimonials, user counts
  • Clear CTAs per tier: Different actions for different segments

Setting Your Initial Price

The 10x Value Rule

Price at roughly 1/10th of the value delivered. If your product saves customers $1,000/month, $100/month is reasonable—they get 10x return on investment.

This leaves room for:

  • Value demonstration during sales
  • Price increases over time
  • Customer perception of a good deal

Research Methods

Customer interviews: Ask existing users what they would pay. Ask what alternatives they considered.

Competitor analysis: Map the pricing landscape. Where are the gaps?

Van Westendorp Price Sensitivity: Four questions that reveal acceptable price ranges:

  1. At what price is it too expensive to consider?
  2. At what price is it too cheap (quality concerns)?
  3. At what price is it getting expensive but still worth it?
  4. At what price is it a bargain?

The intersection of responses reveals optimal price points.

Changing Prices

Signs You Should Raise Prices

  • Very low churn rate (customers aren’t price-sensitive)
  • Fast sales cycles (not much pushback on pricing)
  • Customers say you’re a bargain
  • Growth is stalling despite good product
  • Costs are increasing (especially with AI features)

How to Raise Prices

Grandfather existing customers (usually): Honor their current pricing for a transition period or permanently.

Give advance notice: 60-90 days before the change takes effect.

Justify with value: Tie the increase to new features or improvements.

Test on new customers first: Raise prices for new signups before touching existing customers.

Consider tier restructuring: Sometimes adding a new tier is better than raising prices on existing ones.

Price Increase Communication

Subject: Update to your [Product] subscription

Hi [Name],

On [Date], we're updating our pricing. Your plan will change from
$X to $Y per month.

Here's what's new since you joined:
- [New feature 1]
- [New feature 2]
- [Improved capability]

As a valued early customer, [special offer: grandfathered rate,
extended transition, or discount].

Questions? Reply to this email.

[Name]

Pricing for Different Company Stages

Early Stage (Finding Product-Market Fit)

  • Simple pricing: One or two tiers maximum
  • Easy to change: Don’t lock yourself in
  • Focus on learning: What do customers value?
  • Charge something: Don’t give away too much for free

Growth Stage

  • Add tiers: Capture different segments
  • Introduce usage components: Align with value delivered
  • Test price increases: Your early pricing was probably too low
  • Build infrastructure: Proper billing and subscription management

Scale Stage

  • Enterprise tier: Custom pricing with negotiated contracts
  • Usage-based components: Capture value from largest customers
  • Annual contracts standard: Predictable revenue, reduced churn
  • Dedicated pricing strategy: Ongoing optimization and testing

AI and Pricing in 2025

AI features create unique pricing challenges.

The Challenge

  • Compute costs are high and variable
  • Value delivered can be enormous
  • Usage is unpredictable
  • Traditional per-seat models don’t fit

AI Pricing Approaches

Token-based (OpenAI model):

$0.002 per 1,000 input tokens
$0.006 per 1,000 output tokens

Outcome-based: Charge per result delivered (per image generated, per analysis completed).

Tiered usage:

Free: 100 AI generations/month
Pro: 1,000 AI generations/month
Unlimited: $199/month

Hybrid:

Base: $49/month (includes 100 AI actions)
Additional: $0.10 per action

Most AI products are converging on hybrid models—base subscription plus usage-based AI components.

Common Pricing Mistakes

1. Underpricing: The most common mistake. Fear of rejection leads to leaving money on the table.

2. Too many tiers: Paradox of choice. Three tiers is usually optimal; more creates confusion.

3. Hiding pricing: Frustrates buyers and reduces trust. Transparency wins.

4. No upgrade path: Missing expansion revenue from growing customers.

5. Feature-gating wrong things: Limit usage, not core value. Don’t cripple the free tier.

6. Annual-only options: Creates friction for new customers who want to try first.

7. Never testing: Set-and-forget pricing leaves optimization gains on the table.

8. Copying competitors exactly: Ignores your differentiation and unique value.

Pricing Page Examples to Study

CompanyModelWhat They Do Well
BasecampFlat rateSimple, contrarian positioning
SlackPer-userClear tiers, generous free tier
HubSpotHybridSegment-based pricing
NotionFreemiumGenerous free, team upsell
LinearPer-userClean, simple presentation

Action Plan: Setting Your Price

Week 1: Research

  • Interview 10 customers or prospects about value
  • Map competitor pricing (features, prices, positioning)
  • Identify your value metric candidates
  • Understand your cost structure

Week 2: Design

  • Choose your pricing model
  • Define 2-3 tiers with clear differentiation
  • Set prices based on value (not costs)
  • Create feature matrix

Week 3: Test

  • Build pricing page
  • A/B test if possible (different prices for different cohorts)
  • Get feedback from prospects
  • Refine based on objections

Week 4: Launch

  • Announce pricing
  • Monitor conversion rates
  • Track common objections
  • Prepare to iterate

Conclusion

Pricing is never “solved.” Markets change, products evolve, and customer expectations shift.

Start with value-based pricing principles. Charge what your product is worth, not what it costs to build. Test and iterate. Most founders discover they can charge more than they initially thought.

The companies winning in SaaS aren’t the cheapest—they’re the ones who capture appropriate value for the problems they solve.

Further Reading

References

Footnotes

  1. McKinsey research on pricing power. A 1% improvement in price yields an average 11% improvement in operating profit. ↩

  2. ProfitWell. Freemium conversion rates typically range from 2-5%, with top performers reaching 7-10%. ↩