Complete guide to SaaS pricing: Strategies, factors & examples

You’ll agree that finding the right price tag is key to long-term profitability in any business.

However, have you wondered why certain products get sold out while others barely get noticed? Often, the answer lies in mastering SaaS pricing strategies.

Unfortunately, many businesses, especially those new to the SaaS (Software as a Service) space, may need help pricing their software.

According to a study by Openview Partners, 39% of SaaS companies employ a value-based approach where price reflects what customers perceive the software to be worth.

The remaining 61% either relied on their gut feelings or mimicked the competition, often with disappointing results.

The truth is, there’s no one-size-fits-all solution. Different approaches suit different products and audiences.

In this guide, we’ll break down the basics of these pricing models, reveal how each method works, and explain how to choose the best for your product. 

Ultimately, you’ll feel confident about setting a price that attracts loyal customers and supports your business growth. Let’s get started!

What is SaaS pricing?

SaaS pricing is a model that determines how much users will pay as subscription fees to use an online software product. These subscriptions can be weekly, monthly, bi-monthly, quarterly, or annually. 

But here's a trick question: “What’s the right price for your software to reflect its value and retain customers? — especially when your revenue depends on those recurring subscriptions. However, when you get it right, it’s a game changer for your business.

Regardless of any product or service offered, price is often the first thing potential buyers look at before giving it a shot.

If you charge your software too high, they might bolt for a cheaper option (even if yours is superior). If it’s too low, you’ll certainly get plenty of sign-ups.

But you may struggle to keep the lights on or pay your staff wages.

Additionally, SaaS pricing is more than just getting customers through the door. You want to keep them around for months and years to come.

So, if your price tag is not aligned with your product value, subscribers will walk away. 

That’s a revenue you don’t want to lose. With an average churn rate for SaaS companies ranging between 5-7%, those losses can add up quickly. 

Therefore, you need well-defined SaaS pricing strategies to keep customers happy and more money in your pocket.

Doing so allows you to tailor your approach to meet your audience’s needs and boosts profitability.

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Learn about purchase order financing, how it works, and its benefits to your business. 

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Top 10 SaaS subscription pricing models, with notable examples

The SaaS market is booming despite economic ups and downs, with an average valuation of over $200 billion in 2024. This isn’t surprising as more businesses adopt cloud-based services across various sectors.

Now is the perfect time to rethink and innovate your pricing strategies to keep up with the changing landscape.

Interestingly, there are numerous approaches to package and sell your software to potential customers. 

However, the ultimate goal is to find the model(s) that work best for you and meet your clients’ needs.

Without mincing words, here are ten SaaS subscription pricing models and relevant examples.

1. Per user pricing

This method charges customers based on the number of individuals who access the software.

As the number of users increases, so does the total cost, which makes it simple and intuitive. It also makes it easy for clients to understand costs and scale usage as they grow.

A classic example of an organization that leverages this approach is Canva. This company offers plans that scale with its customers' team size, so users only pay for what they need.

The Canva Pro plan costs $15 monthly for a single user, while Canva Teams costs $10 per month per user.

Therefore, the cost increases as more people are added. 

Pros

• It’s easy to understand as clients can calculate costs based on team size.
• Your revenue increases proportionally, making scaling and fostering revenue growth easier.

Cons 

• Companies may hesitate to include new users because it adds to their costs.
• Users could share logins, which reduces the incentive to add more seats and caps revenue.

2. Tiered pricing

This method offers multiple pricing levels, each with unique features and benefits.

Customers can choose a plan that best suits their needs and budget, allowing greater flexibility and targeting different customer segments.

For instance, HubSpot’s CRM (Customer Relationship Management) offers multiple tiers: Free, Starter, Professional, and Enterprise.

As buyers ascend each tier, they benefit from more features and higher service levels.

Pros

• It can easily target different customer groups with packages that meet their needs.
• Customers can start with a lower tier and upgrade as their needs grow.

Cons

• Too many price tiers can overwhelm buyers, driving them to competitors with simpler pricing.
• Without a proper database, tracking clients that get specific features in different tiers can be hard.

3. Freemium model

This tactic offers a free basic version of the software, with the option to upgrade to a paid version for extra premium features.

This pricing method aims to attract a large user base with the free version and convert a percentage of them into long-term customers.

Spotify, the popular audio streaming and media platform, offers free accounts with ads and limited features.

Upon upgrade, users can enjoy ad-free experiences and more personalized features.

Pros

• It attracts more users by offering a free version, thus lowering the entry barrier.
• It acts as a funnel, converting certain users into paying customers over time.

Cons

• Many users prefer the basic features offered, so they are not enticed to upgrade further.

4. Flat-rate pricing

This strategy charges a fixed fee for unlimited access to all SaaS product features. Every customer pays the same amount, regardless of usage or team size.

Therefore, it’s simple for customers to make payments and enjoy full access.

A notable example is Basecamp, a project management software, which charges companies a flat rate of $299 monthly (billed annually), regardless of the number of users or projects they have.

Pros

• It’s easy for customers to understand as there are no hidden costs or surprises.
• Smaller companies get the same features as larger ones, which can be attractive.

Cons

• This approach undercharges big companies or overcharges smaller ones, which can lead to lost potential revenue.
• The model offers limited scalability as it doesn’t grow with customer usage or company size.

5. Usage-based pricing

This strategy, known as pay-as-you-go, charges customers based on their product usage.

The higher their usage, the more they pay. This model is common with cloud services, where customers are billed for the amount of data owned and stored.

For example, Amazon Web Service (AWS) charges based on the amount of storage, computing power, and other resources a customer uses.

Pros

• Consumers only pay for what they use, which is great for businesses with fluctuating needs.
• The upfront costs are low, making it easier for customers to start using the software.

Cons

• Buyers may be surprised by high bills during periods of heavy usage, leading to dissatisfaction.
• Your income can fluctuate significantly depending on customer usage.

6. Per feature pricing

This model allows customers to pay only for the features they need. Instead of offering a one-size-fits-all solution, it gives customers the opportunity to build a customized package that suits their specific needs.

Salesforce CRM, for instance, allows businesses to choose different features such as customer service tools, sales automation, or marketing automation, each with a different price tag.

Consumers can effectively select the features they want and make payments.

Pros

• Clients can build a package that fits their needs and avoid paying for features they may not need.
• As customers grow, they can add more features that increase their spending.

Cons

• Managing and explaining this pricing model can be challenging.
• Customers may struggle to decide which features they need and may abandon your service.

7. Per active user pricing

In this model, customers are only charged for users who actively employ the software during a billing period, not every registered user.

Slack, a popular team communication tool, adopts this strategy. Its Pro plan costs $8.75 monthly, while the Business Plus plan is $15.

Since the platform only charges active users, its subscription pricing is fair and appealing to users.

Pros:

• Companies save money by only paying for active users.
• It’s easier for smaller teams to start using a product without a large upfront cost.

Cons

• Your revenue is subject to user activity fluctuations, making it difficult to measure overall cashflow.
• Systems are needed to track active users, which can add complexity to the pricing method.

8. Penetration pricing

This is a SaaS pricing strategy in which a company sets a low price for its product and services during the initial launch to attract and gain market share.

However, this low pricing is temporary, and it increases once the product becomes established and in constant demand.

Netflix is a successful example of this pricing model. This company entered the streaming market at a time dominated by cable providers like Blockbusters.

However, its approach was bold and strategic, offering users an optimized monthly subscription plan to enjoy unlimited entertainment options. 

This tactic worked well, as it quickly attracted a large customer base, which compensated for the slim profit margins it initially enjoyed.

Customers who knew the early deals were temporary were willing to pay the full price to keep enjoying Netflix’s services. 

This has led the company to capture a 23% subscriber market share in Subscription Video on Demand (SVOD) services. 

Pros

• Low prices can rapidly attract many users.
• It helps you establish a presence in a competitive market and secure quick revenues.

Cons

• If this strategy continues longer than anticipated, you may struggle to cover costs.
• Customers may resist paying the full price later, feeling the initial discount was the real deal.

9. Value-based pricing

This method focuses on the perceived value of your product to consumers rather than production costs or competitor prices.

It involves setting a price that reflects the benefits and value your product provides to its users.

Notably, Adobe’s Creative Cloud is priced higher than many alternatives. A key reason is that Adobe knows its software is crucial for professionals willing to pay a premium subscription.

Pros

• You can charge more if customers perceive your software as highly valuable.
• Understanding your customers’ needs can lead to better products and loyal users.

Cons

• Determining the right price requires deep customer research and ongoing adjustments.
• If you misjudge the value of your software, you risk setting the price too high or too low, which will affect your long-term sales.

10. Competitor-based pricing

It involves setting your price based on rivals’ pricing strategies. In this case, you’re not solely focusing on internal costs or the perceived value of your product.

Rather, you align your prices with the market by evaluating how competitors price similar products.

Pros

• The model is easy to implement, as it requires less research than other forms of pricing.
• It ensures your prices align with what customers expect to pay in the industry.

Cons

• If you price the same as competitors, it can take time to stand out in the market.
• Competitors may lower their prices, leading to a race to the bottom.

Ultimately, choosing the right SaaS pricing strategy requires a thorough understanding of your customers’ needs, software value, and business goals.

You should also note that these models can overlap, which may lead you to adopt more than one approach. 

In any case, endeavor to compare their key strengths and drawbacks to see how best to leverage them.

6 key factors that influence pricing decisions

When it comes to pricing your product, it goes beyond picking a number out of thin air.

Your price tag is shaped by various factors, from market demand and competitor strategies to customer perceptions and economic trends.

Let’s delve deeper into more details.

1. Market demand

Market demand is the cornerstone of pricing decisions.

When demand is high, businesses can command higher prices without fearing a drop in sales.

On the other hand, if demand dwindles, lowering prices may be necessary to attract customers.

2. Competition

In today’s global marketplace, competition is fierce. How your rivals price their products can heavily influence your strategy.

If your price is too high compared to similar offerings, you may lose significant market share.

On the flip side, pricing too low might attract customers but lead to unsustainable profit margins.

3. Cost of goods sold

The cost of raw materials, labor, and overhead directly impacts your price.

To ensure profitability, your price tag must cover these costs and include a margin.

Balancing cost and pricing is crucial to maintain profitability while remaining competitive.

4. Customer perception and behavior

Customer perception plays a critical role in pricing.

How customers perceive your product’s value – whether as a premium or a budget-friendly option – affects their willingness to pay.

For example, Apple products are priced higher than many competitors, partly because people think of it as a top brand.

5. Government regulations

Government policies and regulations, such as taxes or tariffs to protect consumers, can influence pricing decisions.

Navigating these rules requires businesses to stay informed and flexible. They can also adjust their methods to remain compliant and profitable.

6. Economic conditions

The broader economic landscape influences pricing.

During periods of economic growth, consumers are more likely to spend, and businesses can increase prices without reducing sales.

However, the impact of inflation may spur you to adjust your model to maintain sales volume.

Understanding the economic climate is essential for setting prices that align with consumers’ ability to pay and maintaining good financial health.

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How to price a SaaS product effectively

After considering top SaaS pricing strategies, you may still struggle to price your product properly.

This is normal, especially if you want to maximize customer satisfaction and ensure profitability.

The right model will let your software soar, while the wrong choice can make it difficult to stay afloat. Let’s explore key considerations for pricing your product effectively.

1. Understand your audience

The first step is to deeply understand your target audience.

Who are they? What keeps them up at night?

Most importantly, how much are they willing to pay for a solution that eases their pain points?

For instance, if you’re developing a tool for small businesses. These customers may be price-sensitive and want a cost-effective solution.

On the other hand, if you’re dealing with large enterprises, they’ll be more focused on advanced features and be willing to pay a premium.

The bottom line? When you understand what motivates your customers, you’re better equipped to offer a reasonable price.

2. Involve key stakeholders in pricing decisions

Many companies fail to realize that pricing isn’t just a numbers game. It’s a strategic decision that can shape the future of your product and business.

That’s why it’s crucial to involve key stakeholders in your organization.

Think of it as building a puzzle. Each member holds an important piece, and when put together, you get a complete picture that guides your decisions.

For instance, the product team knows exactly what went into building the product and its value proposition. Your marketing staff understands how to position that value in the market. The sales department considers how much clients will pay.

And let’s not forget the finance team and their keen eye for revenue.

By involving various functional teams, you create a well-rounded pricing strategy that aligns with your company’s goals.

3. Consider the LTV/CAC ratio

A crucial metric in SaaS pricing is the Lifetime Value to Customer Acquisition Cost (LTV/CAC) ratio.

Let’s break it down further. The LTV represents a customer’s total revenue over their entire relationship with your company. The CAC is the cost associated with acquiring that customer. 

Ideally, you want your lifetime value to be much higher than customer acquisition for a healthy profit margin.

Let’s consider a hypothetical example.

Assuming it costs you $100 to acquire a customer (CAC) who will bring in $500 in revenue over their lifetime (LTV). That’s an LTV/CAC ratio of 5:1.

This is a sweet spot, showing that your pricing and customer acquisition strategies are in sync. If the ratio is too low, it’s a signal to revisit your approach or find ways to lower acquisition costs.

4. Evaluate your costs

Getting excited about setting a price is easy, but have you considered the costs? These include everything from development to customer support and updates.

So, if your price is too low, you risk not covering these expenses, which can be a one-way ticket to trouble.

Let’s say your SaaS tool costs you $100 per month per customer. Selling your product at $110 monthly may seem like a good profit margin.

However, when you factor in the need to reinvest in product development and marketing, it’s clear that you should aim higher. 

As such, the new price must cover costs and provide enough margin to grow your business and weather any unexpected challenges.

5. Analyze your competitors

Understanding your rivals’ pricing strategies can provide valuable insights into where your product fits in the market.

Are most competitors offering a basic plan? If so, consider whether your product offers more value to justify a higher price.

The goal is to differentiate your product while ensuring that your pricing reflects the value you deliver.

Competitor analysis helps you identify pricing trends, understand what customers are willing to pay, and position your product accordingly.

6. Define your value proposition

Your pricing strategy should reflect the unique value your product offers. This involves understanding the pain points your SaaS product solves and how it improves your customers’ lives or businesses.

The stronger your value proposition, the more you can charge for your product.

Let’s say you’ve developed a project management tool that helps teams collaborate and integrates with all the major tools your clients already use.

This seamless integration saves their time and makes your product more valuable.

When you communicate this value, your buyers are more likely to see your pricing as fair and excellent.

8. Consider discounts and upselling opportunities

Discounts can be a double-edged sword.

On one side, they’re a great way to attract customers, especially if you offer annual plans or bulk discounts.

On the flip side, they can eat into your profits if not managed carefully.

For example, offering a 10% discount for annual subscriptions incentivizes clients to commit longer and gives you more revenue.

However, you must ensure not to drop your price too low to avoid devaluing your product.

Upselling is another powerful strategy. Your products or services may offer additional features, premium support, or new versions as upsells.

For example, when offering a basic plan at a lower price tag, include the option to upgrade to a premium plan with advanced features. 

This increases revenue and enhances customer satisfaction by allowing them to access more value as their needs grow.

8. Offer free trials

Free trials allow potential customers to see if your product is a good fit before committing to a long-term relationship. They can significantly boost conversion rates as clients experience your product’s value firsthand.

Imagine offering a 30-day trial for your tool.

Users can explore all the features during this period and experience the benefits. They can also see how your product solves their specific problems and be more likely to convert to a paid plan. 

Therefore, to maximize conversions, make it easy for users to upgrade, and consider offering a discount for early conversion.

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6 mistakes to avoid when selecting an effective SaaS pricing strategy

While there’s no universal approach to SaaS pricing, you must dodge several common pitfalls. Let’s quickly consider some crucial mistakes to avoid when choosing your method(s).

1. Selling yourself short

Setting low prices to attract customers quickly is tempting, especially if you’re just starting. But this tactic can quickly become a dangerous game. When you price your product too low, you risk sending a message that it’s not robust enough to warrant a higher value.

💡Solution: Instead of competing on price alone, showcase your product’s unique significance. Remember, customers often pay more for a product that solves their problems effectively.

2. Overpricing your market

Setting your price too high can be equally damaging, as you risk isolating potential customers who want to make a purchase.

High prices can deter customer acquisition, slow your sales cycle, and increase churn rate as customers jump ship to more affordable alternatives.

💡Solution: Thorough market research is crucial.

Understand the pricing landscape in your industry and position your product to reflect its value.

If you decide to price on the higher end, ensure your product offers clear and compelling benefits that justify the cost.

3. Ignoring proper market research

Neglecting market research is a costly mistake in SaaS pricing you want to avoid.

Without a clear understanding of the market dynamics and client preferences, you’re essentially flying blind. This can lead to a pricing strategy that’s not in sync with buyers’ willingness to pay.

💡Solution: Gather insights via surveys, customer interviews, and competitor analysis.

Compare the prices of similar products and consider how your offering compares. Ground your decisions in real data, and set a price that reflects market demand and your product’s value.

4. Neglecting customer feedback

Your customers are your most valuable source of pricing information.

Yet, many companies make the mistake of ignoring their feedback. This can lead to a model that doesn’t match customer expectations, resulting in dissatisfaction, poor conversion rates, and lost revenue.

💡Solution: Make customer feedback about pricing a core component of your approach. Are they finding it fair, affordable, and reflective of the value they receive? 

If you notice patterns or recurring themes, be prepared to adjust to meet buyers’ needs better and foster long-term loyalty.

5. Complicating your pricing options

When it comes to pricing, more isn’t always better. Offering too many price options can overwhelm customers and lead to decision paralysis. It becomes even worse if they can’t see the value difference between your pricing tiers.

Consequently, they’ll either choose the lowest tier or walk away and consider other alternatives.

💡Solution: Simplicity is key! Your structure should be easy to understand, with clear distinctions between each tier or option.

If you offer multiple pricing plans, ensure each is well-defined and aligned with specific customer needs. 

A clean and intuitive layout significantly boosts conversion rates and enhances clients’ experience.

6. Failing to communicate price changes

Price tags change as your product and market conditions evolve.

But when you make adjustments, it’s crucial to communicate them clearly to your audience. Failing to do so can lead to frustration and mistrust.

Imagine a loyal customer logs in to renew their subscription, only to discover that the price has increased without prior notice. Such an individual will feel blindsided and may decide to cancel their plan.

💡Solution: To avoid this mistake, always give customers ample notice of price changes and clearly explain why they happen. You can also offer options such as locking in the old rate for a period or providing a discount on the new rate. 

By being upfront and considerate, you can maintain customer trust and minimize churn.

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Case studies: Successful SaaS pricing methods in action

As discussed in this guide, choosing the right pricing strategy can make or break a business.

If you find it difficult to replicate any tactic, successful case studies show it works.

Despite challenges and fierce competition in their respective landscape, these companies have come out strong. Let’s check them out below:

Amazon Prime: penetration pricing model

When Amazon launched its service, Prime, they priced it very low to quickly draw many subscribers. Initially, the membership fee was set at just $79 per year.

This price tag was a steal, as users will benefit from free shipping, unlimited access to streaming content, and exclusive deals. 

The strategy worked wonders and still does to date – over 200 million users use this service. Here’s where it gets interesting.

As more users became hooked on Prime’s convenience, the company gradually increased the annual membership fee.

Today, it’s $139 per annum, and people still see it as a great deal.

HubSpot: Tiered model

HubSpot, a marketing software giant, implements a subscription-based pricing strategy that caters to businesses of all sizes. Its offerings range from a free CRM tool to a comprehensive enterprise plan.

Early on, the company recognized that a one-size-fits-all approach wouldn’t work. So, it developed multiple tiers and add-ons to serve different market segments.

This flexibility has allowed HubSpot to expand its customer base to over 200,000 businesses, contributing to over $600 million in revenue in 2024.

Adobe: Value-based model

Adobe was popular for its one-time purchase model.

However, it has now transitioned to a value-based pricing strategy with its Creative Cloud Suite. This move resulted from customer demands for cloud-based software and services.

As such, Adobe offers various subscription plans, from single-app subscriptions to comprehensive packages that include the full suite of creative tools.

While the transition wasn’t without its challenges, the company recorded success. It has over 20 million global subscribers, contributing nearly $20 billion in revenue.

Zoom: freemium approach 

Zoom’s rise to prominence during the COVID-19 pandemic exemplifies how a well-executed freemium model can lead to massive success. It offers a free plan with a time limit on meetings, enticing users to upgrade to paid plans for extended meeting durations. It also includes plans for additional participants and webinars.

Despite competition from established companies like Skype and WebEx, Zoom focuses on simplicity, reliability, and a seamless sign-up process.

As a result, Zoom’s revenue soared to $4.5 billion in 2024. Its freemium model attracted a vast user base and converted free users into paying customers.

Dropbox: freemium tactic

Dropbox, a pioneer in cloud storage, also leverages this model to great effect.

Users can start with a free account that offers limited storage space, with the option to upgrade to paid plans for more storage and advanced features. It also offers a business plan with features tailored for teams, such as centralized billing and management tools.

This company’s challenge was encouraging free users to upgrade and differentiate its business plans from the basic (Plus) offerings. It strategically highlighted the value proposition of its paid plans, emphasizing perks like larger storage capacity and enhanced collaboration tools. 

This approach has helped Dropbox grow its paid user base, generating over $600 million in revenue in Q2 2024.

Fund your SaaS company with Stenn

What a fantastic read! At first glance, SaaS pricing might seem like it’s all about adding a price tag to your software and calling it a day.

But as we’ve explored, there’s so much more to it. It goes beyond saying, “Hey, this is what it costs.” It’s more about telling your clients, “This is the value you’re getting for your money.”

Overall, pricing is a decision that can attract loyal customers and fuel your business’ growth.

Certainly, there are factors to consider, such as demand, competition, customer needs, and cost.

However, with the right model, you can set a competitive and fair price that justifies your offering. 

Remarkably, the case studies discussed in this guide mastered and optimized top strategies to attract users and boost revenue.

So, learning from them can also help you record similar success. 

Now, don’t forget the financial side of things. If you’re dealing with global clients and delayed payments, cashflow can be a real issue.

This is precisely where Stenn steps in to mitigate risks in international trade and keep your business engines running. 

Rather than stress over traditional eCommerce loans with fixed repayments and limited credit access, why not explore our invoice financing option?

We offer funding with flexible terms based on your revenue streams and non-dilutive funding to fuel your growth. 

So, while you’re busy nailing your pricing strategy, we help you maintain cashflow to keep your operations running smoothly. Sounds like a solid plan, right?

Discover how we can support your company with flexible financing solutions tailored to your needs today.