Did you know that 75% of SaaS companies adjust their pricing at least once per year to stay competitive? Pricing isn’t just a number—it’s one of the most common topics that comes up during sales calls. Your users want to know not only how much your SaaS costs but also the value they’ll gain. Most importantly, they want to know what they might miss out on if they don’t buy.
While pricing your SaaS can feel tricky, understanding the available pricing models makes the process far less daunting. Here’s everything you need to know to choose the right pricing model for your SaaS and set your business up for growth.
How pricing impacts revenue, customer retention, and growth
It should come as no surprise that how software companies set their prices has an immediate impact on their revenue, retention, and growth.
Revenue
The SaaS pricing strategies you use directly determine your profitability and ability to maintain a steady cash flow. If you set your prices too high, you risk alienating a significant portion of your customer base. If you set your prices too low, you may reduce your profit margins to the point that your business can no longer sustain itself.
But when you eventually strike the right balance, your company’s pricing can help you maintain steady revenue growth, earn a competitive position in the market, and ensure the long-term financial health of your business.
Customer retention
The best pricing models build trust and keep your customers coming back. This is especially true for more predictable models, such as flat-rate or tiered pricing, that reduce churn by eliminating any surprises or hidden costs when it’s time to invoice your customers. Similarly, models like usage-based pricing (UBP) and value-based pricing that align your pricing with the actual product value your SaaS delivers to customers make it easy to prove the ROI of your service.
Regardless of the model you choose, retention is almost always cheaper and more sustainable than customer acquisition, making it a key part of any effective pricing strategy.
Growth
Optimizing your pricing model to generate more revenue and improve customer retention ultimately serves the larger goal of helping your business grow.
But achieving steady growth isn’t so much about the pricing model you choose; rather, it’s about how you use it. For example, flexible models like UBP are directly tied to customer growth, allowing your business to scale alongside your users. If you want to grow your user base downmarket and incentivize your users to scale their usage as they grow, this could be a good fit for your business.
Key factors influencing company pricing decisions
There are countless factors that influence what a company’s pricing page looks like, and these factors go well beyond what a product or service is worth. By taking all of these factors into account, you can create a pricing model that resonates with your target market and helps you achieve your business goals at the same time.
Customer needs and willingness to pay
The foundation of any effective pricing decision should be the needs of your customers.
Specifically, how much value does your software provide to its users? Can you quantify this number? Are they cost-sensitive, seeking affordability, value-focused, or willing to pay a premium for advanced or new features?
Assessing your customers’ willingness to pay means you’ll need to analyze metrics like their usage patterns, customer feedback, and the demand for your product. However, if you have this data already available to you, you can use a tool like Togai’s revenue simulator to understand how your revenue and your customers’ costs will be impacted if you plan to make a pricing decision.
Competitive landscape
One of the first things your potential customers will do during their buyer’s journey is compare prices, so you need to have a solid understanding of the competitive landscape you’re working in. Specifically, what, why, and how your competitors charge the prices they do.
One of the best ways to evaluate competitor pricing is with a competitive pricing analysis. Not only will this allow you to identify gaps and opportunities in the market, it will also give you a good frame of reference to benchmark your own pricing.
The maturity of your target market is also very important to keep in mind. What works for startups may not be suitable for a more established enterprise company. Ultimately, you’ll want to spend time studying what the legacy companies and new competitors in your market are charging and determine where your solution fits in terms of price.
Company goals
The way you approach pricing is going to look very different if you’re trying to run a lifestyle business versus a venture-backed startup with eventual plans of an initial public offering (IPO).
In other words, your company’s goals are going to heavily influence your pricing decisions. Are you aiming for rapid customer acquisition, revenue growth, or increased market share? Or are you focused on reducing churn and boosting customer retention?
The right pricing strategy should align with your immediate business goals while providing enough flexibility to adjust as those goals evolve over time.
Cost structures
Finally, you need to ask yourself the most important question behind any pricing decision, “Are we going to be able to turn a profit?”
Understanding the balance between your fixed costs—like your full-time employees’ salaries—and variable costs will ensure that your pricing covers your company’s expenses while still giving your customers a fair deal. By factoring in customer preferences, competitive pressures, company priorities, and your company’s operating costs, you can design pricing strategies that are profitable and sustainable.
Types of software pricing models
Before we jump into how you can find the right pricing model for your business, let’s take a look at what your options are. Here are just a few of the popular pricing models you can choose from depending on your business needs.
Flat-rate pricing
Flat-rate pricing is one of the simplest and most predictable pricing models for both businesses and customers.
Under a flat-rate model, customers pay a single, consistent fee regardless of how much they use a product or its features during a given billing period. The predictability of this model is what makes it especially appealing to small businesses with limited budgets. They know exactly what they’ll be paying at the end of each month, quarter, or year.
That said, there’s a price to pay for convenience. While this model is a great choice for most businesses, it offers no flexibility and can potentially alienate customers who might view your SaaS as too expensive or too cheap or who simply want more pricing options available to them.
Usage-based pricing
UBP, often referred to as “pay-as-you-go,” is a flexible model where customers pay based on their actual usage of a product or service. This approach is most common in industries that charge users based on specific value metrics like API calls, data storage, or bandwidth consumption.
This is a great option for companies who want:
- To attract customers downmarket who don’t have the budget to commit to a long-term contract
- To accommodate users with fluctuating product usage
- To break the price ceiling on their product and potentially earn massive revenue gains during usage spikes
Of course, this model does come with its downsides. In particular, UBP can lead to unpredictable revenue streams for the SaaS provider.
If this is a concern of yours, you can choose to offer a flat-rate model alongside your usage-based offer. You can also use a tool like Togai to support multiple go-to-market (GTM) motions and give your customers seemingly endless ways to pay for your SaaS.
Tiered pricing
If you’ve spent time on any SaaS pricing page, you’re probably familiar with seeing three pricing cards that say something along the lines of basic, pro, and enterprise. This model is called tiered pricing and was designed to cater to different customer segments and needs.
Source: A hypothetical example of a tiered pricing model with three separate pricing cards
Typically, each tier includes a progressively richer set of additional features or benefits, as shown above. This allows customers to choose the level of functionality that best suits their needs and the price point they feel most comfortable with.
Per-user pricing
Per-user pricing is a straightforward, user-based model where the cost of a product or service scales directly with the number of users who are actively using the software.
While this may not make sense for a cloud storage tool where value isn’t attached to the number of users, it is a great option for collaboration or communication tools where pricing naturally lines up with the size of the customer’s team or organization. For example, this is a great choice for a project management tool like Trello where the value it delivers aligns directly to the number of customers added to a single project management workspace.
Source: Trello’s pricing page showing its tiered per-user pricing model
Similar to a flat-rate model, a key advantage of per-user pricing is its simplicity and transparency. Customers don’t have to worry about monitoring their product usage or weighing the pros and cons of multiple subscription tiers.
Freemium model
If you know anything about product-led growth, then you’re probably already familiar with the freemium model, a pricing model where a SaaS company offers the basic version of its product for free while reserving premium features for paying customers. And with tools like Togai’s entitlements feature, SaaS leaders can effortlessly build and test any pricing plan, including freemium plans (we even use this same feature to offer our free trial to new Togai users).
What makes freemium pricing so popular is that by offering value up front, this model lowers the barrier to entry and allows companies to tap into a new set of users downmarket. The only potential downside is that in order to monetize this model successfully, you’ll need to convert your free users into paying customers. However, this is easier said than done.
Most product-led companies who are able to convert their free users do so by labeling these active users as product qualified leads and then notifying their sales team to reach out when these users may be ready for a paid pricing plan or subscription tier.
Value-based pricing
Finally, we have value-based pricing, a model that charges users based on the perceived value they receive from a product or service rather than a flat subscription fee. While it’s difficult to track and meter these outcomes, this approach allows businesses to justify a higher price for their offerings by tying it directly to their customers’ ROI.
However, with a dedicated SaaS billing platform like Togai, you can easily turn your customers’ real-time product usage and outcomes into actionable metrics for billing.
Source: A visual diagram of a usage metering workflow
Choosing the right pricing model
Now that you have a solid understanding of the different pricing models you can use, the next step is to figure out which one is the best fit for your SaaS. Even if you already have a good idea of how to capture the full value of your SaaS, there are potential factors you could be overlooking.
If you don’t want to leave money on the table, consider these steps to find the right pricing model for your business.
1. Assess your product and market
The first step in choosing the right pricing model is to thoroughly understand your product’s unique value and the customer segments it serves. Start by defining clear buyer personas and firming up your company’s messaging and positioning. Determine who your ideal customers are, their pain points, and what they value most about your offering.
You can start this process by:
- Defining clear buyer personas: Who are your customers? What industries do they work in? What are their pain points?
- Firming up your messaging and positioning: How does your SaaS differentiate itself from competitors?
- Understanding willingness to pay: Conduct customer interviews and surveys to determine how much customers are willing to pay for specific features or benefits.
- Segmenting your market: Different customer segments that may require different pricing models. For example, startups may prefer UBP, while enterprises may favor multiyear contracts.
2. Consider the model’s scalability and growth potential
Once you have a good handle on the value your SaaS stands to offer, you’ll need to think about how scalable your pricing really is. Ideally, your pricing should adapt to the lifecycle of your users and accommodate their needs as they grow. For instance, a usage-based model is a great choice if you want to give your users the option to scale with you over time.
If you’re still uncertain whether your model is scalable or not, consider:
- Adapting pricing to the customer lifecycle: Can your pricing evolve as customers grow? Tiered pricing and UBP allow for this kind of flexibility.
Aligning pricing with expansion revenue: Models like per-seat or feature-based pricing can drive revenue growth as customers scale usage. - Supporting multiple GTM motions: If you serve both self-serve and enterprise customers, a mix of freemium, usage-based, and enterprise contracts may be necessary.
- Monitoring churn risk: If customers find your pricing too rigid or unpredictable, they may churn. Pricing experiments and cohort analysis can help identify pricing-related churn patterns.
3. Evaluate the complexity of your SaaS offering
The complexity of your software product will be a deciding factor in your pricing approach. If you’re offering something as straightforward as a Chrome extension or basic feature, a flat-rate model may work well. However, if you serve multiple verticals or have several different products, you should opt for a hybrid or custom pricing model that allows you to accommodate several different price points for your SaaS offerings.
The best way to align the complexity of your SaaS to the right model is to think about:
- Product simplicity versus complexity: If your product has a simple value proposition, flat-rate pricing may be ideal. If it serves multiple industries or has various use cases, a hybrid pricing model may be better.
- Bundling options: If your SaaS includes multiple products or modules, you should consider whether to price them separately or bundle them into packages.
- Custom enterprise pricing: If you serve large businesses with complex needs, consider whether you should offer custom pricing based on contract negotiations.
- Testing hybrid models. If you are not sure what model to use, consider using a hybrid approach. Some businesses combine flat-rate, usage-based, and tiered pricing to maximize revenue and appeal to different customer segments.
4. Conduct a competitive pricing analysis
Before you commit to a pricing model, it’s worth taking a look at what your competitors are doing. Specifically, you’ll want to conduct a pricing analysis across the different competitors in your market to see roughly how much they’re charging and the models they’re using to capture the full value of their products and services.
Here’s how to conduct a competitive pricing analysis:
- Identify your top competitors: List all of the SaaS businesses that offer similar solutions to your own.
- Analyze their pricing structures: Do they use flat-rate, tiered, usage-based, or hybrid models?
- Compare feature sets: What do they include at each price tier?
- Assess perceived values: Do they price based on usage, features, or business impact?
- Differentiate strategically: Can you offer more value, better flexibility, or lower entry costs without underpricing your product?
5. Test and iterate your pricing
Your first pricing model won’t be perfect. Over time, you’ll expand your product offerings, your customers’ needs will change, and broader economic shifts may force you to raise or lower prices accordingly. Regardless, you should approach pricing as an ongoing process rather than a one-time exercise.
To refine your pricing, you can:
- Run A/B pricing tests. Experiment with different price points, packaging, or billing models.
- Use a pricing simulator. Tools like Togai’s revenue simulator can help you model different pricing scenarios and their impact on revenue.
- Gather feedback. Regularly talk to customers about how they perceive your pricing.
- Monitor revenue and retention metrics. Track metrics like average revenue per user (ARPU), customer acquisition cost (CAC), and churn to measure pricing effectiveness.
- Adjust based on data. If your customers hesitate to convert or churn due to pricing, iterate accordingly.
FAQs
What is the 10x rule for SaaS pricing?
The 10x rule suggests that the value your SaaS product delivers to customers should be at least ten times its price. This ensures customers perceive your product as a worthwhile investment, making it easier to justify the cost and improve adoption.
What is good EBITDA for SaaS?
A good EBITDA margin for SaaS companies typically ranges between 20% and 30%. High-growth SaaS companies may have lower EBITDA margins as they reinvest heavily in growth. Mature SaaS businesses often aim for margins closer to the higher end of this range.
What are the three major types of product pricing models?
The three major types of product pricing models are cost-based pricing, value-based pricing, and competition-based pricing. Cost-based pricing focuses on covering production costs plus a profit margin, value-based pricing aligns with the perceived value to the customer, and competition-based pricing adjusts prices relative to competitors in the market.
What is the surge pricing model?
Surge pricing is a dynamic pricing strategy where prices fluctuate based on real-time demand and supply conditions. Commonly used by industries like ride-hailing and airlines, this model increases prices during peak demand periods to maximize revenue and manage limited resources.
