Profitable SaaS Pricing: 5 Best Practices to Accelerate Growth

The death of Gumroad. 

Gumroad price change is a huge disappointment. 

What are the best alternatives to Gumroad? 

This was the internet’s reaction when Gumroad announced a sudden change in its pricing with a YouTube video and an email. It led to a dramatic exit of creators (like Alex 👇) from the platform.

While we don’t know exactly how many users migrated from Gumroad after the price hike, it’ll go down in the books as a classic case study of what not to do in SaaS pricing. 

But, let's face it: pricing your SaaS is tricky. One wrong move and you risk losing customers or leaking revenue. Your pricing also directly impacts your brand reputation and customer acquisition efforts. 

We’ve compiled these five SaaS pricing best practices to help you make the right call at every stage—from setting your prices to increasing them. 

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5 Best practices to make your pricing a growth lever

Here are five SaaS pricing best practices backed by examples and actionable tips to help you navigate SaaS pricing:

1. Make pricing transparent for everyone

Research shows that B2B buyers spend 27% of their buyer journey independently researching a brand online and another 18% on offline research, like peer discussions, supplier consultations, and more. 

One thing is clear: buyers prefer collecting information independently before speaking to a sales rep. This is why transparency is among the most critical SaaS pricing best practices. 

Most companies hide their pricing to offer custom price points to every prospect. This can:

• Create more disparity in how you charge different clients
• Complicate the buying process for potential customers
• Increase spending on sales reps for negotiating prices
• Slow down the sales cycle and reduce conversions
• Leave room for one-off negotiations and discounts

Instead, transparent, publicly available, and non-negotiable pricing creates uniformity for prospects of all sizes. This clarity also builds trust and wins quality leads. You can naturally reduce costs on sales reps and implement a product-led growth strategy. 

Source 

Case in point: PostHog’s experiments with pricing transparency

PostHog presents an excellent case for transparent pricing terms. The platform adopted transparent pricing, giving interested users complete visibility into what they'll pay based on their requirements. Along with these pricing tiers, their pricing page includes a slider to help users estimate the monthly cost based on their expected usage. 

Within six months of implementing this change in their pricing model, PostHog saw a 20% increase in their month-over-month growth, culminating in 8.9x growth over the year. 

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2. Use psychological tactics to reduce friction

Choosing a pricing model is the job half done. The other half is about optimizing your pricing plans based on human psychology. 

Psychological pricing tactics can affect how customers perceive and react to your pricing. They can also reduce friction in buying decisions and drive more conversions. 

Here are five popular psychological tactics for SaaS pricing:

• Charm pricing: This refers to ending your price points with the number nine. This creates the Left Digit Impact, where people are drawn to the first digit in a numerical sequence. So, if you want to price your product at $100, use charm pricing to make it $99.99. 

Here’s how Asana uses this tactic to price its plans:

• Anchoring bias: This is based on the idea that all other items seem affordable when you spotlight the most expensive item. For SaaS pricing, the most expensive package on your page is the anchor (or a frame of reference), making the other packages look affordable. 

For example, Sendinblue highlights its Business plan as the most popular one, making the Starter plan look more favorable. 

• Product bundles: Bundle pricing clubs together multiple products at a single price point. This pricing is somewhat lower than the products' individual prices, giving the impression of a better return on value. Bundle pricing works best when you market these bundles through outcomes—like the Zendesk suite.

The Suite pricing includes multiple products in one, like help center, reporting, agent workspace, ticketing, and more. 

• Center stage effect: This tactic is based on the idea that people generally resist the most expensive and cheapest options. So, they prefer the one in the middle. This is a common SaaS pricing where brands place their most preferred plans in the center to divert people's attention. 

Here’s a great example by ConvertKit, spotlighting its Creator plan in the middle. 

• Limit analysis paralysis: People are less likely to make confident decisions with multiple choices. They might go down the rabbit hole of analyzing all the options and table their decision for later. So, limiting your pricing plans is a good way to simplify buying decisions. 

Maze has just two pricing options on its page. Free users looking to upgrade can either switch to the Professional plan or talk to the sales team about the Organization plan.

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3. Create a mindful action plan for communicating price changes

Raising prices can be a gamble in any business. But SaaS companies put a lot at stake when introducing a price hike. Gumroad’s example demonstrates the disastrous consequences of communicating a price hike without a good strategy. 

Here are some tips to help you avoid dropping the ball while communicating increased pricing:

• Highlight the value of higher pricing with detailed explainer videos, slide decks, or emails to justify the extra investment 

• Incentivize retention by offering discount offers or giving existing users the option to lock current prices through pre-payment

• Create (and test) empathetic messaging to avoid sounding blunt; instead, clearly communicate your reasons for the update

Case in point: Slack’s success with its first price increase 

Slack increased prices in 2022 for the first time since its launch in 2014. They communicated with a thoughtful and in-depth post covering multiple aspects behind this hike. The post begins by emphasizing how the tool has become an indispensable digital HQ for many people since the pandemic.

In several segments, they talk about each plan's increased benefits and features. The product innovation timeline shows how the team has incremented the product's value over the years to justify the new pricing. They also localized the new prices to simplify them for global users.

Pro tip: Need help communicating a price update—or educating your audience in general—with powerful and empathetic content? Work with a team of experts to resonate more with your users with impactful messaging. 

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4. Segment pricing for buyer personas and jobs to be done 

Ulrik Lehrskov-Schmidt, a pricing advisor for 100+ tech companies, compares software with trains to explain the importance of segmentation. 

Trains offer first, second, and third-class tickets at varying prices with different features. Likewise, a SaaS company has to categorize its features into different segments to offer the optimal product experience for every price point. 

Here are two simple tips for segmenting your users into different personas and determining the optimal prices:

• Instead of following a basic-to-advanced segmentation, stack features into different tiers based on the complexity of issues they solve
• Evaluate all the jobs-to-be-done (JTBDs) your product fulfills and categorize these into pricing plans

For example, Notion divides its paid plans based on the complexity of the JTBDs necessary for different personas. It adds more features to each plan and increases the limits based on the utility. 

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5. Price add-ons based on value for multiple personas

Determining (and justifying) charges for add-ons is another crucial part of SaaS pricing. Customers would be willing to pay more for an additional feature only if it fulfills a necessary function. 

That’s why it’s important to link your add-ons to the value users can achieve from each feature and price them according to this value. 

Kurt Smith, CEO of Fexa, explains what to consider when pricing add-ons:

"There's really two rules of thumb when you think about add-ons. In order for you to charge for an add-on, customers have to understand that there's business value in that specific feature. If it's a table-stakes feature, that shouldn't be sold as an add-on. The second is it has to be compelling for multiple personas."
_{— Kurt Smith, CEO & Board Member, Fexa}

Here are a few easy ways to determine the business value and relevance of an add-on:

• Analyze competitors' pricing for a similar feature to establish benchmarks 
• Interview and survey customers to understand the need for the feature and determine their willingness to pay
• Identify the development costs for an add-on feature and reach a middle ground with users’ expected pricing 

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Boost your bottom line with these SaaS pricing best practices

SaaS pricing can make or break your business growth. Done right, your pricing can give you an edge over the competition and reel in more prospects. Done wrong, it can create a domino effect of negative consequences—unhappy customers, poor lifetime value, and lower profits.  

With these five SaaS pricing best practices, you can find the sweet spot that works best for you and your customers. More importantly, these tips will help you communicate your prices effectively to drive conversions. 

We at dslx know how to communicate the value of your product to your target audience—get in touch to make it happen.