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3 Critical Factors to ensure your Pricing Model delivers sustainable, accelerated growth

Writer's picture: Jeni OyeJeni Oye

Updated: May 20, 2021

When designing your SaaS Pricing Model, there are 3 critical things to get right.


It must:

  1. Be easy to understand

  2. Align to customer value

  3. Correlate customer value to revenue growth

The cost of not hitting 3 out of 3, is reduced revenue opportunity through lower acquisition, increased churn, and reduced or no expansion revenue from existing customers. Everything you don't want for your SaaS business!



How you structure your pricing and monetise your product will determine how much sustainable growth you can gain from both your new and existing customers over time.


Before we dive in, a core component of any pricing model is the Value Metric - we'll talk a lot about Value Metrics here - so just quickly...


A Value Metric is the core component you base your pricing on. For example:

  • Slack's primary Value Metric is users, because they primarily charge per user.

  • Stripe's primary Value Metric is transaction value, because they primarily charge a % fee per transaction.

  • Zapier's primary Value Metric is tasks, because they primarily charge by number of tasks

So let's explore 3 Critical Factors to ensure your Pricing Model delivers sustainable, accelerated growth.



Critical Factor 1: Be easy to understand

Do your prospects know instantly what their spend would be? Is it easy to calculate and understand?

Make sure you remove all effort for the user, don't make them get out their calculator, or do math in their head. Both Jira and Monday ask the user how many users/seats they would like, and they calculate the total cost for the customer on the spot. This removes the burden of the customer doing it themselves, and removes a barrier to conversion.




Be sure not to hide essential information or make your customer go hunting for the price! Put the key decision making criteria and price information right up front, if they are interested in your product, give them everything they need to make a decision, including the price. Hiding it or making it hard to find just increases friction and increases the barrier to conversion.


In the example below Practice Ignition hide key information such as "number of clients" for each tier, and the additional cost per client, right at the bottom of the page. This feels like it could be very misleading, and might often be missed by many prospective customers. Instead, give your customers the critical information right up front so no-one feels misled or betrayed!

Are you using metrics and language your customers understand?

Number of users, number of clients, or number of emails, are easily understood metrics by almost everyone.

Number of deployments, number of builds or number of API calls might also be easily understood metrics - but typically only by a technical buyer.


Be wary of the grey area, where you are using technical metrics, but selling to a business buyer. I've seen pricing challenges where the customer didn't understand the difference between "data storage" vs "data traffic" and it made the sales process very tedious and challenging.


Describing your features, and using language your customers can understand is critical for customers to feel comfortable they know what they are getting. Zapier do a good job of explaining items that are otherwise a bit obscure, by showing an information box when you roll over the word.



Can your customers predict their spend now and in the future?

Is your pricing simple enough that your prospects can calculate future spend? Typically, pricing by user is easy to predict, and for usage based pricing like Stripe below - where you pay a % per transaction - prospects can easily extrapolate to differing volume of transactions or payment value.



If your customers have seasonal usage, or you are using a Value Metric that is unpredictable for them, you'll need to consider how to handle that unpredictability in a way that your customer, or their Procurement Department, can accept.


Critical Factor 2: Align to customer value

Does your primary Value Metric - number of users, or number of widgets - align to the value customers get out of your product?

Your Value Metric must align to the outcomes or value your customers gets from using your product.


For example, Miro, an online whiteboard collaboration platform, allows people to collaborate on things. If the value and outcome are dependent upon people collaborating, then Number of Users is a good Value Metric for them. But beware User Based Pricing - number of users rarely correlates to outcomes or value - collaboration tools being an exception.

On the other hand, if your product helps teams manage their deployments better, number of users is not a relevant Value Metric. Octopus Deploy use Deployment Targets as is aligns directly to the outcome the customer receives.


Identifying your Value Metric is not always easy. In many cases, you'll need to find a proxy for the outcome, which is often some kind of activity or widget that correlates to the value received.


Hubspot, a marketing tool, use Number of Contacts as their Value Metric, which in itself is not an outcome, but is a good proxy for marketing activity.


Avoid usage based pricing that doesn’t align to customer value. For example, a secure file sharing platform that charges based upon “data volume sent and received”, does not align the value the customer receives - they don't know or care if their files sizes are large or small. A better metric would likely be Number of Files Shared, or something similar.


Do your tiers accommodate different customer types with different needs, usage or maturity?

The most common way to tier pricing in B2B SaaS is by business size, as shown in the Miro example below.

This assumes that different business sizes have different needs, and sometimes different Willingness To Pay. Often larger businesses are able to, and willing, to pay more than smaller businesses.


Getting the right features in the right tiers is an opportunity and a challenge. Tier well and customers will happily upgrade themselves to get access to additional features. Tier poorly and you'll loose a customer to a competitor. For example, Single Sign-On (SSO), which used to only be applicable to Enterprise customers, is more and more a key requirement for all business sizes. Don't fall into the trap of assuming business size correlates to needs, and always be tweaking your pricing to accommodate market changes and expectations.


A good example of not aligning to business size, is Monday, who provide project management software. They tier their pricing based upon complexity or capability, independent of business size. So a team of who require complex workflows can choose the Pro tier, whilst a large corporate that just needs basic project management can stick with the Basic tier.


Another way to use tiers is to target very distinct customer groups with different needs. Deputy, shown below, have identified two distinct user needs, people who just need Scheduling, people who just need Time and Attendance, and people who need both.


In summary, make sure your Value Metric aligns directly to the value a customer receives from your product, and ensure your tiers align to the differing needs of each customer type or stage.


Critical Factor 3: Correlate customer value to revenue growth


If you can nail this, it will accelerate and sustain your growth.


Most businesses consider pricing to be a key component in the acquisition of new customers. The biggest missed opportunity is also designing your pricing for expansion of your existing customer base - this is where you will really accelerate your revenue growth.


How you structure your pricing and monetise your product will determine how much sustainable growth you can gain from both your new and existing customers over time.


The Holy Grail is the pricing sweet spot, where your price perfectly correlates to customer value, over the lifetime of the customer and your product.


When you don't hit the sweet spot:

  • Customers are sad because they don’t get enough value for the price they pay. (Low value, high price), or

  • Businesses are sad because they are leaving money on the table, because customers are not paying for the additional value they receive. (High value, low price)



Getting it right is a combination of:

  1. Having a Value Metric that scales with customer value, and

  2. Having tiers and add-ons that enable you to monetise growing or changing customer value over time.

Does your Value Metric scale with your customer’s value?As your customers get more value from your product - be that more usage, more capabilities, more users - are you capitalising on that growth?

Two great examples of Value Metrics that grow with customer value, are Sendgrid, who provide an API email sending service, and Stripe, who provide a payment platform for online businesses.


Sendgrid (below), allow you to start small, and as your business grows, and you need to send more emails, the product and price seamlessly scale with that usage. This makes Sendgrid great for any size business, with almost unlimited capacity for emails.


Another example is Stripe, who charge a % of each transaction, and a fixed fee per transaction. Again, a business can start small, grow modestly or grow rapidly and only pay for what they use. Just like Sendgrid, Stripe is great for any size business, with almost unlimited capacity for transactions.


Are your pricing tiers and add-ons designed to increase customer value and therefore spend?

The classic way to encourage increased spend is to provide additional value through a tiered feature system. Monday is a great example of this, where the per user price increases with the additional capabilities in each tier. As customers become more mature in their project management, and require extra capability, they upgrade to a higher tier and pay more.

Add-ons seems to have dropped in popularity recently, mostly because they can often make pricing too complicated, or customers feel like they are being nickle and dimed. But in some cases Add-ons can solve a neat problem, where you have a significant capability, that might be applicable at any tier, but not all customers want. That's the case with Intercom's pricing below, where they have two tiers with core capabilities, but Product Tours are an add-on that you can choose to have, independent of tier.


Add-ons can be a great way to provide a significant capability, that only some customers need, that increases customer value, and creates expansion revenue for the business.


In Summary, you need to hit all three factors to maximise your revenue growth sustainably.


The cost of not hitting 3 out of 3, is reduced revenue opportunity through lower acquisition, increased churn, and reduced or no expansion revenue from existing customers.


How you structure your pricing and monetise your product will determine how much sustainable growth you can gain from both your new and existing customers over time.


We hope these examples have been helpful. Any feedback or questions are always welcome!



If you'd like help with your pricing, please get in touch!

Contact jeni@gobigadvisory.com or +61 404 421448

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