Extracts from recent articles by Kaya Ismail and Patrick Campbell on the framework and impact of pricing on Software-as-a-Service (SaaS) offerings.
Understanding SaaS Pricing Strategies
An extract from an article by Kaya Ismail
The SaaS industry is laden with products, from martech to accounting software to ecommerce platforms, and surviving in this hectic industry is no easy feat.
Products with a healthy product-market fit have a good chance, but outside of their core features, there’s one key to success — and simultaneously, to failure — that every SaaS company should be concerned with; Price.
Thus, the cost of the SaaS membership, as well as the design and presentation of the pricing page itself, is paramount. So much so, that a 1% improvement in price optimization can result in 11.1% more profit.
Common SaaS Pricing Models
Before we get into specific pricing strategies and tactics, let’s understand what the pricing models are. The most common SaaS pricing models fall under the following three categories, and many companies use more than one in their overall pricing strategy.
- Tiered Pricing
- Usage-Based Pricing
Pricing Strategy Guide: Selecting the Best Pricing Strategy
An extract from an article by Patrick Campell
When companies think growth, they think customer acquisition. Yet, pricing is the crucial part of your business that has the highest impact on growth.
We studied 10,342 blog posts across hundreds of SaaS companies and found that pricing is the most-often overlooked way to drive growth. People in SaaS are writing and thinking about customer acquisition seven times as often as monetization.
Growth is more revenue, not more customers. How you monetize those customers is vital. Yet, out of every 10 blog posts on growth, 7 are focused on acquisition, 2 are centered around retention, and only 1 is about pricing.
Ironically, the frequency with which people write about each growth lever is inversely related to its effectiveness in driving growth. People write about acquisition, retention, and monetization in that order, but monetization has the biggest impact on the bottom line, followed by retention and then acquisition.
In our study of 512 SaaS companies, we found that monetization had the largest impact by far on your bottom line. This could mean targeting better customer channels, or raising prices to better fit value.
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