Businesses leave money on the table by choosing the wrong pricing strategy and model. Let’s talk about it. You have created an amazing SaaS product and now its time to sell it. The question you have is , how much should you sell it for? Pricing strategies and pricing models are often confused with each other. Pricing Strategy refers to the method a business uses to set prices for its goods and services. Pricing Model determines how to calculate and adjust the prices .
In short: Pricing strategy = Company Centric and Pricing models = Customer Centric.
When developing a SaaS pricing strategy, you need to consider all direct and indirect costs to ensure profitability while remaining competitive.
Direct costs includes expenses tied to delivering the software to customers like :
- Cloud infrastructure & Hosting
- Engineering team salaries
- Third-Party services and APIs
- Security & Compliance
- Customer Support & Onboarding.
Indirect costs includes costs crucial for scaling the business and keeping it sustainable. These are costs like:
- Digital Ads
- Content marketing
- Webinars
- Sales commissions & Salaries
- CAC (Customer Acquisition Cost)
- Loyalty programs
- Product Management & Research
- Legal & Administrative costs.
It is very important to also list the costs of the free credits you are utilizing at the moment like ChatGPT credits. This is because when these free credits expire/ you ran out, then you will need to pay for them and will affect your profitability. Once you have all your costs accurately outlined, you are one step closer to figuring out your pricing strategy.
There are several pricing strategies for SaaS products, like:
- Value-based pricing - You set your prices based on what consumers think your product is worth.
- Competitive pricing - You set your prices based on what the competition is charging.
- Cost-plus pricing - You take the product production cost and add a certain percentage to it. Like adding 95% markup because its the known gross margin in SaaS products.
- Penetration pricing - Offering prices that are much lower than the competition.
When entering a saturated market or one with similar services, many founders attempt to gain market share by undercutting competitors—sometimes even operating at a loss—or by offering a freemium model to attract users. Freemium is an acquisition model and not a pricing strategy because you will often end up increasing noise or false positives while trying to segment beachheads. Positioning your SaaS product as the cheapest option not only erodes profitability but also hinders scalability. Cash flow is king—higher profits give you the financial flexibility to hire top talent and invest in R&D (Research & Development) , both of which are essential for staying competitive in the long run.
Pricing is one of the most overlooked yet powerful growth levers, often sidelined in growth discussions despite being 7.5 times more impactful than customer acquisition. To maximize its potential, growth teams should track key metrics such as Customer Retention, MRR(Monthly Recurring Revenue) , ARR (Annual Recurring Revenue), and CAC to evaluate the effectiveness of different pricing strategies.
Have you ever revisited your pricing model? What changes made the biggest impact for you?
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