SaaS Pricing Strategy: Lessons from Getting It Wrong

We've made every pricing mistake in the book. We've priced too low, too high, too complex, and too simple. We've given away features that should have been premium and charged for features that should have been free. This article distills what we've learned about SaaS pricing from these expensive lessons.

Why Pricing Matters So Much

A 1% improvement in pricing has significantly more impact on profitability than equivalent improvements in customer acquisition or cost reduction. Yet founders spend far more time on product and marketing than on pricing.

Pricing also signals value. It shapes who your customers are, how they perceive your product, and how they use it. Getting pricing wrong doesn't just leave money on the table—it can attract the wrong customers and position you poorly in the market.

Our Biggest Pricing Mistakes

Mistake 1: Pricing Too Low

Our default tendency was to price conservatively, reasoning that lower prices would attract more customers and we could always raise prices later.

The reality: low prices attract price-sensitive customers who churn quickly, demand extensive support, and complain loudly about any price increases. Low prices also signal low value—serious buyers often assume that cheap products are cheap for a reason.

Lesson: Charge more than you think you should. You can always discount; raising prices is much harder.

Mistake 2: Complex Pricing Structures

We tried usage-based pricing, feature-based tiers, seat-based pricing, add-ons, and various combinations. Complex pricing creates friction in the buying process—customers don't understand what they'll pay and delay decisions. It also creates confusion after purchase when bills don't match expectations.

Lesson: Simpler pricing, even if not perfectly optimized, usually outperforms complex pricing. Aim for a pricing page that customers can understand in 30 seconds.

Mistake 3: Not Segmenting

Early on, we tried to serve everyone with the same pricing. But an individual freelancer and an enterprise company have completely different budgets, needs, and purchase processes. One-size-fits-all pricing means you're leaving money on the table with enterprises while potentially pricing out smaller customers.

Lesson: Segment your pricing for different customer types. This doesn't require complex tiers—even "Starter" and "Pro" plans are a form of segmentation.

Mistake 4: Pricing Based on Cost

We sometimes set prices based on our costs plus a margin. But customers don't care about your costs—they care about the value they receive. A feature that costs you nothing to provide might be worth a lot to customers, and vice versa.

Lesson: Price based on value to the customer, not your cost to deliver.

What We've Learned Works

Talk to Customers About Pricing

Most pricing decisions are made in spreadsheets without customer input. Talk to customers—both those who bought and those who didn't—to understand:

• How they perceive value in your product
• What alternatives they considered and at what prices
• What would make them willing to pay more
• What almost stopped them from buying

Test Pricing Systematically

Rather than guessing, test pricing with real customers. This can be as simple as showing different prices to different cohorts and measuring conversion rates. The data often surprises us.

Annual Plans > Monthly Plans

Encouraging annual plans improves cash flow, reduces churn (annual customers stick around longer), and simplifies your financial planning. Offer meaningful discounts for annual commitment—the lifetime value improvement justifies it.

Invest in Your Pricing Page

The pricing page is one of the most important pages on your site. It should:

• Clearly communicate what each tier includes
• Make the recommended tier obvious
• Address common objections
• Make it easy to take the next step

Default to Fewer Tiers

More tiers means more decisions for customers and more complexity for you. Start with 2-3 tiers. Add more only if data suggests it.

Pricing Tactics That Work

Anchoring

Show your highest-priced option first. This makes other options seem more reasonable by comparison.

Recommend a Tier

Explicitly recommend one tier (often the middle tier) as "Most Popular" or "Best Value." This helps customers who are uncertain make decisions.

Remove Friction for Small Plans

For lower-priced plans, make the purchase process as frictionless as possible. No sales calls, no custom quotes, no lengthy negotiations.

Create Urgency for Upgrades

When customers hit limits, make upgrading easy and obvious. Usage-based limits often work better than arbitrary restrictions.

When to Raise Prices

We've found that you should be raising prices more often than you think. Signs it's time:

• You haven't raised prices in over a year
• Customers rarely push back on pricing
• You've added significant value since last pricing
• Competitors are charging more
• Sales cycles are very short (you might be too cheap)

Raising prices is easier than most founders fear. Grandfather existing customers if you want to avoid backlash, but don't let that stop you from optimizing for new customers.

Conclusion

Pricing is a lever that most startups underlever. It deserves more attention than it typically gets. The good news: improving pricing doesn't require massive product changes or huge marketing budgets. It requires research, testing, and willingness to charge what your product is worth.

We recommend starting by talking to customers about pricing. Test different price points. Don't be afraid to charge more. And remember: the right price is the one that optimizes for long-term business success, not short-term customer volume.