3 Ways to Price a SaaS Product
There are generally three ways you can price a SaaS product:
- Cost plus pricing - This is where you look at the costs of running the SaaS product and add some markup to those costs. The markup is your profit.
- Competitor based pricing - Where you base the price of your product on the price(s) competitors are charging. Typically, you try to price yourself a little lower than your competitors to catch customers.
- Value based pricing - The price of the product is based on the value that it delivers to the customer.
Generally speaking (though not always), value-based pricing is the best option.
With cost-plus pricing, you can end up with a lower margin that makes up your profits. You can also end up charging way less than customers may be willing to pay for the product.
Competitor-based pricing introduces a race to the bottom on pricing and it only partially works at attracting customers: some will be excited about a cheaper equivalent, others will assume the product is less valuable or useful to match the fact that it costs less.
Both cost-plus and competitor-based pricing are why you see a lot of SaaS products marked at $7/month or $9/month - it’s either the cost plus some profit margin or simply what most SaaS products charge for their product.