What is SaaS Competitive Pricing?

Competitive pricing refers to setting SaaS product prices by considering what competitor brands are charging.

Your product is aligned with other similar options, becoming an alternative.

Cost-plus and value-based pricing are two alternative models, and here’s how they differ from competitive monetization.

Cost-plus pricing adds a profit markup on top of production expenses, whereas the value-based strategy focuses on the perceived value the product brings to the customer.

To implement the competitive SaaS pricing model, consider the following steps:

Step One: Assess your direct competitors to determine their monetization structures and product offerings.

Step Two: Continue by performing an evaluation of your solution. Factor in product costs, features, and unique selling points.

Step Three: Compare your solution with the existing market alternatives and decide if you want to position your brand in the lower or higher range or if you want to match the average price point.

Step Four: Perform ongoing monitoring and review of your SaaS’s worth to remain competitive.

When setting your solution’s worth, you need to consider production and maintenance costs, your audience’s budget, marketing expenses, as well as competitor prices, of course. 

Apart from these factors, it’s important to assess the actual system functionalities your SaaS brings. Try to map them to the value the user receives because that is what you are charging for. 

To ensure that your business will obtain a healthy profit margin, you need to strike a balance between platform value and costs.

While monitoring broader competitor movements is essential, pricing adjustments should be executed strategically in response to primary market catalysts: not every minor adjustment should be followed by a modification on your side.

Major ones need to be seriously considered, as they could indicate market fluctuations or a change in your competitor’s offering.

When this happens, you should re-evaluate your monetization strategy to remain a valid alternative.

Additionally, adjusting your pricing needs to be done carefully, especially when introducing a new tier or making a small rate change.

You can monitor the effectiveness of a competitive pricing strategy in three ways:

1. Track relevant metrics like:

• Sales volume: track this metric separately for each of your pricing tiers to identify effectiveness.

• Customer churn: monitor if there are any spikes after making price adjustments.

• Profit margins: generating sufficient profit can indicate that your monetization method is functioning correctly.

• Customer acquisition cost (CAC): if there are any changes in how much you are paying to acquire a customer, you might want to consider adapting your pricing strategy.

• Customer lifetime value (CLV): customers who are satisfied with your price tag are more likely to keep using your solution.
• Price elasticity: this metric measures your customers’ sensitivity to price changes.

2. Monitor competitor pricing regularly, like when you are conducting competitive landscape analysis, so no significant adjustment takes you by surprise.

3. Collect user feedback on their perception of your monetization method and implement changes.