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The 4-Step Guide on How to Price Your SaaS Product
Learning how to price a SaaS product might be the most challenging lesson developers need to master. However, for whatever reason, pricing comes last on their list of things to d. SaaS developers spend no more than 6 hours determining the correct pricing mode for their product. That is not enough and usually leads to a faulty pricing strategy bringing them nothing but losses.
In this guide, we plan to help you understand how to price SaaS products. We will look at SaaS pricing strategies and point out the facts that should determine how you settle on the price of your product.
Why is your SaaS pricing strategy so important?
Questioning the necessity of this SaaS pricing guide? We can assure you that it is a real one. An optimized pricing strategy can bring your SaaS business several relevant benefits. Let’s discover what these are.
Why is your SaaS pricing strategy so important?
It is essential to position your product effectively within your market, as this will help you gain access to a specific customer segment. SaaS companies send a clear message to their public in more ways than one. And pricing is one of them. You don’t want your potential customers to perceive you as a cheap or far too expensive solution. Mastering saas product pricing will allow you to send the correct message about your solution.Adequate audience targeting
Pricing is a powerful audience segmentation tool; you must make the most of it. SaaS providers that take the time to master the art of pricing a SaaS product will be able to target a specific group of customers that can afford the investment in your product. It’s a way of making sure they won’t hurry to churn due to a lack of funds.4 Steps to pricing your SaaS product
We’ve been talking about how vital pricing is and that you must treat this aspect attentively. Perhaps it’s time we got down to business and discussed the elements you need to bear in mind when setting your price.
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Understand your target audience
Everything starts with our buyer persona. That’s where you will find the power to act and the direction. We cannot stress enough how crucial aligning price with the audience is. Your profitability level will suffer if your price exceeds your audience’s possibilities. If you are selling your service cheap, your target audience might not trust it, as customers of that segment have already been accustomed to specific price thresholds. So, consider your buyer personas and establish pricing limits based on the information captured in those templates. Selecting user pricing depends on your targeted customers. Also, based on your target audience, you will decide the best pricing model for your business. Dynamic pricing, usage-based pricing, and freemium pricing are just a few options. -
Consider your competition
When considering the price, you could look at your competition to set the correct starting point. For example, if your competitors have subscriptions of $100, you could consider putting your price around that value. Of course, your job is not over just yet. It would help if you thought of other aspects, but this is a good starting point, giving you a clue about where to start your research. Eventually, you might end up choosing a subscription that is more or less similar to your competition, but as always, the price of your SaaS product needs to be thoroughly argued. Simply looking at your competition won’t do. -
Look at your product features
Your product has something to offer its users. Your pricing structure needs to reflect that. A key to saas pricing is to compare your offer with that of competitors, understand what extra benefits you are bringing forward, and adapt your pricing based on your findings. Your customers are using your solution to ensure increased earnings. So, assess what that means. How much revenue can your features help your clients gain? -
Establish operational costs
Incorporating operational costs of all kinds in your pricing strategy is essential. Think of development costs, meaning building new products and updating existing ones. Marketing and sales costs also need to be considered because of these drive sales. Your staff will also generate expenses and the tools you are using. All of your business expenses need to be included in your pricing strategy.
Freemium vs. Free trial: Which is best?
When considering selecting the right pricing strategy for saas products, there are a lot of things you need to consider, as you’ve noticed. However, many SaaS companies are first believers that how you present yourself for the first time will dictate the amount of success you will gain. That is why Saas companies prefer to win customers by giving them an offer they can’t refuse, which is a free one.
There is just one problem. There is the freemium strategy, and then there is the free trial option. Which is better?
Freemium helps you gain more traffic and allows you to obtain a more significant amount of feedback. However, without a strategy to help users convert to paying customers, the freemium model will certainly not bring home too much revenue.
Free trials give users a complete product tour for a limited time. How long does a user need to understand how your product works? Only you can answer that question. If you get this one right, the free trial model has the potential to secure your business with a revenue stream.
So, to answer the first question, deciding between the two depends very much on the product you are selling and your revenue goals.
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