What is SaaS Price Elasticity?

SaaS price elasticity measures a SaaS product’s popularity with respect to price changes. This is an integral part of a SaaS pricing strategy that allows for a more detailed understanding of how purchasing experiences are impacted by pricing variations. 

수식: 

Elasticity (E) = (% Change in Quantity Demanded) / (% Change in Price) 

Interpretation: 

If E > 1, demand is elastic (very responsive to price). 

If E < 1, demand is inelastic (less responsive to price).

SaaS businesses can consider price elasticity in the decision-making process related to the company’s pricing strategy. 

It allows for analysis and predictions referring to how price changes aspects like: 

• Customer acquisition and retention 
• 전환율
• Customer lifetime value (LTV)

Companies utilizing SaaS price elasticity data may observe up to an 18% difference in net dollar retention rates.

SaaS businesses should consider price elasticity because it: 

• Allows SaaS companies to perform competitive reasoning
• Create features or products considered necessary
• Distinguish offers based on the value offered 
• Fine-tune bundles for adequate product mix and sales volumes. 

Price elasticity is part of the development of the company’s pricing strategy, as it allows for a better grasp of how price variations impact demand. 

In SaaS, this affects customer acquisition, retention, and lifetime value — all key to recurring revenue.

The observed correlation between a 10% price increase and a 20% decrease in sales might indicate price elasticity, suggesting customer behavior is affected by price.. 

Optimizing pricing by using elasticity info can lead to the: 

• implementation of tiered pricing models 
• usage of value-based pricing techniques 
• application of dynamic pricing models focused on data 
• use ML and AI instruments to analyse user groups 

To measure price elasticity: 

• Calculate the percentage change in subscriptions after a price adjustment. 
• Calculate the percentage change in subscription price. 

Use the formula: 

Elasticity = (% Change in Subscriptions) / (% Change in Subscription Price) 

예: 

A 10% price increase leading to a 5% drop in subscriptions → Elasticity = -0.5 (inelastic). 

전문가 팁: 

• Enhance measurement accuracy with: 
• 시장 조사 
• Economic indicators 
• Segment testing 
• Machine learning techniques 

1. The steps to follow when looking to test pricing for your SaaS product are: 
2. Create buyer personas with a focus on the manner in which they perceive value
3. Employ the Van Westendorp Price Sensitivity Meter (PSM) method to assess various prices

To test how sensitive customers are to price: 

Run: 

• A/B 테스트 
• Sensitivity analysis 
• Scenario analysis 

Test various: 

• Price points 
• Package options 
• Value metrics 

예: 

Front tests its pricing every three weeks to validate assumptions and reduce pricing errors. 

Pricing elasticity can be affected by several factors: 

• Business/revenue model: depending on how you collect payments(구독, 단계별 가격 책정, value-based approaches
• User metrics: including CAC (customer acquisition costs) and 고객 생애 가치 (LTV). 
• Company points: company size, goals, and value proposition 
• Industry characteristics: market positioning, competitive research, and strategy. 
• Economic Indicators: Inflation, 시장 동향, and purchasing power. 

Tools for optimization include: 

• Van Westendorp Price Sensitivity Meter 
• Customer segment testing 

To ascertain the price that consumers are willing to pay: 

• Investigate and comprehend the perceived worth of the goods. 
• To find out if customers are willing to pay, conduct surveys and interviews with them. 
• Examine the prices of competitors to establish a baseline. 
• Make use of value-based pricing, which ties the cost of your product to the value that the buyer derives. 

예: 

If your SaaS saves a customer 10 hours a week, figure out how much they would be ready to pay by converting that time saved into a monetary value. 

When pricing changes have little to no effect on demand, the SaaS price is said to be inelastic. It shows that users are not very price-sensitive. 

That happens when the SaaS product is thought to be operationally necessary. 

In order to attain inelasticity, present the SaaS as a necessary, mission-critical tool as opposed to a luxury.