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How to Price Your SaaS Product
There are many pricing models and pricing strategies, and different experts define different numbers of them. In today’s article, we will talk about our favorite pricing models that we find interesting and most well-fit for SaaS products.
The Van Westendorp Pricing Model
One of the most popular models to determine the right price for your product or service is Van Westendorp pricing model. Originally developed by Dutch economist Peter Van Westendorp in 1976, the Van Westendorp Price Sensitivity Meter or Westendorp Pricing Model is an effective tool that helps you identify an acceptable range of prices for a product.
The Van Westendorp pricing model asks customers 4 questions to get the range of acceptable prices for a product. These questions are:
- At what price would you not buy this product because it becomes too expensive?
- At what price would you consider this product to become expensive, but would you still buy it?
- At what price would you consider this product too cheap, and would you doubt its quality?
- At what price would you consider this product cheap?
After the survey is conducted, the results should be visualized in a line graph with prices on the x-axis and the number of respondents on the y-axis. The picture below shows an example of a Van Westendorp graph.
On this graph, the range of acceptable prices is $50-$70, and the optimal price is $60.
The Van Westendorp Price Sensitivity Meter can be used by both an early-stage SaaS startup and an established SaaS company to understand the market dynamics and to determine a price offer for a new product.
Read more on the Van Westendorp Pricing Model and other ways to boost your revenue in our new 5-step guide on revenue growth! There is a ton of actionable information, especially if you are a bootstrapped or a seed-stage startup.
Lincoln Murphy Pricing Model
Another very interesting model of setting the price is from Lincoln Murphy, SaaS marketing expert and growth architect of Sixteen Ventures.
Lincoln Murphy offers another way to determine a product’s price. Relax, this model doesn’t need graphs. All in all, his method is based on customers’ perception of your product’s value. “If what you are offering is not perceived to be of high value, then they won’t pay what you’re asking.” Don’t lower your price to meet their perceived value. Better, improve your value proposition and therefore raise the perceived value of your offering to meet the price you have already set. It is not the easiest way, but in the long term, it could significantly influence your business. You should know your customer to understand how they perceive your product.
Always remember, “the customers’ willingness to pay is directly tied to the perceived value. – Lincoln Murphy
Then, it is time to test your pricing. Testing requires pitching a group of prospects your product followed by the price you came up with. If they convert, it means your price is too low. You set a new price, 5% higher, and try to sell your product one more time, to a new group of potential customers. Lincoln Murphy considers your price too low until you get to 20% pushing back on pricing.
Now that you know most of the existing pricing models and strategies, the time has come.
4 SaaS Pricing Tactics That Work Like Magic
Improve Payment Experience 🧾
Pricing, checkout, and billing systems are crucial parts of the customer experience. The buying experience must be seamless, so your user will not change their mind about a purchase at the last minute. If your main goal is to push ARR, our study shows that more and more customers (89% of surveyed) would prefer to go for annual if they get a 15% + discount and still pay monthly through a BNPL provider.
The Buy Now, Pay Later approach of Comfi accelerates sales and facilitates the buying process. Comfi provides a flexible payment method, so your users are able to spread their annual subscription payments into 12 interest-free tranches over 12 months, while Comfi pays you the whole sum upfront within 7 days. Implement Comfi to boost your customer payment experience.
Offer Free Trial 🆓
Free trials have always been helpful if you want to increase your product sales. Users want to experience your product first-hand before committing to it and putting their money into it. Free trials gain customer trust and confidence, as the user is not offered a pig in a poke. As a common practice, you can offer a limited two-week or one-month trial to your customers to give them a hands-on experience with your product.
You should localize your pricing to the currency, willingness to pay, and ability to pay off the customer’s country or region. For your prospects, it is much more convenient to view your pricing page and see their local currency. Also, having different pricing options in different regions increases revenue per customer, and should be based on the economic milieu in different countries or regions. Pricing optimization helps you discover the best strategy for each market.
The SaaS business model allows you to offer your customers upgrades and upsells within your pricing model. That creates additional opportunities for your sales team, and you get more long-term revenue. Consider incorporating upsell and upgrade to your pricing model. You can attract customers through a freemium model and then upsell within your pricing model. Upselling existing customers is one of the best ways to increase your business’s revenue.
To Sum Up
Choosing a pricing model and pricing strategy can be hard, but don’t let fear stop you. Remember, you always can (and should) tweak the prices of your product or service, according to a new situation or environment. Pick the strategy and model that suits your SaaS business best and you will succeed. Show your users the value of your product and implement Comfi for smooth customer experience and higher ARR.
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