How to approach SaaS pricing if you want customers to happily pay a premium

“Our SaaS fees are too high!”

Recently I got reminded about the time I was responsible for pricing at my former employer.

One common thread of complaints was: Our pricelist needs to be lowered.

The odd thing was that the complaints came from countries with the world’s highest living standards.

We also saw that some countries were consistently selling at pricelist level (and often above) – for the same product, in the same industry, against the same competitors …. with top-tier win rates.

Here’s the thing

When discounting starts to feel like your only weapon, often your price isn’t wrong; your story is wrong.

Price is a story in the minds of your customer.

  • about a better future – a future they desire
  • about the end of their frustrations
  • about gaining an advantage

What it does is magical. They’ll start to believe your product is something they deserve and can’t live without.

When this story is absent, you can’t blame your prospect for their natural reaction, i.e., Demanding more scope for a far lower price or worse, postponing the deal, ghosting you, or even buying nothing at all.

So how do you solve this

Assuming your product is solid, the answer is in positioning.

Position your SaaS product in a way you become incomparable in the eyes of the right customer will give them the story to buy … with urgency.

Remember, no matter how bad the economic conditions or how turbulent the situation is – prospects will happily buy solutions that solve valuable and critical problems – and pay a premium for them without hesitation.

Key takeaway: When discounting starts to feel like your only weapon – don’t change your pricing; change your positioning.

Dropping your price is a sign of weakness.

Daring to take position is a sign of strength.

 


Question for you to reflect upon

What’s the story your customers tell themselves when they see your pricing? (….are they potentially internally laughing?)


 

The question I then got was, “OK, Ton, fair enough – but assuming your positioning is there, then what can we do to be able to use our pricing as a lever in the mix as well, i.e., how to approach pricing if you want customers to happily pay a premium?

That’s what I will answer with this blog. Let’s start with the first question:

How desirable is your SaaS pricing?

One of the biggest problems I see B2B SaaS companies struggle with is the wrong debates about their pricing.

The value delivered is often entirely out of sync with the charged price. And with that, the bulk of SaaS companies leave money on the table.

Now, I am not saying we should be ripping off customers; on the contrary.

Pricing is complicated. But if we challenge our pricing around specific rules, it can become a fun exercise.

As mentioned above, price is a story. And virtually all SaaS companies forget this.

Concerning this, I love Jonathan Stark’s simple Max Price formula: (Buying power * Desire)/Available options.

If you analyze its components, you’ll see this is about the foundation of your business (As you know, I like to refer to this as your Traction Foundation):

  • Buying power: segmentation, i.e., clarity of who you’re for / not for
  • Desire: your compelling value proposition
  • Available Options: positioning or better: taking position

It’s precisely what many B2B SaaS companies forget when they design their pricing. Instead, too many make pricing a boring numbers game where only SaaS cost, contribution margin, and competitors’ pricing play a role.

Key takeaway: Stop approaching your SaaS pricing from a Cost+ perspective; Start approaching it from a Desire+ perspective

So, what the big question becomes: How to embrace that?

Below I’ll dig into the core ingredients that I always aim to optimize around.

  1. Get clear about where you have pricing power
  2. Price outcomes to problems, not usage of product
  3. Embrace your customers’ context
  4. Position for scarcity
  5. Stack more guarantees (not features)
  6. Leverage value of convenience

Step 1: Get clear about where you have pricing power

The first big question to answer when creating the pricing strategy for your SaaS solution is this one: ‘Where do we have pricing power?’

Let me illustrate this with a quote from Matt Danna, CEO of Boulevard

Cost savings resonate when you’re selling to a CFO. But we sell to the more significant Spa’s and Hair salons, and being able to point out they’re able to generate a lot more top line, and even things like gratuity, really resonate.

It gives us pricing power. When you can generate in the mid-teens of additional revenue for a business, then they won’t look at you as a cost center. And then you’ll avoid raking through the coals on pricing.

Here’s the thing

Many SaaS solutions help save costs. But often, they contribute to top-line growth and other valuable benefits as well. Unfortunately, more often than not, we seem to forget that.

That’s doing nobody a favor. Here’s why.

If you’re in the cost savings zone or (worse), people position you in that zone; buyers perceive your solution as a cost of doing business. You’re selling a solution they need (not one they want.) In this category, people often want to have the cheapest solution.

The moment you can credibly position yourself differently, moving you into the zone of growth acceleration, competitive advantage, or status, then it becomes something that people want to have. It’s both valuable and desirable. That’s where people happily pay a premium.

For this, segmentation beyond the traditional demographics and firmographics is ultra important.

Key takeaway: Pricing power starts by understanding and articulating your ideal customer’s unique dynamics, fears, values, and aspirations.

 


Question for you to reflect upon: 

Where do you have pricing power?


Step 2: Price outcomes to problems, not usage of product

This sounds obvious, but it is not.

Let’s go back to the original question: How to approach pricing if you want customers to happily pay a premium?

In relation to this, I’d love to share an anecdote Ryan Falkenberg, CEO of CLEVVA, gave me recently.

The lesson that I learned: We’d rather be the standard for a problem resolution category than for a solution category.

We’ve spent so long in our company’s journey explaining to people why our solution is so amazing, ….and actually, they don’t care.

The category we fit into is virtual agents – and with that, a customer’s mindset would automatically be: ‘Is it a chatbot? Is like chatGPT and so on. And so we constantly fell into the trap of explaining why our solution is different and why it is better.

To stop this we changed. Today, we are 100% focused on the problem that our virtual agents solve.

It really helped us. The conversation has shifted. Engagement is better and we’re able to talk to the right customer about the right problems instead of just going blankly with trying to sell a virtual agent to a bank, which is a huge sale.

Here’s the thing:

Customers only care about their specific problem. And if you can solve that as pain-free as possible, they’re going to be very interested. That then becomes the thing they’ll evangelize for you

It requires a mind-shift, though. but once you embraced that, other levers are at your disposal – such as the way you can tune your B2B SaaS pricing model. Here’s how this panned out for CLEVVA:

It enabled us to introduce what we call a ”Virtual agent as a service’ offering. We’ve moved away from a software-as-a-service play into offering customers the outcome of our software.

This means we are taking full accountability for the virtual agent. That’s about owning the outcome of our software, as opposed to expecting somebody else to do magic with our software. The measure of our success is impact, not usage.

Key takeaway: Price outcomes to problems, not usage of product.

 


Question for you to reflect upon

What would need to be true to start pricing outcomes, instead of the usage of your SaaS product?


 

Step 3: Embrace your customers’ context

One of the most commonly used pricing mechanisms in SaaS is ‘user-based.’

I understand, but my experience tells me it’s the least effective pricing concept available.

Let me give you an anecdote from my own experience.

In my previous job, I was responsible for pricing – and yes, like all our competitors, we applied user pricing in different flavors: Employee Self Service, Professional users, and Enterprise users.

In short – always debates. No one understood it. And it was never perceived as fair.

Let me illustrate: We sold to the services industry, Organizations that delivered their value through people, not products. Think about Government, education, not-for-profit, management consultancies, engineering companies, etcetera.

A small local authority typically employed 1000 employees – the same as a mid-sized professional service company. Both required +900 self-service licenses to enter time, expenses, their absence, and what have you.

As you can imagine, that same license had a different perceived value for Local Government than for a professional service firm. For one, it was a cost of doing business. For the other one, it was their primary source of income (time tracking).

And that illustrates the dilemma.

Even though your SaaS solution can be divided into functional slices, they still have a different perceived value for each customer.

The solution: Price context. 

Context your ideal customer understands, relates to, and trusts. That way, you can speak the correct language for each customer segment, charge a price that’s perceived fair and valuable, and speed up the sales cycle.

That meant we started pricing professional services based on # of FTE, Local Government based on # of Citizens, Education based on # of Students – and so on.

It allowed us to bundle functionality properly and grow with the customers’ core business. And this is a crucial point. Local Government f.ex. will often develop in # citizens, but decline in # of employees. With user-based pricing, you’re stuck. Context-based pricing model remains fair and provides an incentive to leverage the power of the software even more.

Key takeaway: User-based pricing indicates a lack of customer empathy, frustrates everyone, and costs you money.

 


A question for you to reflect upon

Is your user price perceived of similar value for each customer segment? If not – you might have a context problem.


Step 4: Position for scarcity

Scarcity is an ingredient we often overlook when it comes to pricing.

Referring to Jonathan Starks’ Max Price formula, he points to three essential ingredients: buying power, desire, and available options.

When it comes to ‘available options,’ we often think about ‘the competition’ – because, ultimately, that’s what a customer can choose from.

  • But what if your prospects don’t even look at the competition?
  • What if they have already made up their mind and want your solution?
  • What if they’re already a happy customer that wants to expand?

In that case, throttling ‘Available options,’ i.e., introducing elements of scarcity, could be an instrument to create differentiated and desirable value for your customers.

Personally, I am not a big fan of time-limited offers. But I am a big fan of genuine elements of scarcity that increase value, quality, or experience.

Think about

  • Getting access to an exclusive group of peers
  • Giving exclusive access to experts within your company
  • Becoming part of an early access program to new features

Leveraging scarcity the right way can accelerate the number of advocates for your SaaS suite – simply because it feels special and a privilege to be supported in this way.

So my question for you to reflect upon:

What scarcity options would your customers stand in line for beyond the everyday use of your product? What if you’d make that a premium limited-available offer?

Step 5: Stack more guarantees (not features)

Let me ask you this: What guarantee would make you sweat – but your customers cheer?

Why do I ask? Because answering this question can change your SaaS business for good.

Here’s the thing:

In B2B SaaS, we often promise the moon – but don’t back it up with guarantees. And with that, the industry as a whole has lost trust. Overpromise, underdeliver. Obviously, our prospects spot this as well. The result? Skepticism. And that … drives your price down, not up.

So what if we’d address this and not only make a bold promise but instead guarantee it? Here are some ideas:

Think in outcomes

  • Retention/engagement rates that will improve x% – guaranteed
  • X% of revenue will convert to Ebitda – guaranteed
  • Accelerate time to sale with x days – guaranteed

Think in risks

  • We take on liability for all fraud that takes place on our platform
  • We take on liability for charging and remitting sales taxes, globally
  • We ensure no Inbound lead gets lost – guaranteed

Think about things they never have to bother about any more

  • We reconcile your revenue data across billing and payment methods
  • We handle all billing-related support queries for you
  • Reduce churn by recovering failed payments

Imagine what would happen…

  • … in the mind of prospects.
  • … to our competitive position
  • … to our ability to monetize premium levels
  • … to our ability to shorten sales cycles and increase win rates

The rule: the more it makes you sweat – the bigger your defensible differentiation – and the bigger the likelihood for a customer to happily pay a premium.

Key takeaway: Don’t fall into the trap of stacking ‘more features’ in your pricing model – stack more guarantees.

 


Question for you to reflect upon:

What guarantee would make you sweat – but your customers cheer? What if you’d blend that into your pricing options?


Step 6: Leverage convenience

Last but not least, an ingredient that’s very effective to make customers happily pay a premium, but hardly utilized in B2B SaaS: Convenience

When we think convenience in SaaS we often move into the direction of self-service and with that, the perception of ‘cheaper options.’ That might be true in the low end of the market, but there, the incentive is different: Scale for us.

Imagine you’d sell an enterprise SaaS solution. The average deal size is well over $100K ARR with a growing number of deals that cross the $250K ARR bar.

It’s a complex technology that requires integration with many applications in the Tech stack of your customers. Therefore the typical implementation cycle is 6-9 months, and sometimes will over a year. That’s the norm in the market.

What if you’d be able to offer the same solution with the guarantee a customer will be live in less than 4 weeks – or even less than 1 day?

What story would that tell your customers? What value would that bring them?

The convenience of not having to go through months and months of implementation work:

  • avoiding the 1000s of hours of effort
  • avoiding the risks of everything that can go wrong
  • avoiding the delay in getting value from their investment

There are many ways you can differentiate with ‘convenience.’

  1. By shrinking the time to value – like Stargazr is doing in Manufacturing
  2. By focusing on what your customer WON’T have to do anymore, like Paddle does
  3. By eliminating the need for proof of concept – like Senzing invested in during the pandemic
  4. By linking customers to a dedicated expert to ensure maximized impact – like SALESmanago does

The luxury feeling this gives to your customers has a magic effect on them to opt for you – instead of the alternatives. Done well it makes your offer irresistible.

 


Question for you to reflect upon

What convenience could you offer that would spark a ‘high-five’ with your customers?


In Summary: Developing a SaaS pricing strategy that works for you

I wrote this blog intending to answer the big question: How to approach pricing if you want customers to happily pay a premium?

I started by getting back to basics: Pricing is a story.

A story about:

…a better future – a future they desire
…the end of their frustrations
…gaining an advantage

As Margo Mulvihill recently wisely summarized it: “Pricing: a delicate balance of value, psychology, and perception.”

When this story is absent, you can’t blame your prospect to start demanding more scope for a far lower price or worse, postponing the deal, ghosting you, or even buying nothing at all.

Assuming your product is solid, creating that story is very much a positioning opportunity.

In other words: When discounting starts to feel like your only weapon – don’t change your pricing; change your positioning.

But assuming your positioning is there, then what can you do to be able to use your pricing as a lever in the mix as well?

I highlighted 6 ingredients – each ingredient will help to do one thing: Make your pricing more desirable.

  1. Get clear about where you have pricing power.
    Pricing power starts by understanding and articulating your ideal customer’s unique dynamics, fears, values, and aspirations.
  2. Price outcomes to problems, not usage of product
    Customers only care about their specific problems. And if you can solve that as pain-free as possible, they’re going to be very interested.
  3. Embrace your customers’ context.
    User-based pricing indicates a lack of customer empathy, frustrates everyone and costs you money.
  4. Position for scarcity
    Leveraging scarcity the right way can accelerate the number of advocates for your SaaS suite – simply because it feels special and a privilege to be supported in this way.
  5. Stack more guarantees (not features)
    The rule: the more it makes you sweat – the bigger your defensible differentiation – and the bigger the likelihood for a customer to happily pay a premium.
  6. Leverage value of convenience
    The luxury feeling this gives to your customers has a magic effect on them to opt for you – instead of the alternatives. Done well, it makes your offer irresistible.

Good luck

Additional resources to transform your SaaS pricing approach

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Otherwise – here are three other options

 

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