Competitive pricing for SaaS: Strategies to outperform your competition

Recent trends show that SaaS companies are focusing on pricing optimization to drive profits. This is where a competitive pricing strategy can give you a real edge.  

This article will guide you through the ins and outs of pricing competitively for SaaS. We’ll provide actionable strategies to help you analyze your competition and position your product.

You'll also learn:

• How to conduct a thorough competitive pricing analysis
• Key considerations for crafting your own competitive pricing strategy
• The benefits of usage-based billing models
• How to optimize your pricing with real-time data and analytics
• Best practices for communicating your pricing effectively
• How to address common pricing challenges in SaaS

Let’s get started by explaining why this topic is so important. 

Why competitive pricing matters

Competitive pricing means setting your prices based on what your rivals are charging. This strategy involves looking at other company's offerings and prices to define your pricing strategy.  

Now, you might be thinking, "Isn't that just copy?" 

Not quite.

While competitive pricing considers the market landscape, it's not about blindly mimicking others. It's about strategically positioning your product within that landscape.  

Think of it this way: Imagine you're opening a coffee shop. You wouldn't charge $10 for a latte if the place next door offers the same drink for $4. You'd likely consider their pricing, along with factors like your costs, your unique offerings, and your target market.

Competitive pricing works similarly. It's about balancing what the market will bear and what makes sense for your business. 

This approach is particularly important in the SaaS market. Why? Because customers have a plethora of options and are often highly price-sensitive.

How is competitive pricing different?

You might be wondering how competitive pricing differs from other pricing models. Let's break it down:

• Value-based pricing: This model focuses on the perceived value your product offers to your customers. While valuable, it can be subjective and requires a deep understanding of your customers' needs and willingness to pay.  
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• Cost-plus pricing: This method involves calculating your costs and adding a markup to determine your price. While simple, it doesn't consider market dynamics or competitor pricing.  
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• Premium pricing: This strategy is about setting prices higher than your competitors. It often relies on strong branding, unique features, or exceptional quality to justify the higher price point.  

Competitive pricing, on the other hand, offers a more market-driven approach. 

It helps you understand where your product fits within the competitive landscape and allows you to position yourself within it. It can be especially useful for new SaaS companies. The reason is that these companies may not have enough customer data to implement value-based pricing yet.  

By analyzing competitive rates, you gain key insights into user expectations and market trends. This knowledge helps you make informed pricing decisions that attract customers. It also helps ensure your business remains profitable.  

In the next section, we'll dive into the strategies you can use to have competitive pricing and outperform your competition.

Competitive pricing strategies explained

Now that we've established why competitive pricing matters, let's explore the how. We’ll kick off our recommendations with the importance of competitive pricing analysis. Let’s take a closer look: 

Strategy 1: Analyze your competition

Before you even think about setting your prices, you need to know the playing field. Here's how to get started:

• Identify your key competitors: Who are the major players in your market? Remember to distinguish between direct competitors (offering similar products) and indirect competitors (meeting the same customer needs in a different way).
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• Research pricing strategies: After identifying your competitors, you need to understand their pricing. Do they offer many pricing tiers? What are their subscription models like? Gather information to get a clear picture of their approach.
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• Evaluate competitor strengths and weaknesses: Do they have a strong brand reputation? Are there any gaps in their product offerings? By looking at their strengths and weaknesses, you can find opportunities to set your offerings apart from them.

Strategy 2: Create a competitive pricing strategy

Analyzing your competition is a crucial first step. The next step is crafting your competitive pricing strategy. Here are three key considerations you should keep in mind:

Set Your Pricing Goals

First things first, you need to define your objectives. Are you primarily focused on capturing market share quickly? If so, consider setting your prices lower than your competitors to attract new customers, especially if you're a new entrant. 

Perhaps profitability is your first primary goal. In this case, finding that sweet spot where your pricing maximizes profits will be key. This strategy might involve setting prices higher than your competitors. Remember to focus on delivering valuable features that justify the higher price tag. 

Strong customer relationships are vital in SaaS, and competitive pricing can help attract new users. It also plays a vital role in keeping existing customers happy and loyal. Consider offering loyalty discounts or special pricing for long-term subscriptions.

Define target customers and segments

Understanding your target audience is essential for effective competitive pricing. To achieve this, start by developing detailed customer personas. These profiles should paint a clear picture of your ideal customers, including their needs, pain points, and willingness to pay. 

Develop customer personas. Doing so will help you tailor your pricing and messaging to resonate with different customer segments. 

For example, you might offer a basic plan for individual users and a premium plan for larger teams with more advanced features. By understanding your target audience, you can ensure your pricing aligns with their expectations and needs.

Use competitor benchmarks

Take a look at how your competitors structure their pricing. Analyzing their models can help you determine which approach aligns best with your product and target audience. 

If your competitors offer tiered pricing, pay close attention to the features included in each tier and their price points. As stated before, looking at competitor prices will help you position your own pricing tiers competitively.

Balance value perception vs. pricing

Your pricing should reflect the value customers perceive in your SaaS product. To achieve this, clearly communicate the benefits and value your product offers to justify your pricing. Highlight your unique value proposition to show why your product is worth the price. 

Consider offering free trials or freemium versions to allow customers to experience the value of your product. Doing so can increase their willingness to pay for a subscription.

Last but not least, remember to always gather feedback from your customers about your pricing. Gathering feedback can help you ensure your pricing remains competitive.

Strategy 3: Explore usage-based billing models

Usage-based pricing is gaining traction, and for good reason. Usage-based pricing allows you to charge customers based on the actual consumption of your service. 

Why is this model becoming so popular? Let’s take a look:

• It aligns cost with customer value. Customers only pay for what they use, which can be a major selling point, especially for those with changing needs.
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• It offers scalability. As your customers grow and use your service more, your revenue grows proportionally. No need to worry about customers "outgrowing" their subscription plan.
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• It can encourage customer loyalty. By aligning your pricing with their success, you become a partner in their growth. 
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• It provides valuable insights into customer behavior. By tracking usage patterns, you can identify power users. You also get how different customer segments interact with your service and tailor your offerings to them.

Real-world examples: AWS and Snowflake

Amazon Web Services (AWS) has become a dominant force in cloud computing by offering a wide range of services priced on a pay-as-you-go basis. Similarly, Snowflake, a leading data cloud provider, allows customers to pay only for the resources they consume. 

The takeaway? Both companies have achieved staying power by making their services accessible to businesses of all sizes.

Strategy 4: Optimize pricing with real-time data and analytics

In the SaaS industry, setting a price and forgetting about it simply won't cut it. To truly outperform your competition, you need to embrace real-time data and analytics. Let’s see how this can be done:

Monitor pricing effectiveness

Real-time data provides invaluable insights into how your pricing is performing. By tracking SaaS key metrics, you can quickly identify areas for improvement. Think metrics like conversion rates, churn rates, and customer lifetime value.

Ask yourself questions like: Are customers balking at a certain price point? Is a particular pricing tier underperforming? Real-time data reveals these trends, allowing you to make informed adjustments to your pricing strategy.

Understand customer behavior

Real-time data also allows you to understand customer behavior and usage patterns. Again, you should ask yourself questions like: Are certain features being underutilized? Are customers consistently exceeding their usage limits? 

These insights can guide your pricing decisions. They can help you create packages and pricing tiers that better align with what customers need. 

Use A/B testing to refine pricing

Another powerful tool in your pricing arsenal is A/B testing. Essentially, A/B testing involves comparing two different versions of something (in this case, your pricing) to see which version performs better. 

You might test different price points and different ways of presenting your pricing. By analyzing the results, you can tell which pricing strategies resonate with your target audience.

Strategy 5: Communicate your pricing effectively

Now the goal is to communicate your competitive pricing effectively. Here are a few key tips to do that:

• Be transparent: No one likes hidden fees or surprises. Be upfront about your pricing, clearly outlining what's included in each plan and any potential additional costs. Transparency builds trust and shows customers that you value honesty and clarity.
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• Keep it simple: Avoid jargon or technical terms that might confuse potential customers. Keep your language simple, concise, and easy to understand. Remember, your goal is to help customers quickly grasp your pricing structure and make an informed decision.
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• Offer comparisons: If you offer multiple pricing tiers, make it easy for customers to compare them side-by-side. Highlight the key differences between each plan, focusing on the features and value they offer. A straightforward comparison table can guide customers towards the plan that best suits their needs.

Strategy 6: Address challenges in competitive pricing

As with any strategy, there are potential pitfalls to navigate with competitive pricing. By learning about these challenges and addressing them, you can ensure your strategy remains effective. Let’s see how to get over these hurdles: 

Handling price wars

One of the biggest risks of competitive pricing is the potential to trigger a price war. When businesses constantly try to undercut each other's prices, it can lead to a race to the bottom. 

Getting to this point often results in eroding profit margins and harm to the entire market.

How do you avoid getting caught in this downward spiral? The key is to focus on value differentiation. Instead of solely competing on price, emphasize the unique value your product offers. Here’s what you can do:

• Highlight features that set you apart.
• Showcase your exceptional customer support.
• Offer valuable resources or integrations that your competitors lack.

By displaying your unique strengths, you can justify your pricing and avoid the need to constantly lower prices just to stay afloat.

Managing customer expectations

Proactive communication is key. If you need to raise prices, clearly explain the reasons behind the change. If you add new features or pricing tiers, share these updates to confirm that customers understand the value they're getting.

By keeping customers in the loop, you minimize any potential backlash from price changes.

Ensuring compliance

Finally, remember that pricing is also subject to legal and regulatory considerations. Make sure you're aware of any relevant regulations about pricing changes and disclosures. 

For example, in the United States, the Federal Trade Commission (FTC) has guidelines on deceptive pricing practices, including transparency in price advertising. 

While price matching is more common in retail, SaaS companies can similarly benefit from clear and transparent pricing communication, especially in competitive pricing environments.

Orb's done-for-you billing platform helps set up competitive pricing

In this guide, we've explored strategies for implementing competitive pricing in SaaS. However, successfully executing these strategies hinges on having the right tools in place. 

That's where a modern billing platform like Orb becomes essential. These platforms provide the infrastructure and flexibility needed to set up a wide range of pricing models. 

These tools are also key for tracking usage and getting insights into customer behavior. All these crucial elements are vital for setting competitive pricing.

Orb is a done-for-you billing platform designed for scaling SaaS companies. We take the complexities out of billing, freeing you to focus on building a thriving business.

Here's how Orb helps you implement competitive pricing strategies:

• Capture every billable action: Orb's metering infrastructure lets you track any event that drives user value. We enable you to create granular, usage-based pricing models that reflect customer consumption.
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• Experiment with pricing: Test different pricing strategies with confidence. Orb's agile platform makes it easy to adjust pricing, add new tiers, and even roll out targeted promotions or discounts. 
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• Gain a 360-degree view of your customers: Orb's real-time data and analytics provide a deep understanding of customer behavior, usage patterns, and revenue trends. We help you grasp how different segments interact with your SaaS product.
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• Quick price adjustments: Orb makes it easy to adjust your pricing in real-time. Whether you need to respond to competitor moves, introduce new features, or run A/B tests on different pricing models, Orb allows you to make changes quickly and efficiently.
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• Eliminate billing headaches: Orb automates complex billing processes, ensuring accurate invoices. Spend less time on manual billing tasks and more time focusing on your core business.

Ready to take control of your SaaS billing and boost your growth potential? Discover how Orb can help you scale up.