Value-based pricing example: Pricing SaaS products by value

It’s no surprise that pricing your SaaS product can be tricky. Fortunately, value-based pricing offers a compelling solution by aligning your prices with the value your users perceive. 

In this article, we'll explore what value-based pricing is, how it works, and how to use it effectively for your SaaS business.

Read on to learn:

• How value-based pricing differs from other pricing models
• Why value-based pricing is a good fit for SaaS companies
• How to identify your customer's key value drivers
• Steps to implement value-based pricing for your SaaS product
• Value-based pricing examples from companies in the real world
• Common mistakes to avoid when using value-based pricing

Let’s get started with a quick definition of what value-based pricing means. 

What is value-based pricing?

Value-based pricing is a pricing strategy where you set prices based on the perceived value of your product or service to the customer, rather than solely on your costs. It’s basically charging what customers are willing to pay, not just what covers your expenses.

How it differs from other pricing models

Value-based pricing stands out from other common pricing models in a few key ways. Let's explore some alternatives:

• Cost-plus pricing: This is the most straightforward model. You calculate your total costs, add a markup, and that's your price. It's simple, but it might not capture the full value your product offers.
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• Competitor-based pricing: Here, you set your prices based on what your competitors are charging. You might undercut them to gain market share or charge a premium if you offer superior value. This approach is reactive and can lead to a price war if you're not careful.
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• Freemium model: This model offers a basic version of your product for free, with premium features available for a price. It's great for attracting users, but converting them to paying customers can be challenging.
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• Usage-based pricing: You charge customers based on their usage of your product or service. This is common in utilities or cloud services. It's fair, but it can be unpredictable for both you and the customer.
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• Tiered pricing: This model offers different packages with varying features and prices. It caters to different customer needs and budgets, but it can be tricky to design the optimal tiers.

Note: There's also a flat subscription model, where everyone pays the same price for access to your product. This is simple, but it might not be the most profitable or fair approach. You can compare more subscription-based business models here. 

To better understand the nuances of these pricing models, let's look at a comparison chart:

Why value-based pricing works in the SaaS industry

Value-based pricing is a particularly powerful strategy for SaaS companies. Why? Because SaaS products offer ongoing value, not just a one-time benefit. Customers pay for continued access to your software and its features, making it easier to demonstrate and capture the value they receive over time.  

With value-based pricing, you can align your pricing with the customer's perceived value, maximizing revenue without increasing your costs. It's a win-win situation.  

Think about it: If your SaaS product saves a customer $10,000 per month, charging them $1,000 per month seems like a steal. That's why value-based pricing can be so powerful.

Furthermore, SaaS products often have different tiers or features that cater to different customer needs. Value-based pricing allows you to charge more for premium features that deliver greater value. This way, you can segment your customer base and offer tailored pricing options.  

Quick example

For example, a basic version of your SaaS product might cost $50 per month, while a premium version with advanced features might cost $150 per month. Customers who need the extra value will be willing to pay the higher price.

Value-based pricing also encourages you to focus on customer success. After all, the more value your customers receive, the more they'll be willing to pay. This creates a virtuous cycle of value creation and revenue growth.  

TL;DR: Value-based pricing is a smart choice for SaaS companies looking to maximize revenue, align pricing with customer value, and foster customer success. It's a pricing strategy that works for both you and your customers.

How value-based pricing works

Value-based pricing isn't just about slapping a high price tag on your product and hoping for the best. It's a systematic process that involves understanding your customers, their needs, and their perception of value. Let's break it down step by step:

Pinpointing customer segments and needs

First and foremost, you need to know who your customers are and what they value most. This seems obvious, but it's surprising how many companies skip this step. Segmenting your customers based on their needs and willingness to pay can help you create targeted pricing strategies that resonate with each group.

For instance, some customers might prioritize features, while others might prioritize support or integrations. By understanding these nuances, you can tailor your pricing and messaging accordingly.

Gauging perceived value with customer research

Once you know your customer segments, it's time to gauge their perceived value. This is where customer research comes in. Surveys, interviews, and product analytics can help you understand how much customers are willing to pay for your product and its features.

Don't underestimate the power of willingness-to-pay surveys like Van Westendorp’s Price Sensitivity Model. These surveys can give you direct insights into customer pricing sensitivity and help you determine the optimal price points for each segment.

Common value drivers

When it comes to SaaS companies, there are a few common value drivers that influence customer perception:

• Time savings: If your SaaS product can automate tasks, improve efficiency, or eliminate manual work, customers will recognize the value.
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• Revenue impact: This is the holy grail of software value. If your product can help customers increase conversions, generate leads, or boost sales, they'll be willing to pay a premium.
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• Risk reduction: Security, compliance, and fraud prevention are critical for many businesses. If your SaaS product can mitigate these risks, customers will see the value and be willing to pay for peace of mind.

Of course, these are just a few examples. The specific value drivers for your SaaS product will depend on your target market and your product's unique features.

Pricing tiers and customization

Many SaaS companies implement tiered pricing to match different value perceptions and customer needs. Here’s how pricing tiers are usually built for software:

• Basic tier: This is your entry-level offering with limited features and a low price. It's perfect for small businesses or individuals with basic needs.
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• Mid-tier: The mid-tier offers a balance of features and price. It's ideal for growing businesses that need more functionality but aren't ready for the enterprise level.  
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• Enterprise tier: The final tier is the top-of-the-line offering with all the bells and whistles. It often requires custom pricing based on specific business needs and usage volumes.  

Remember: The key is to align your pricing tiers with the value they offer. Each tier should have a clear value proposition that resonates with its target segment. Value-based pricing is a journey, not a destination. It requires ongoing research, experimentation, and refinement to confirm you're capturing the full value you offer and maximizing your revenue potential.

7 value-based pricing examples in SaaS businesses

As you know by now, value-based pricing is about aligning your pricing with the value your customers receive. Different SaaS businesses implement it in various ways, depending on their specific products and target markets. Let's explore some real-world examples to see how different companies are putting value-based pricing into practice:

1. HubSpot

HubSpot, a leading marketing and sales platform, uses value-based pricing by offering different plans that cater to businesses at different stages of growth. 

Instead of a single price, HubSpot's pricing increases as businesses scale and need more advanced features. They can capture more value from larger businesses that benefit most from their platform, while still offering affordable options for smaller businesses.

2. Slack

Slack, the popular communication platform, is a good example of value-based pricing, combining usage-based and tiered pricing. 

To encourage adoption, they offer a free tier. Paid plans unlock extra features like integrations and administrative tools, and pricing scales with team size and usage. This approach helps make sure that customers only pay for what they need and value.

3. Salesforce

Salesforce, the CRM giant, takes a unique approach to value-based pricing as it offers custom pricing for its enterprise customers. 

They can tailor pricing to the specific needs and value expectations of large organizations. By understanding the unique challenges and goals of enterprise customers, Salesforce can create pricing models that truly reflect the value they deliver.

4. Orb

Orb, a done-for-you billing platform, truly embodies value-based pricing by aligning its pricing with customer usage and business impact. Their pricing scales with the amount of value offered according to the tier.

This transparent and value-driven approach resonates with customers and allows Orb to capture more value as their customers grow and succeed.

5. Figma

Figma, the collaborative design tool, uses value-based pricing. It offers different plans based on the level of collaboration and project size. 

Larger teams and more complex projects naturally require more resources and support, justifying a higher price point. Figma can capture more value from teams that benefit most from their collaborative features while still offering affordable options for people and smaller teams.

6. Dropbox

Dropbox, the cloud storage provider, is another great value-based pricing example. Their pricing scales based on storage capacity and business usage. 

As users need more storage and advanced features, the pricing increases accordingly. Dropbox is able to capture more value from businesses that rely heavily on their platform for storage and collaboration while still offering affordable options for individual users.

7. Zendesk

Zendesk, a customer support platform, links its pricing to customer support volume. As businesses grow and handle more support requests, the pricing increases to reflect the increased value they receive from the platform. 

These are just a few value-based pricing examples in the SaaS sector. Each company has found a unique way to implement this strategy based on its specific product, target market, and business model. 

How to implement value-based pricing for your company

Here's a step-by-step guide to help you get started:

Step 1: Conduct customer research

Before you set any prices, you need to understand your customers and what they value. This approach means conducting thorough customer research. Here are a few tips:

• Use a variety of methods: Surveys, interviews, focus groups, and customer feedback forms can all provide valuable insights.
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• Target specific customer segments: Don't just focus on your existing customers. Reach out to potential customers and those who have churned to understand their perspectives.
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• Measure key metrics: Identify what drives value for your customers. Is it time savings, increased revenue, reduced risk, or something else? Quantify these benefits whenever possible.

Survey tools to consider:

• SurveyMonkey: Offers a wide range of survey templates and features, including A/B testing and advanced analytics.  
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• Typeform: Creates engaging and conversational surveys that are easy to complete.  
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• Google Forms: A simple and free option for basic surveys.  

Step 2: Identify key value metrics

Once you've gathered customer insights, it's time to pinpoint the key value metrics that drive your pricing. These metrics should be measurable and directly tied to the benefits your customers receive. Some common value metrics include:

• Monthly recurring revenue (MRR): The lifeblood of any SaaS business, this metric tracks the predictable revenue generated from subscriptions.
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• Customer acquisition cost (CAC): How much does it cost to acquire a new customer? Understanding this helps determine the profitability of your pricing.
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• Customer lifetime value (CLTV): The predicted revenue a customer will generate throughout their relationship with your company. This is crucial for long-term pricing strategies.
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• Churn rate: The rate at which customers cancel their subscriptions. Lower churn indicates higher customer satisfaction and value.
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• Net promoter score (NPS): Measures customer loyalty and satisfaction, providing insights into how customers perceive your product's value.
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• Average revenue per user (ARPU): The average revenue generated per user, which can be segmented by pricing tier to assess value perception.

By identifying and tracking these metrics, you can demonstrate the value of your product to customers and justify your pricing.

Step 3: Test and improve pricing models

When using value-based pricing, you need to continuously test and optimize your pricing models to ensure they're aligned with customer value and market dynamics. Here are a few tips:

• Run A/B tests: Experiment with different pricing structures, tiers, and price points to see what resonates best with your target audience.
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• Analyze customer behavior: Track how customers respond to different pricing models. Are they willing to pay more for premium features? Are they churning because of price?
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• Adjust tiers based on value: Ensure that each pricing tier offers a clear value proposition and is priced accordingly.

Step 4: Educate customers on value

Finally, don't assume that customers will automatically understand the value of your product and your pricing. You need to educate them clearly and convincingly. Here are a few pointers to keep top of mind:

• Explain your pricing rationale: Be transparent about how your pricing is tied to the value you deliver.
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• Show the ROI: Use case studies, testimonials, and data to demonstrate the return on investment customers can expect.
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• Offer value-added services: Provide exceptional customer support, onboarding, and training to enhance the perceived value of your product.

Avoid these value-based pricing mistakes

Value-based pricing can be a powerful tool for SaaS businesses, but it's not without its pitfalls. Avoid these common mistakes:

1. Misunderstanding customer value drivers

One of the biggest mistakes you can make is assuming you know what drives value for your customers. What you think is important might not be what they're actually willing to pay for.

Fix: Conduct in-depth customer research to understand their needs, pain points, and willingness to pay. Use surveys, interviews, and data analysis to get a clear picture of what truly matters to your customers.

2. Do not fall for one-size-fits-all pricing

Every customer is different, and so is their perception of value. Offering a single price for everyone might leave money on the table or alienate potential customers.

Fix: Use tiered pricing, usage-based pricing, or even custom pricing to match different customer segments and their specific needs. This way, you can capture more value from those who benefit most from your product.

3. Underpricing and leaving revenue on the table

Many SaaS businesses, especially early-stage ones, tend to underprice their products. They're afraid of scaring away customers with high prices, but this can severely limit their revenue potential.

Fix: Don't be afraid to test different price points and optimize for maximum revenue. Use A/B testing and data analysis to find the sweet spot where you're capturing the most value without sacrificing customer acquisition.

4. Failing to communicate your product's value

Even if you have a great pricing strategy, it won't matter if your users don't see the value they're getting. Failing to communicate your value proposition clearly and convincingly can lead to lost sales and missed opportunities.   

Fix: Clearly show the return on investment (ROI) your product offers through case studies, testimonials, and value-based selling. Educate your customers on how your product solves their problems and helps them achieve their goals.   

Unlock your SaaS company’s growth potential with Orb

What if you could implement value-based pricing as effectively as HubSpot or Salesforce?

With Orb, it's not just possible; it's easy.

Orb is the billing platform that helps SaaS and GenAI companies like yours to design, implement, and manage sophisticated pricing strategies — including value-based pricing — with ease and precision. Our case studies include many examples of what we can do.

Plus, with our newly announced Orb Simulations feature, you can test and optimize pricing using real data before making live changes, ensuring smarter decisions without revenue disruption. You can join the waitlist now for early access. 

In this article, we explored the ins and outs of value-based pricing and even provided some value-based pricing examples. Now, let's see how Orb can help you put these principles into action:

• Capture the full value you deliver: Orb's flexible architecture allows you to go beyond simple subscriptions and implement usage-based pricing, tiered plans, and even custom pricing models tailored to specific customer needs.
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• Experiment and iterate fearlessly: With Orb, your product team can test new pricing strategies and analyze their impact without relying on engineering resources. This agility allows you to fine-tune your pricing for maximum revenue and user satisfaction.
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• Achieve billing accuracy: Orb's robust Rev Graph engine provides accurate billing calculations, eliminating revenue leakage and building trust with your customers.
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• Gain deeper insights: Orb's built-in analytics and reporting tools provide valuable data on usage patterns, revenue trends, and customer behavior. These insights empower you to make data-driven pricing decisions and optimize your monetization strategy.
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• Simplify your billing operations: Orb automates invoices, manages subscriptions, and handles payments, freeing up your team to focus on what matters most: growing your business.

Ready to unlock the full potential of your value-based pricing strategy? Check out our flexible pricing options and find a plan that fits your budget and needs.