Seven general recommendations to accelerate your progress toward
Go-to-Market Fit

The default starting point for many companies is often a simple flat pricing model, usually split up by tiered access to a set of more powerful features. In the classic three-tier model, a company’s typical customer purchases the middle tier, while the least expensive tier has a slimmed down feature set to appeal to more price-sensitive customers, and the most expensive tier contains the enterprise features such as single sign-on or role-gated permissions that appeal to larger organisations.  

Setting a price by the number of users of a product – a user-based pricing model –  is another pricing strategy widely adopted among application SaaS products. It’s especially common among companies offering workflow or collaboration products where multiple users at the customer company work together to use a product.

For infrastructure SaaS companies, usage-based pricing models have become the established norm over the past decade. Over the past five years, this pricing model has increasingly been applied across a broader set of industries. We also see a broad overall trend that more and more SaaS companies are starting to experiment with a combination of licence- and usage-revenue. 

Transaction-based pricing is a common strategy among FinTech companies. It refers to solutions where the company charges a fee for each time the service is used, a so-called transaction fee. For example, a payment solution company generally applies a transaction cost for the purchases it processes. More recently, as embedded financial services (where a company adds on a financial product to an underlying SaaS product) have taken off, transaction based pricing has also spread outside the FinTech space. 

This high level overview only scratches the surface of SaaS pricing models, but it’s often a “good enough” starting point as a company builds toward and moves beyond Product-Market fit. The exception is companies whose core insight is that their industry is ready for a business model disruption but whose core product is less differentiated: here that core insight is connected to a pricing model.

As companies start thinking about Go-to-Market fit, however, it’s important to take a step back and carefully consider how the product generates value. A pricing model should be constructed in a way that as customers gain more value from a product, the price the customer pays scales. In many products, value scales with increased usage, but that’s not always the case. Map the flows of value your product generates among its users and carefully consider whether your SaaS product’s pricing increases if the flows increase. Think about possible appropriate pricing metrics that would capture those increases. And sense check yourself: solid pricing models should feel obvious.

The case of multiple products
Some SaaS companies will go beyond perfecting a single product as they grow towards building out a portfolio of products or splitting their product into distinct modules. If each product serves a different target customer and there’s no cross-sell potential, each product can be priced separately (though we ask you to carefully question whether there’s enough target customer focus and each product is contributing enough to the whole to be worth it). If the ideal customer purchases multiple products, then the pricing of each product must work together as a cohesive whole. Simplicity in the eyes of the customer becomes an important factor which can rule out complex pricing strategies for an individual product. Net revenue retention is the North Star for these strategies: the goal of the pricing model is to maximise cross-sell.