SaaS Pricing Strategies: How to Price for Growth and Expansion

Pricing is the most powerful lever in SaaS. According to McKinsey research, a 1% improvement in pricing has greater profit impact than a 1% improvement in customer acquisition or retention. Yet most companies spend far less time on pricing than on other growth levers.

This guide covers SaaS pricing strategy with a focus on enabling expansion revenue.

Pricing Strategy Fundamentals

Three Pricing Approaches

Value-based pricing is the gold standard for SaaS—it captures fair value while leaving room for expansion.

The Value-Based Pricing Formula

Your Price ≤ Customer Value × Fair Share %

Example:

• Your product saves 10 hours/week
• Customer values time at $50/hour
• Monthly value: 10 × 4 × $50 = $2,000
• Fair share: 10-20%
• Price range: $200-400/month

Pricing for Expansion

The best pricing models grow with customer success:

Pricing Models

Seat-Based Pricing

How it works: Price per user/seat

Pros:

• Simple to understand
• Natural expansion with team growth
• Easy to budget

Cons:

• Can limit adoption
• Workarounds (shared logins)
• Not tied to value delivery

Best for: Collaboration tools, productivity software

Example:

Usage-Based Pricing

How it works: Price per unit of consumption

Pros:

• Aligns price with value
• Low barrier to start
• Natural expansion

Cons:

• Revenue unpredictability
• Customer budgeting difficulty
• Overuse anxiety

Best for: API products, infrastructure, metered services

Example:

Tiered Feature Pricing

How it works: Different feature sets at different prices

Pros:

• Clear upgrade path
• Serves multiple segments
• Captures willingness to pay

Cons:

• Feature allocation challenges
• Potential for confusion
• Tier bloat over time

Best for: Products with diverse use cases. This model supports effective upselling strategies.

Example:

Hybrid Pricing

How it works: Combination of base + usage/seats

Pros:

• Predictable base + growth upside
• Flexible for different use cases
• Captures value at scale

Cons:

• Complexity
• Communication challenge

Best for: Products with varied usage patterns

Example:

Designing for Expansion

Expansion-Friendly Pricing Principles

Strong pricing supports net revenue retention:

1. Grow with success - Price on metrics that increase with customer success
2. Clear upgrade path - Obvious next tier when needs increase
3. Avoid cliffs - Smooth transitions between tiers
4. Generous trials - Let customers experience value before paying

Limit Design

Design limits that create natural upgrade moments:

Good Limits:

Bad Limits:

Tier Design

Design tiers that match customer journeys:

Tier Spacing:

• 3x price jump between tiers is typical
• Value delivered should exceed price jump
• Each tier should have a clear "hero" feature

Pricing Psychology

Anchoring

Present highest tier first to anchor value perception:

Instead of:

• Basic: $29
• Pro: $99
• Enterprise: $299

Present as:

• Enterprise: $299 (Most Popular)
• Pro: $99
• Basic: $29

Decoy Pricing

Design tiers so the target tier looks best:

Pro looks like best value (decoy effect from Team tier).

Annual vs Monthly

Annual pricing improves retention and cash flow:

Best practice: Default to annual, show savings prominently.

Implementing Price Increases

When to Raise Prices

How to Raise Prices

For New Customers:

• Update pricing page
• Grandfather existing customers
• Communicate value additions

For Existing Customers:

• 60-90 days advance notice
• Explain value delivered
• Offer annual lock-in at current rate
• Consider phased increases

Price Increase Communication

Template:

Hi [Name],

Over the past [period], we've added [features] and
improved [areas]. These investments have [impact].

Starting [date], our pricing will be updated:
- Current price: $X/month
- New price: $Y/month

As a valued customer, you can lock in your current
rate for 12 months by switching to annual billing
before [date].

Thank you for being a customer.

Pricing for Different Segments

SMB Pricing

Mid-Market Pricing

Enterprise Pricing

Pricing Page Best Practices

Essential Elements

1. Clear tiers - 3-4 options maximum
2. Obvious recommendation - Highlight best value
3. Feature comparison - Easy to compare
4. CTA for each tier - Clear next step
5. FAQ section - Address concerns
6. Social proof - Customer logos/testimonials

Conversion Optimization

Measuring Pricing Effectiveness

Key Metrics

A/B Testing Pricing

What to test:

• Price points
• Tier structures
• Feature allocation
• Presentation (annual default, etc.)

How to test:

• Different segments
• Geographic markets
• New vs existing customers
• Cohort analysis

Common Pricing Mistakes

Mistake 1: Pricing Too Low

Underpricing limits growth and signals low value.

Signs: <2% conversion, low churn, no price complaints

Solution: Test price increases with new customers.

Mistake 2: One-Size-Fits-All

Single tier leaves money on table and excludes segments.

Solution: Create tiers for different willingness-to-pay.

Mistake 3: Complex Pricing

Confusion kills conversion.

Solution: Simplify to 3-4 clear tiers.

Mistake 4: No Expansion Mechanism

Flat pricing caps revenue per customer.

Solution: Build in usage or seat-based expansion.

Conclusion

Pricing is a strategic lever, not a one-time decision. The best SaaS companies continuously optimize pricing to capture value, enable expansion, and serve diverse customer segments.

Key Takeaways:

1. Price to value - Value-based pricing captures fair share
2. Design for expansion - Pricing should grow with customer success
3. Segment appropriately - Different customers, different prices
4. Test continuously - Pricing is never "done"
5. Raise prices - If no one complains, you're too cheap

Start by understanding your value delivered, then design pricing that captures fair value while enabling natural expansion.

Frequently Asked Questions

How often should I revisit pricing?

Annually at minimum. More frequently if adding significant value, entering new markets, or seeing pricing-related signals (low conversion, no complaints, etc.).

Should I show pricing on my website?

For SMB/self-serve: Yes, transparency builds trust. For enterprise: "Contact us" is appropriate given custom needs.

How do I know if I'm priced too low?

Signs: very high conversion rates, zero price objections, customers say "it's a no-brainer," competitors are 2-3x higher. Test increases with new customers.

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