| name | pricing-strategy |
| description | Use when the user wants to set pricing, design packaging tiers, choose a pricing model, or increase revenue from existing users. Also use when the user mentions 'pricing,' 'how much should we charge,' 'packaging,' 'pricing tiers,' 'willingness to pay,' 'freemium pricing,' 'value-based pricing,' or 'pricing model.' |
Pricing Strategy
Pricing is positioning made tangible. The price signals who the product is for, what category it belongs to, and what the buyer is paying for.
Pricing Models
| Model | Best for | Risk |
|---|
| Per seat / per user | Collaboration tools, team software | Penalizes growth; customers limit seats |
| Usage-based | APIs, infrastructure, communication | Unpredictable revenue; hard to budget |
| Flat rate | Simple, single-segment products | Leaves money on the table at scale |
| Tiered flat | Multiple segments with different needs | Tier design complexity |
| Outcome-based | Services, high-trust relationships | Hard to measure; requires data access |
Most SaaS products are either seat-based or usage-based. Hybrid models (seat + usage cap) are increasingly common.
Value-Based Pricing
Price based on value delivered to the customer, not cost to produce.
- Define the economic value of the job your product does
- Quantify it: "Saves 4 hours/week per user × $50/hr loaded cost = $800/month value"
- Capture a fraction of that value (typically 10-30%)
- Anchor the price to the value metric, not your costs
Value metric: The unit of value customers pay for. Choose a metric that scales with the value the customer gets.
- Right: seats (value scales with team size), API calls (value scales with usage)
- Wrong: features (value doesn't scale; customers pay once and expect everything)
Packaging Tiers
Three-tier architecture (Good / Better / Best):
| Tier | Target | Design principle |
|---|
| Starter | Individual / small team | Remove friction to entry; include core job |
| Growth | Growing team / mid-market | Add collaboration and admin features |
| Enterprise | Large org | Add SSO, audit logs, SLA, dedicated support |
Anchoring rule: Most buyers choose the middle tier. Price the middle tier at your target ACV. Use the top tier to make the middle look reasonable.
Willingness to Pay Research
Van Westendorp Price Sensitivity Meter — ask these four questions:
- At what price would this be too cheap (you'd question the quality)?
- At what price would this be a bargain (great value for money)?
- At what price would this be starting to get expensive (still worth it but hesitant)?
- At what price would this be too expensive (you wouldn't consider it)?
Plot the intersections. The acceptable price range sits between the "too cheap" and "too expensive" curves.
Price Testing
Never A/B test on existing customers. Test with new prospects only:
- Show different pricing pages to different traffic segments
- Measure: conversion rate, ACV, time-to-close
- Run for minimum 2 weeks, minimum 100 conversions per variant
Expansion Revenue
Negative churn = expansion MRR > churned MRR. The goal of tier design.
Expansion triggers:
- Seat limit reached → upgrade to next tier
- Usage cap hit → upgrade to next tier
- Admin/security feature needed → upgrade to Enterprise
Every packaging decision should answer: "What will make a customer naturally want to upgrade?"
Common Rationalizations
| Rationalization | Reality |
|---|
| "We'll figure out pricing later" | Pricing shapes positioning. Shipping free and repricing later is harder than getting it right first. |
| "We need to be cheaper than the competition" | Price is a signal. Cheap signals low quality to enterprise buyers. Price for the value you deliver. |
| "Per-seat pricing is simpler" | Per-seat penalizes growth. Evaluate usage-based if value scales with usage, not just headcount. |
| "We can't raise prices on existing customers" | Annual price increases with notice are standard and expected. Lock-in forever is not a strategy. |
Verification
