SaaS Pricing Strategy: Packaging, Tiers, and Price Increases

This guide covers the fundamentals of SaaS pricing: choosing the right pricing model, designing tiers that convert and expand, implementing price increases, and handling international pricing. The goal is pricing that captures value, drives growth, and supports your business model.

SaaS Pricing Models

Choose a pricing model that aligns with how customers receive value from your product.

Per-Seat (User-Based) Pricing

Charge based on the number of users accessing the software.

• Pros: Simple to understand, predictable revenue, natural expansion as teams grow
• Cons: May limit adoption, doesn't align with value for all products
• Best for: Collaboration tools, CRM, project management—where more users = more value

Usage-Based Pricing

Charge based on consumption—API calls, data processed, messages sent, etc.

• Pros: Aligns price with value, low barrier to start, grows with customer success
• Cons: Revenue less predictable, harder to budget for customers
• Best for: Infrastructure, APIs, platforms where usage correlates strongly with value

Feature-Tiered Pricing

Different feature sets at different price points.

• Pros: Clear upgrade path, segments customers by needs, protects premium features
• Cons: Feature decisions can be contentious, may feel arbitrary to customers
• Best for: Products with distinct SMB vs. enterprise feature needs

Hybrid Pricing

Combine models: base subscription plus usage-based or per-seat components.

• Pros: Predictable base revenue + upside from usage/growth
• Cons: More complex to explain and manage
• Best for: Products with both platform value and usage value

Designing Pricing Tiers

Most SaaS companies use 3-4 tiers to segment customers by size and needs.

The Standard Three-Tier Model

Free Tier Considerations

Whether to offer a free tier depends on your go-to-market strategy:

• Freemium: Free tier with paid upgrades—works for viral, self-serve products
• Free trial: Full access for limited time—works for sales-assisted motions
• No free tier: All paid—works for enterprise-only or niche products

Feature Distribution

Thoughtfully allocate features to create clear upgrade paths:

• Core features: Available in all tiers (the basic job the product does)
• Growth features: Unlock at higher tiers (more users, more volume, more power)
• Enterprise features: SSO, advanced security, compliance, custom integrations
• Support levels: Differentiate by response time and channel

Pricing Psychology and Presentation

Anchor High

Present your highest-priced tier first (or most prominently). This anchors perception so mid-tier prices seem reasonable.

Highlight the Recommended Tier

Use visual cues to direct customers to your preferred tier:

• "Most Popular" badge
• Different color or highlighting
• Larger card or more prominent placement

Monthly vs. Annual Display

• Show monthly price: Looks cheaper, lower commitment
• Show annual price: Emphasizes savings vs. monthly
• Best practice: Show both, with annual discount prominent

Price Endings

The psychology of price endings in SaaS:

• $99/month: Feels significantly cheaper than $100
• $100/month: Cleaner, can feel more premium/enterprise
• Best practice: Test what works for your audience

Implementing Price Increases

Most SaaS companies undercharge. Price increases are often necessary as you add value and costs increase. Done well, they improve economics without significant churn.

Types of Price Increases

• List price increase: Raise prices for new customers only
• Renewal price increase: Existing customers move to new pricing at renewal
• Grandfathering: Existing customers keep old pricing indefinitely
• Sunset grandfathering: Old prices for X years, then transition

Best Practices for Price Increases

• Communicate early: 60-90 days notice for significant increases
• Explain the value: Connect price increase to product improvements
• Offer options: Annual commitment for price protection, or upgrade for more value
• Segment by impact: May need different approaches for different customer sizes
• Handle objections: Train support/success teams on talking points

Pricing Increase Cadence

• Review pricing annually
• Small, regular increases (3-5% annually) cause less friction than large, infrequent ones
• Market your improvements to justify price changes

International Pricing

Different markets have different willingness-to-pay and competitive dynamics.

Approaches to International Pricing

• Single global price (USD): Simple, but may be expensive for some markets
• Currency conversion: Same price converted to local currency (with some rounding)
• Purchasing power parity: Adjust prices for local economic conditions
• Market-specific pricing: Different prices per market based on competition and WTP

Considerations

• Arbitrage risk: Customers buying from lower-price regions
• Support costs: May differ by region
• Competitive dynamics: Local competitors may price differently
• Currency volatility: Consider hedging or periodic adjustments

Testing and Optimizing Pricing

Pricing should evolve based on data, not just intuition.

Pricing Research Methods

• Customer interviews: Understand perceived value and price sensitivity
• Van Westendorp analysis: Survey-based method to find acceptable price range
• Conjoint analysis: Test feature/price combinations
• Win/loss analysis: Track how often price is the reason deals are lost

A/B Testing Pricing

A/B testing pricing is controversial and complex:

• Can test: Presentation, packaging, framing
• Risky to test: Different prices for same product (fairness concerns)
• Alternative: Test on new customer segments or in new markets

Metrics to Track

• Conversion rate at each tier
• ARPU trends over time
• Upgrade and downgrade rates
• Price-related churn
• Win rate by deal size