Too many businesses set their pricing without putting much thought into it. This is a mistake causing them to leave money on the table from the beginning. The good news is that taking the time to get your product pricing right can act as a powerful growth lever.
If you optimize your pricing strategy so that more people are paying a higher amount, you'll end up with significantly more revenue than a business who treats pricing more passively.
What is Pricing Strategy?
Pricing is defined as the amount of money that you charge for your products, but understanding it requires much more than that simple definition. Baked into your pricing are indicators to your potential customers about how much you value your brand, product, and customers.
Pricing strategies refer to the processes and methodologies businesses use to set prices for their products and services. There are different pricing strategies to choose from, but some of the more common ones include:
- Value-based pricing - Setting prices based on customer perceived value
- Competitive pricing - Pricing based on competitor analysis
- Cost-plus pricing - Adding markup to production costs
- Penetration pricing - Lower prices to gain market share
- Price skimming - High prices initially, lowered over time
- Dynamic pricing - Prices that change based on demand
Why Pricing is an Underutilized Growth Lever
Many companies focus on acquisition to grow their business, but studies have shown that small variations in pricing can raise or lower revenue by 20-50%. Despite that, even among Fortune 500 companies, fewer than 5% have functions dedicated to setting the best price possible.
Because most businesses spend less than 10 hours per year thinking about pricing, there's a lot of untapped growth potential. Choosing the best pricing method can be up to 7.5 times more powerful than customer acquisition.
Top 7 Pricing Strategies Explained
1Value-Based Pricing
With value-based pricing, you set your prices according to what consumers think your product is worth. This is our top recommendation for SaaS businesses because it allows you to capture the maximum value you provide to customers.
2Competitive Pricing
When you use competitive pricing, you're setting prices based on what the competition is charging. This can work for businesses just starting out, but it doesn't leave much room for growth and can lead to price wars.
3Price Skimming
Setting prices as high as the market will tolerate, then lowering them over time. The goal is to skim the top off the market first, then reach broader audiences with lower prices.
4Cost-Plus Pricing
Take your product production cost and add a certain percentage markup. While simple to implement, this method ignores customer value perception and market dynamics.
5Penetration Pricing
Offering prices much lower than the competition to gain market share quickly. While it may drive initial adoption, it can be difficult to raise prices later without losing customers.
6Economy Pricing
Popular in commodity sectors, this strategy focuses on pricing lower than competitors and making up the difference in volume. Not ideal for SaaS or subscription businesses.
7Dynamic Pricing
Constantly changing prices to match current demand. This works in some industries but doesn't suit subscription businesses where customers expect consistent pricing.
How to Create a Winning Pricing Strategy
In the beginning, the actual number you're charging isn't that important. You should first figure out the range you're in: a $10 product, $100 product, $1k product, etc. Instead of debating specific price points, focus on understanding these fundamentals:
Step 1: Determine Your Value Metric
A "value metric" is essentially what you charge for. Examples include per seat, per 1,000 visits, per GB used, per transaction, etc.
If you get everything else wrong in pricing, but you get your value metric right, you'll do okay. It's that important.
Value metrics allow you to have essentially infinite price points, maximizing your revenue potential. They also bake growth directly into how you charge because as usage or value received increases, the customer pays more.
To determine your value metric, think about the ideal essence of value for your product. In B2B, it's likely money saved, revenue gained, or time saved. Find 5-10 potential metrics and validate them with customers and prospects.
Step 2: Determine Customer Profiles and Segments
You need quantified personas that go beyond cute names and avatars. Create a spreadsheet with customer profiles as columns and characteristics as rows:
- Most valued features
- Least valued features
- Willingness to pay
- Lifetime value (LTV)
- Customer acquisition costs (CAC)
This helps you understand not only who you're targeting but how to monetize and retain them effectively.
Step 3: User Research + Experimentation
Beyond your value metric and core segments, pricing becomes extremely tactical and research-based. You should be experimenting with your monetization every quarter using this priority framework:
Priority 1: Foundational
- Core customer segments
- Value metrics
Priority 2: Core
- Order of magnitude price point
- Positioning and value propositions
- Packaging
Priority 3: Optimizations
- Add-on strategy
- Specific price points
- Price localization
- Discounting strategy
Priority 4: Growth Accelerators
- Freemium models
- Market expansion
- Vertical expansion
- Multi-product strategies
10 Rapid-Fire Pricing Tips
1. Localize your pricing: Revenue per customer is 30% higher when you use proper currency symbols and regional pricing.
2. Freemium is acquisition, not pricing: Think of freemium as a premium lead magnet, not another pricing tier.
3. Value propositions matter: In B2B, value props can swing willingness to pay ±20%.
4. Don't discount over 20%: Large discounts correlate with higher churn rates.
5. Use dollar amounts, not percentages: "One month free" works better than "X% off" for annual upgrades.
6. Price endings matter: End in 9s for discount perception, 0s for premium positioning.
7. Experiment quarterly: Regular pricing experiments correlate with increased revenue per customer.
8. Leverage case studies: Social proof can boost willingness to pay by 10-15%.
9. Invest in design: Good design can boost willingness to pay by 20%.
10. Promote integrations: More integrations mean higher willingness to pay and better retention.
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