Don’t use competitors’ pricing as your basis. “the biggest downside of competitor based pricing should be obvious. You don’t have your pricing strategy, you have their pricing strategy. Your company exists to offer customers something different to what is already on the market. You are offering more value and a better product, otherwise you shouldn’t be building it.” The other problem with this approach is “it is also static, with no chance of adding value by raising prices without pricing yourself above your competitors. The moral of the competitor-based story is look, but don’t touch. You want to know where your competitors are pricing their products so that you’re in the same ballpark, but they should not be guiding your decisions.” Pricing based on competitors is also a race to the bottom.
Value based pricing allows you to raise prices. As you learn more about the customer and understand the value you are adding, you will determine the appropriate time to raise prices and by how much. Pricing should be reviewed at least every 6 months.
Ask your 4 personas the right questions. “What is the one thing you couldn’t live without and the one thing you could live without? What integrations are most important to you? What type of analytics do you do? Is support critical or does your organization prefer to self-solve problems? At what price are we too cheap? At what price are we too expensive? At what price are we a bargain?“
Shoot for 3:1 LTV to CAC, at least. Ideally you’re break even on the customer within the 2nd year and your LTV to CAC is much higher than 3:1. “Because customer acquisition costs are paid upfront, but SaaS revenues accrue over time, this leaves any company following the SaaS model with an initial cash shortfall while they pay back the CAC.”
Do not A/B test. “A/B testing is fundamentally improvement through guesswork. When a page as sensitive as your pricing page changes based on guesses, you’re going to annoy the hell out of your customers.” You probably don’t have enough customers to pull this off anyways. “A/B testing is a highly effective way to optimize landing pages, design choices, and other site elements when you know the problem you’re solving for, but not pricing.”