Pricing your SaaS startup is a critical decision that can make or break your business. The right pricing strategy will help you attract more customers, increase revenue, and achieve your business goals.

Here at my startup Linguix we are constantly experimenting with pricing, and have made lots of mistakes and wrong moves. So, I decided to write this blog post to help fellow founders to move faster and avoid some of those mistakes.

What pricing modes can you use?

There are a number of different pricing models that you can use for your SaaS startup. Some of the most common models include:

• Tiered pricing: With tiered pricing, you charge different prices for different levels of service. For example, you might offer a basic plan, a pro plan, and an enterprise plan.
• Flat-rate pricing: With flat-rate pricing, you charge a single price for all users, regardless of how much they use your product.
• Feature-based pricing: With feature-based pricing, you charge different prices for different features. For example, you might charge a fee for each additional user, for each gigabyte of storage, or for each API call.
• Active user pricing: With active user pricing, you charge based on the number of active users of your product.
• Usage-based pricing: With usage-based pricing, you charge based on how much your users use your product. For example, you might charge per gigabyte of data transferred, per API call, or per minute of usage.
• Freemium pricing: With freemium pricing, you offer a basic version of your product for free, and then charge a fee for premium features.

How to choose

The best pricing model for your SaaS startup will depend on a number of factors, including your target market, your product, and your business goals.

Here are some additional factors to consider when pricing your SaaS startup:

• Your target market: Who are you trying to sell your product to? What are their needs and expectations?
• Your product: What are the unique features and benefits of your product? What value does it provide to your customers?
• Your business goals: What are you trying to achieve with your pricing strategy? Are you trying to maximize revenue, maximize customer acquisition, or minimize churn?

Once you have considered these factors, you can start to experiment with different pricing models and strategies to find the one that works best for you.

Here are some additional tips for pricing your SaaS startup:

• Do your research: Before you set your prices, do your research to understand what other SaaS companies in your market are charging, especially your competitors.
• Be willing to experiment: Don't be afraid to experiment with different pricing models and strategies until you find the one that works best for you.
• Be transparent: Be clear and transparent about your pricing with your customers. Don't hide any fees or charges.
• Be flexible: Be willing to adjust your pricing as your business grows and changes.

To jumpstart, the faster way is to just look at competitors, especially if they are big enough. If the company is well-known, chances are it will be a good idea to price your product similar to them as users will be already accustomed to those levels.

An example of why this really makes sense: Netflix and Hulu still use very similar pricing plans:

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What else to consider

In addition to the qualitative factors discussed above, there are also a number of quantitative factors that you can use to analyze your pricing strategy. These factors include:

• Customer acquisition cost (CAC): The cost of acquiring a new customer.
• Customer lifetime value (CLTV): The total revenue that you can expect to generate from a customer over their lifetime.
• Churn rate: The percentage of customers who cancel their subscriptions each month.

By tracking these metrics, you can get a better understanding of how your pricing strategy is affecting your business.

My two cents

Here are some additional pieces of advice for pricing your SaaS startup. Note, this is what worked for us at Linguix, so I assume that if you are in a b2c space, this might also work for you.

• Start with a high price: It is always easier to lower your prices than to raise them.

• Offer discounts: Discounts can be a great way to attract new customers or to encourage existing customers to upgrade to a higher plan.

• Use psychological pricing: Psychological pricing techniques, such as using odd-number pricing or anchoring your prices to a higher number, can be effective in increasing sales.

• Offer monthly, quarterly, and annual prices: research data show that annual pricing greatly reduces churn, while monthly-in my experience-is great for growing MRR, and a quarterly plan can help the customer to choose either of them and, hence, is good to have.

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Pricing your SaaS startup is a challenging but rewarding task. By following these tips, you can find the pricing strategy that will help you achieve your business goals.