"Price your SaaS based on value" - what the heck does this mean?
SaaS pricing is so complicated! so many rules, margins, costs, CAC etc - its overwhelming esp if you're bootstrapping
so i tried to figure out a way to simplify it - and I came across value based pricing. Ngl this is pretty cool. Here's the TLDR for you SaaS-y folks
What is SaaS value-based pricing?
The SaaS value metric measures the price per unit value of your product. It is based on your buyer’s perception of your product’s value to them.
Why you should switch to value-based pricing?
Companies that use value metrics grow 2x more with 50% less churn and 200% expansion ARR compared to flat-fee or feature-based pricing.
This happens because value-based pricing bakes growth directly into your monetization strategy.
As the amount of value received grows up, the customer pays more, and the more your revenue grows.
This allows you to make sure you're not charging a large customer the same as you'd charge a small customer while ensuring at the same time you don’t leave money on the table.
How to create your value metrics?
(A) Start by identifying 3-5 core outcomes (Jobs to be done) that your user cares about.
(B) Find out what your product value is and how is it tied to your user’s end outcome - is it time saved? is it money earned? is it % reduction in churn?
(C) Identify what value your product provides that corresponds to these outcomes.
(D) Measure (if possible) to what degree your product makes these outcomes likely.
(E) Ask your customers if they agree with this hypothesis.
(F) Test, implement, and iterate.
Checklist for a good value metric
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Is it measurable & does your user agree with you on its measurement?
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Does it scale up and down corresponding to your high & low-usage buyers?
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Does the metric encourage retention?
Examples of SaaS value metrics
Zapier charges on number of Zaps - that’s their value metric. Dropbox charges on amount of storage. Unbounce charges based on number of conversions & visitors.
PS: I've made this essay so it fits into a mobile screenshot - I've made this "screenshot essay" here that you can download to your phone while you're doomscrolling lol
