Why is value-based pricing the best strategy for SaaS businesses?

Make sure you have secured your place at the Annual Ascent Conference next week October 6-8. Edward Lee joins the pricing strategy panel alongside Omar Navaz, CPO, Chargebee, and Songe Laron, CEO & Co-Founder of Squire. Get your ticket here.

Why is value-based pricing the best strategy for SaaS businesses?

At the core of every successful company is a robust business model. Value-based pricing is the most highly recommended pricing technique by consultants and academics. It is the best option for companies that have the time and resources to execute it properly. This strategy is the most viable option for SaaS business success as it gives customers trust in a product and brand. 

Customers don’t care about the cost of providing a service. It’s about matching prices with what customers are willing to pay for the value you provide. Value-based pricing also allows you to have unique flexibility in finding and implementing price points that suit different types of customers. 

We recently caught up with Edward Lee, a pricing and go-to-market specialist and adviser to leading companies and brands. He is the founder of HelloAdvisr, a Los Angeles-based growth consultancy helping companies and leadership teams build and implement profitable growth strategies. Ed has always been fascinated by pricing and how it can help a company grow.

Q. Why is it so hard to figure out product pricing? And what are some of the most common struggles you see with companies when businesses are trying to figure out pricing? 

A part of the struggle is that companies and founders generally don’t work on pricing. Very few people have learned how to do pricing. There’s a difference between setting a price and deciding on a price and how to execute it effectively. The real challenge is that many companies do not spend the time to think through pricing and how it fits into the different pieces of the business. This leads to the second challenge of making pricing so difficult –many founders are not making that connection between pricing and the financials, pricing and sales, pricing and marketing, and pricing and actual user experience.

Q. What are some of your top tips for fighting the pricing war? 

You need to understand your values, not just in terms of a price, but how that price connects to everything else that you’re currently doing for your customers, whether it be a feature, a functionality service brand, and so on, so forth. You need to understand what that value means. A lot of times, there is a disconnect. The second part of it is how do we defend a pricing strategy? Part of avoiding a price war or this “race to the bottom” is understanding how you could potentially assert your value. This is part of the pricing realm because it’s not just about setting it and forgetting about it. There will be times where customers will send a note to your customer experience team or customer success team and say, yeah, it’s not worth it. You need to understand how to respond to that feedback. Another scenario is if you’re in negotiations with an enterprise customer and have difficulty understanding how the pricing fits with their problems and challenges.  

Q. Being a mentor and adviser for startups, what sort of advice would you give to a founder just starting? 

My advice is to understand your customer 360. And what I mean by that is, we’ve done a lot of research around every company, big or small, and have done some form of customer segmentation. They haven’t really understood what those different dimensions of your ideal customer, your customer segment, actually mean in terms of pricing. That really can start to change the shade of who your customer is, what your acquisition strategy may be, what your offer is going to be. It’s about starting there with an understanding and taking a deeper dive into who that customer is. I think that can be a very powerful starting point for a lot of founders. 

To hear more tips, how to measure the value your product offers, and how to implement a value-based pricing strategy – make sure you have secured your place at the Annual Ascent Conference on October 6-8. Ed joins the pricing strategy panel alongside Omar Navaz, CPO, Chargebee, and Songe Laron, CEO & Co-Founder of Squire.

 

Photography by Startaê Team via Unsplash.

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