Many times, software as a service (SaaS) companies, and also businesses in other sectors, get too preoccupied with marketing, research, and PR, and often forget another most crucial activity—revenue generations.
The ultimate goal of any company is to make money, and companies that deviate from that fact face a lot of problems when trying to meet their company expenses and trying to run successful business ventures.
That's why SaaS companies should never overlook SaaS pricing models. Instead, companies should strive to find the right pricing models that best works for them to boosts their revenue generation and support the business.
Although coming up with a pricing strategy is not as hyped as marketing, it is vitally important for any business. Without a good pricing model, companies will generate less sales and revenue than they should.
For example, some companies use a cost-plus model to price their product by adding a standard amount to their costs and calling it the product price. This strategy potentially leaves a lot of money on the table. Companies can grab all that money left on the table with a proper pricing strategy.
Here are four tips to help Saas companies choose the right pricing strategy:
1. Determine and analyze your target audience
The first step to finding the right pricing strategy is studying your industry and determining your target audience. Creating market segments and buyer personas can help you understand what group of people buy your product.
Pricing is also a game of classes vs. masses. If you focus on a particular smaller group of customers, you can charge more for offering specific and targeted products.
On the other hand, if you go with the masses, you have to keep the pricing low, but the sheer sales volume will make up the difference.
Understanding your industry and target audience can help you choose the right pricing strategy for your particular business.
2. Study various pricing models
There are various pricing models for Saas companies that you should study beforehand to find the most suitable for your product.
Apart from the basic cost-plus model, other pricing models include tiered pricing, per-user pricing, freemium models, and item bundling.
3. Know what your customers value the most
Many companies often misunderstand what their customers value, and the users’ preferred features. That can impact the company pricing strategy and sales.
In reality, customers also value what they actually receive after using a company’s features/products. Your product or service should therefore help customers improve their lives, solve problems, and achieve goals. Otherwise, what you offer will not be seen as valuable and worth its price.
You can know what your customers value and or desire the most if you take the time to understand their pain points. Once you know your customers’ pain points, you will know how you can create and produce products and services that solve problems and create irrefutable value for customers.
Some of the ways you can learn about customer pain points are shadowing customers, surveys, and focus groups. Use the insights you gain about what customers really want and value the most to determine the pricing for your company products that meet the customers’ exact pain points and needs.
4. Know where you stand in the market
One of the most effective ways to find the right pricing point is to know your market position. Understanding where you and your competitors stand in the market gives a better perspective on how much market share you dominate.
Doing a competitor analysis can help discover the strengths and weaknesses of your competitors. You’ll know what they are doing right and where they lack. Then, you can leverage that information to set advantageous prices.
For example, a SWOT analysis of your business can reveal your company's strengths, weaknesses, opportunities, and threats. If you dominate a market, you may have the power to set your price point and create a ripple effect that forces your competitors to change their pricing strategy.
Setting the right pricing strategy determines your business's entire future and revenue potential. However, you cannot boost your sales and revenue without an effective pricing strategy. So, it’s vital that you choose a suitable pricing model for your company to improve sales and skyrocket profits.