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Value-based pricing - one of SaaS’s most favorite (and sustainable) pricing schools of thought. Conventional wisdom says that if you tie the price you charge for your product to a value metric that aligns with your product, then you're set for success. However, can any value metric that aligns with your value give you a healthy revenue model? Or do the revolutionary revenue models of Michelin, Google, et al. possess something more? How does this play out in SaaS pricing? If the core value of your SaaS is intangible (like better team collaboration, increased productivity, etc.) how do you tie back your pricing to that value? This post aims to answer all these questions and more.
<p>Pricing is one of the original four Ps of Marketing. Your pricing model goes hand-in-hand with your growth engine. For example, if you plan to buy advertising to drive growth, you'll need a pricing model that generates a customer lifetime value that exceeds your customer acquisition cost. If, on the other hand, you are primarily driving growth through a viral invite system, you'll generally need a fairly low price to reduce purchase consideration friction in your customer acquisition funnel. Beyond supporting the growth engine, price is also a function of the value that customers receive from a product and the cost of alternative solutions.</p>