For a SaaS business, pricing is everything.
Get it wrong, and you could be out of business faster than you can calculate your monthly recurring revenue.
But what if I told you there’s a way to use psychology to your advantage when deciding your SaaS pricing model? When you use the power of pricing psychology, you ensure your B2B SaaS pricing strategy is optimized for maximum revenue and growth.
In this post, we’ll explore the top 10 psychology strategies you can use to refine your SaaS pricing model. From anchoring to decoy pricing, these tactics have worked time and time again.
So let’s dive in and see how you can apply them to your B2B SaaS pricing strategy.
Table of Contents
What is a SaaS pricing model?
A SaaS pricing model outlines how a SaaS provider charges customers for using their software. The pricing models for SaaS typically consider factors such as:
- Features and functionality of the software,
- Number of users, and
- Total usage.
Some common types of SaaS pricing models include:
- Flat-rate pricing
- Usage-based pricing
- Tiered pricing
- Value-based pricing
The chosen pricing model can significantly impact the product’s success since it affects both revenue and customer satisfaction.
A well-designed SaaS pricing model should be flexible enough to accommodate different customer needs while being profitable for the business.
How to structure pricing models for SaaS?
One of the more common challenges SaaS business owners face is pricing the product appropriately. There are 7 ways to structure your pricing models for SaaS:
Flat rate pricing
Flat rate pricing is a SaaS pricing model in which customers pay a fixed rate for access to the software, regardless of how much they use it. This model is simple and easy to understand but may not suit businesses with varying usage patterns.
Usage-based pricing
Usage-based pricing is a model in which customers are charged based on how much they use the software. It can be an effective way to align costs with usage and offer flexibility for customers.
Per user pricing
Per-user pricing is a model in which customers are charged a set rate per user. It can be a good option for businesses with predictable usage patterns and may incentivize growth as the number of users increases.
Tiered pricing strategy
A tiered pricing strategy is a model in which customers are offered multiple pricing tiers with different feature sets and usage limits. It allows for differentiation based on customer needs and budgets.
Feature-based pricing
Feature-based pricing is a model in which customers are charged based on the specific features they need. It can be a good option for businesses with complex software and diverse customers.
Active account pricing
Active account pricing is a model in which customers are charged based on the number of active accounts. It is ideal for businesses with high customer turnover or those who need to manage multiple accounts.
Freemium pricing
Freemium pricing is a model in which the software is offered for free but with limited functionality or usage limits. Customers can then upgrade to a paid plan for more features or higher usage limits. It helps attract customers and incentivize growth.
However, even if you find the right pricing model, getting customers to see the value and purchase from you is a different ball game. That’s why you need to deploy pricing psychology tactics to better your chances of increasing conversions.
Optimize your strategy using pricing psychology
Here are some pricing psychology tips to implement:
1. Price anchoring
The most important principle to understand is anchoring. This means when someone hears an offer first, they’re likely to take it as gospel and make decisions based on that information alone.
They use the original object as a reference point for a new object’s perceived value. For example—while looking for a new house, you will look at houses within your budget but if you find one that you think is a great deal at a higher price point, you might start looking at others with a higher price tag to make sure the house you are looking at is a deal.
You can replicate this strategy with your product by drawing attention to your highest-priced product (even if it may not be your best performer) to act as the benchmark price. Since the next products will drop in price, customers will think they’re getting a good deal when they purchase the ones next in line.
A great example of this is LiveReacting’s ‘monthly subscription plans’ page:
2. Scarcity
Scarcity inspires people to take action and think quickly.
You want your customers to believe that there are only a certain number of subscriptions available at a given price point, so they’ll buy quickly when they realize how limited it is. When someone buys at this point, they feel like they won’t be able to do so again—so they’re more likely to buy now than later.
You can use it to your advantage by offering a discount to customers or giving out freebies, like a free trial. When your customers feel a sense of urgency, they’re more likely to take action and buy your product before the opportunity goes away!
Dreamhost leverages this method to target new customers to opt for their hosting promotion and for existing customers to go for their domain promotion.
3. Charm pricing
In this technique of product pricing, the magic number ‘9’ is used at the end. Using this strategy tricks our brains into thinking we’re paying less. In fact, some people may also view this as the brand’s attempt to offer them the lowest price point possible.
So, run an A/B test on your pricing plan and see if your conversions increase by adding 9 at the end. For example, try offering your product for $4.99 instead of $5 or then $199 instead of $200.
A good example of this is Spotify’s pricing plan.
4. Odd-even strategy
Well, at this point, the charm pricing strategy has been overused and consumers can see through marketing tactics better. To combat this, try to implement a pricing system wherein the number is either–
- ‘Odd’ to make it appear random or unique. For example, $14.67, $73, or $55.
Or
- A figure that is ‘even’ and reduced by a unit or two. This gives the illusion that they are getting a discount on the original price. For example, $98 or $54.
However, multiple studies have suggested that it is always advisable to have odd pricing since it acts as a decoy and prevents potential customers from realizing its closeness to the next big round number.
Or opt for a combination of the two like ClickUp–
5. Trial pricing
Quite like a freemium pricing model, adding a trial pricing on your SaaS pricing page can increase your conversions.
As I shared earlier, using a new SaaS product requires a behavioral change. So, by offering your users limited-time lower pricing, you allow them to get accustomed to your product. What this does is it gives the consumers some time to get into the habit of using your product which ensures a repeat purchase.
To execute this effectively, you will need to have a product with such robust features that your consumer won’t even consider trying your competition’s product once the trial pricing period is over.
It is important to point out that there is a downside to using this strategy—devaluing your customers. Instead of trying to make a quick buck from trial users, it is better to provide a freemium model and build trust since it is a better way to boost your conversions.
If you’re not open to providing all the features for free, try going the Canva route and limiting certain features to ‘pro’ plans.
6. Decoy pricing
Also known as the attraction effect or asymmetric dominance effect, the decoy effect is a cognitive bias that persuades people to alter their decision about a product when you introduce a new product to the equation.
You can use this pricing technique by offering a base product at a higher price and having a slightly more expensive upgrade. Customers will most likely choose the upgrade because it’s a better deal, even if the base product is good enough for them.
By having a good base product, you’re giving potential customers more value for their money. This tactic is a lot like the “this is too good to be true” pricing strategy you see in infomercials.
Dan Ariely, a professor of psychology and behavioral economics, tested this pricing strategy and discovered that introducing a decoy caused a 30% increase in revenue even though the number of sales remained the same.
Netflix charges $1.90 extra for the “best” video quality. Makes you feel like it’s a no-brainer, right?
7. Product bundles
A product bundle pricing strategy consists of selling two or more products together for a lower price. By bundling them together and offering a discounted price, potential customers might be compelled to buy both products instead of only buying the one they intended to earlier.
While bundling of products is generally used in e-commerce sales to increase profits, it can sell digital goods as well. When creating a product bundle price, it’s important to consider more than simply money. What are the consumers using your product for? Do you have additional features that the consumer may look for that you could integrate into the bundle?
With Microsoft 365 suite product-bundle pricing, customers can sign up for a subscription to their products, which gives them access to all the Office products, or they can buy each software individually.
8. Center stage effect
The center-stage pricing strategy puts your best-selling or most expensive item in the middle of your pricing line-up with lower-priced options located to the left and the right. Using a bold font, statement colors, or a design that catches the eye ensures that the middle item gets the most attention, which can lead your customers to the item that best suits them.
It is a clever way to boost sales because highlighting the middle offering suggests that the consumer is getting the best product for the best price and that they are getting the most value for their dollar.
Here’s a look at how Asana makes this technique work for them:
9. Use a comma
Something so insignificant on the surface level, yet so important to increase conversions, is the comma.
A study published in the Journal of Consumer Psychology by Coulter, Choi, and Monroe spoke about the importance of a comma in pricing. They tested different pricing formats in this research, wherein Version A included a comma and Version B did not.
Interestingly, almost 93% of the subjects read Version A as “fourteen ninety-nine” and 84% read Version B as “one thousand four hundred and ninety-nine.”
So, without even changing your existing pricing plan, you can drive up sales by presenting it differently. For instance, look at Salesforce’s Marketing Cloud Account Engagement Pricing plan:
10. Use social proof
One of the six key principles of persuasion, social proof, acts as a great visual cue for hesitant visitors to turn to consumers. Here’s how you can subtly use them on your SaaS pricing page to nudge skeptics to become advocates:
- Display recommendations from industry experts
- Share the number of users
- Show recognized badges
- Provide user testimonials
- Link to case studies
An example of a well-executed product upgrade pop-up by Copy.ai:
Improve your B2B SaaS pricing page with psychology
Developing an effective SaaS pricing model requires careful consideration of various factors such as customer needs, competition, and value proposition. With the right pricing strategy, SaaS businesses can maximize revenue and grow their customer base.
Remember to:
- Experiment with different pricing models and pricing strategies to find the optimal fit for your business.
- Consider value-based pricing, which focuses on the perceived value of your software to the customer rather than its cost.
If you want to learn more about SaaS pricing and connect with peers, join our community today.
FAQs
How to develop a SaaS pricing model?
To develop a SaaS pricing model, consider factors such as features, usage, competition, and customer needs. Test and iterate to find the optimal model.
What is the best pricing strategy for a SaaS business?
The best pricing strategy for a SaaS business depends on factors such as the target market, competitive landscape, and value proposition. However, a flat pricing strategy may work best since it doesn’t confuse customers.
What are the 4 commonly used pricing strategies?
The 4 commonly used pricing strategies are cost-plus pricing, value-based pricing, penetration pricing, and skimming pricing. SaaS businesses may also use usage-based, per-user, or freemium pricing.
Looking for a freelance SaaS writer to create authoritative content for your brand? Contact me.
