Pricing Is the Most Impactful Lever You Are Ignoring
A 1% improvement in pricing yields an 11% improvement in profit, according to research by McKinsey. Patrick Campbell, founder of ProfitWell (now Paddle), documented this same dynamic across thousands of SaaS companies. Compare that to a 1% improvement in customer acquisition (3.3% profit impact) or a 1% improvement in cost reduction (7.3% profit impact).
Despite this, most PMs spend less than 6 hours per year thinking about pricing. The pricing page was set up two years ago by a founder who picked a number that felt right, and nobody has touched it since.
This is a massive missed opportunity. And unlike most product levers, pricing changes can be implemented in days, not months.
Why PMs Avoid Pricing
Three reasons come up repeatedly:
1. "Pricing is a business decision, not a product decision." Wrong. Pricing is part of the product experience. Your pricing page is the highest-stakes conversion point in your entire product. The packaging (which features go in which tier) directly affects user behavior and satisfaction.
2. "If we raise prices, we'll lose customers." Sometimes true, often not. Notion raised its team pricing from $8 to $10 per user per month in 2023. Churn did not meaningfully change. Figma raised prices from $12 to $15 per editor in 2024. Usage continued to grow. Most SaaS products are underpriced, and users know it.
3. "I don't have the data to make a pricing decision." You have more data than you think. Usage patterns, feature adoption by tier, support tickets about billing, and competitive pricing are all data points. And there are straightforward methods to gather what you are missing.
Value-Based Pricing: The Basics
Most SaaS pricing falls into three categories. Madhavan Ramanujam, co-author of Monetizing Innovation, argues that pricing should be integrated into product development from the start, not bolted on at the end:
| Method | How it works | When it works | When it fails |
|---|---|---|---|
| Cost-plus | Add margin to your costs | Commoditized products | When value far exceeds cost |
| Competitor-based | Price relative to competition | Crowded markets with informed buyers | When your product is differentiated |
| Value-based | Price based on customer value | Differentiated products with measurable ROI | When value is hard to quantify |
Value-based pricing is the right approach for most B2B SaaS products. Here is the core logic:
- Quantify the value your product creates for the customer (time saved, revenue generated, costs avoided). If you are sizing a new market opportunity, a TAM calculator can help you estimate the total addressable revenue before setting price points.
- Price at a fraction of that value (typically 10-20%)
- Customers feel they are getting a bargain. You capture meaningful revenue.
Example: A product analytics tool saves a 10-person product team approximately 15 hours per week in manual data analysis. At a blended cost of $80/hour, that is $62,400/year in labor savings. A price of $12,000/year (19% of value captured) feels like a steal to the buyer and yields strong margins for the vendor.
The challenge is step 1. How do you quantify value when it is not purely time or cost savings?
How to Research Pricing
The Van Westendorp Price Sensitivity Meter
Ask four questions to a sample of your target customers:
- At what price would you consider this product too expensive to consider?
- At what price would you consider this product expensive but still worth considering?
- At what price would you consider this product a bargain?
- At what price would you consider this product too cheap (so cheap you would question its quality)?
Plot the responses on a chart. The intersection points reveal your acceptable price range and optimal price point. You need 30-50 responses for directional data, 200+ for statistical significance.
Willingness-to-pay interviews
In customer interviews, ask:
- "How much are you currently spending to solve this problem?" (sets the value anchor)
- "If this product saved you X hours per week, what would that be worth to your team?"
- "What budget category would this come from? What is the typical budget range for tools in that category?"
Do not ask "what would you pay for this?" Customers will always lowball. Ask about value and budget context instead.
Pricing page A/B tests
If you have enough traffic, test pricing directly:
- Test two price points against each other (e.g., $29/month vs $39/month)
- Measure sign-up rate, trial-to-paid conversion, and revenue per visitor. Track how changes affect customer acquisition cost alongside conversion
- A 10% price increase that reduces conversion by less than 10% is a net win
Important: Only test plausible price ranges. A test of $10 vs $100 tells you nothing useful. A test of $29 vs $39 tells you a lot.
Packaging: Tiers, Features, and Limits
The three-tier default
Most SaaS products have three tiers. This is not arbitrary. It is anchoring. The middle tier is the target. The low tier exists to make the middle tier look reasonable. The high tier exists to make the middle tier look affordable.
How to assign features to tiers:
| Feature type | Which tier | Reasoning |
|---|---|---|
| Core value prop | All tiers (including free) | Users need to experience the product's value to convert |
| Power features | Mid tier | Differentiates from free without requiring enterprise scale |
| Scale/admin features | High tier | SSO, audit logs, permissions. Only matter at scale |
| Usage limits | Scales by tier | Natural expansion trigger as teams grow |
Common mistakes:
- Putting too much in the free tier (no reason to upgrade)
- Putting core value behind the paywall (users never experience the product)
- Feature-gating by count instead of capability (feels punitive)
Usage-based components
Pure usage-based pricing (pay per API call, per message, per user) works when usage correlates with value. Twilio charges per message because each message delivers clear value. Datadog charges per host because each host represents infrastructure being monitored.
Hybrid models (base subscription + usage-based components) are increasingly common. OpenView Partners' 2023 usage-based pricing report found that companies with usage-based components grow 38% faster than those without. They provide revenue predictability from the base price and upside from usage growth.
The freemium model is a specific packaging strategy where the free tier is a customer acquisition tool, not a revenue tier. The key metric is free-to-paid conversion rate. If conversion is below 2%, the free tier is too generous. Above 5%, the free tier might be too restrictive (you are not giving users enough to experience the value).
Product-led growth pricing
In a product-led growth model, pricing and packaging are tightly coupled with the product experience. The product itself is the primary acquisition and expansion channel.
Key PLG pricing principles:
- The free or trial experience must deliver genuine value (not a crippled version)
- Upgrade triggers should be natural moments when the user needs more (hitting a limit, needing a feature for a specific task)
- Pricing should be self-serve for individuals and small teams
- Enterprise tiers can be sales-assisted, but the initial experience must be self-serve
When to Raise Prices
You should probably raise prices if:
- You have not changed pricing in over 18 months
- Your win rate against competitors is above 60% (you are underpriced relative to alternatives)
- Customer expansion revenue (existing customers paying more) is your weakest growth lever. Check your net revenue retention to quantify the gap
- Support and sales conversations never mention price as a concern
- You added significant new features since the last pricing change
How to raise prices without alienating customers:
Grandfather existing customers. The simplest approach: new pricing applies to new customers. Existing customers keep their current rate for 12-24 months. This eliminates churn from the price change and gives you time to prove the additional value.
Announce with value. Do not just announce a price increase. Announce it alongside the features and improvements that justify it. "We have added X, Y, and Z since you signed up. Starting March 1, new customers pay $49/month. As an existing customer, your price stays at $39/month for the next year."
Test on a segment first. Raise prices for new sign-ups in a single geographic market or acquisition channel. Monitor conversion rate and churn for 30 days before rolling out broadly.
Pricing Anti-Patterns in SaaS
The "enterprise pricing: contact us" dead end
For products under $50K ACV, hiding enterprise pricing is almost always a mistake. Buyers in 2026 expect transparency. "Contact us" sends the signal "this is going to be expensive and the sales process is going to be painful." If your enterprise tier is $200/user/month, say so. Qualified buyers will still talk to sales.
The annual-only discount that is too generous
Annual plans should offer a discount. But not more than 20%. A 40% annual discount (common in SaaS) signals that your monthly price is inflated and trains customers to wait for deals. 15-20% is the sweet spot: meaningful enough to incentivize annual commitment, not so large that it devalues the monthly price.
Per-seat pricing for products with limited seat engagement
If your product has one power user and nine viewers per team, per-seat pricing feels unfair. Consider per-active-user pricing, per-workspace pricing, or a combination. Slack moved to "fair billing" (only charging for active users) and it became a selling point.
Too many tiers
If you have five pricing tiers, customers cannot compare them. Three is the standard for a reason. Four is acceptable if you have a true enterprise tier. Five or more means your packaging needs simplification.
A 4-Week Pricing Sprint
If you want to improve your pricing, here is a practical timeline:
Week 1: Data gathering
- Pull usage data by current pricing tier
- Identify features with highest adoption in each tier
- Review customer feedback mentioning pricing
- Run a competitive pricing audit
Week 2: Customer research
- Run 8-10 willingness-to-pay interviews
- Deploy a Van Westendorp survey to 100+ users
- Talk to sales about pricing objections and competitive positioning
Week 3: Analysis and modeling
- Model 3-5 pricing scenarios (different price points and packaging)
- Project revenue impact under each scenario using conversion rate assumptions
- Identify the scenario that maximizes revenue without exceeding acceptable churn thresholds
Week 4: Decision and implementation
- Present the recommendation with data to leadership
- Implement the change with a grandfather policy for existing customers
- Set up monitoring for conversion rate, churn, and expansion revenue
Pricing is not a set-it-and-forget-it exercise. It is a product lever that should be evaluated quarterly and adjusted at least annually. Two metrics to watch closely: customer lifetime value and monthly recurring revenue. If CLV is rising but MRR is flat, your packaging is likely leaving expansion revenue on the table. For a broader treatment of how pricing fits into positioning, go-to-market, and competitive strategy, see the Product Strategy Handbook. The PMs who treat pricing as part of their product, not someone else's problem, consistently deliver better business outcomes.