A Poor Pricing Strategy is Driving Your Customers Away

If you’re not pricing correctly, you’re driving customers away. 

The VIP of Pricing Strategies 

What is Value-Based Pricing? 

Value-based pricing is based on your product’s perceived value to target customers—not the costs you incur or what competitors with or without parity might be doing. The underlying strategy and ultimately the price you charge focus on customers’ value ascription and willingness to pay, maximizing returns without negatively impacting your margins

Why Choose Value-Based Pricing in 2025? 

According to SBI’s The State of B2B SaaS Pricing 2024, value-based pricing is the second most common SaaS pricing strategy (33%), sandwiched between competitor pricing (38%) and cost-plus pricing (30%). 

However, value-based pricing is the most common strategy for SaaS companies earning over $100 million ARR.

That’s because value-based pricing maximizes returns, differentiates your product and improves the customer connection. 

• Revenue maximization: By structuring pricing around willingness-to-pay and buyer value, your customers fully understand the benefits of your product and are more comfortable making purchasing decisions at higher price points.
• Product differentiation: By clearly articulating your product’s unique values and packaging your features accordingly, your product stands out in a crowded SaaS market. 
• Customer connection: By researching what your customers truly value, you not only learn what they actually want (and what features to develop), but strengthen your connection with existing customers, helping to improve retention. 

Value-Based Pricing vs Competitor Pricing 

Competitor pricing is based on your competitor’s pricing—not the production cost or perceived customer value of your product

The Pros

• Simplicity. Simply research your top competitors' prices to inform your price points.
• Confidence. Ensure your pricing is not too high or low in the wider market. 

The Cons

• Wrong focus. Instead of focusing on what your target customers value, you’re focusing on competitors' pricing, which no doubt can frame the realistic zone of pricing for your buyers, but ultimately should be one input of several versus your strategic guiding light.
• Unknown origin. Your competitors’ price points may not maximize customer value or target the right audience. By simply adopting their approach, your organization is left with a misaligned pricing strategy.
• Lack of differentiation. Instead of showing your product's unique value, you’re only articulating your product’s difference in pricing to competitors.

Value-Based Pricing vs Cost-Plus Pricing 

The Pros

• Easy to calculate. Set pricing by simply adding a % on top of your production costs.
• Covers costs. Ensure income exceeds operational outgoings. 

The Cons

• Ignores value. Signals you’re more interested in mitigating your own operational costs than delivering value to your customers.
• Prioritizes margins. By setting an arbitrary margin goal (i.e. 60% more than production), you’re potentially missing out on revenue from those willing to pay more or stratifying pricing to address different client needs.
  

The Importance of Value-Based Pricing in an Uncertain Economy

Amidst market uncertainty arising from geopolitical decisions, inflationary pressures and trade tensions, value-based pricing is even more important. 

Our State of SaaS 2024 report found that churn is 30% higher than at its peak in COVID a few years ago. 

Value-based pricing acts as a buffer to churn. By focusing on what customers value most, articulating this value across your product and forging stronger customer connections, you can improve customer loyalty and retention at a time when many companies are looking to streamline their suite of SaaS tools.

How to Implement a Value-Based Pricing Strategy in 5 Steps 

There is no one-size fits all approach to value-based pricing. Follow these five simple steps to ensure your pricing strategy reflects your customers’ needs and growth goals. 

1. Set up a pricing team. Compile a dedicated in-house team (and overall leader) to research, devise, execute and evaluate your value-based pricing strategy. 
2. Gather baseline data. Outline the known who, what, why and how of your pricing strategy, such as your ideal customer profile (ICP), target market, and primary competitors.
3. Analyze your customers and market. Segment your total addressable market (TAM) and assess the needs of each group (i.e. buyer persona, industry, size). To pinpoint what drives value in each segment, gather data on buyer behavior and willingness to pay, research the latest industry benchmarks and trends, and reach out to customers directly for feedback on what features they value.
4. Calculate and package value-pricing. Identify how much current and target customers are willing to pay for the value your product delivers, and consider how best to package this pricing to showcase the value (e.g. one all-inclusive price or premium tiers at higher costs, etc.). 
5. Communicate the value to customers. Highlight your product’s unique value propositions (identified during the customer analysis) across all channels, so customers understand the rationale behind your new value-based pricing

When your value-based pricing is up-and-running, remember to test frequently. Pricing is not a set-and-forget strategy, so instruct your pricing team to continuously test and evaluate your pricing to ensure it accurately reflects customers’ perceived value. This is especially important if you introduce new product lines or features.