SaaS Pricing: Throwing Spaghetti at the Wall and Calling It Strategy

Let's address the elephant in the startup room: most of us have absolutely no idea how to price our SaaS products. We're just staring at our competitors' pricing pages, adding or subtracting a fiver, and calling it "competitive analysis." It's the business equivalent of copying someone's homework but changing a few answers so it doesn't look obvious. (Spoiler: it's still obvious.)

Having painfully navigated the pricing minefield myself—and stepped on plenty of explosives along the way—I've come to a conclusion that might save you some sleepless nights: pricing isn't the exact science we pretend it is. It's more art than science, more psychology than mathematics, and frankly, more guesswork than most founders would care to admit.

The Pricing Psychology You're Ignoring

Before we dive into models and strategies, let's be honest about what we're really doing here: playing mind games with potential customers. Your pricing isn't just a number—it's a message about your value, your confidence, and whether you actually believe in what you've built.

Price too low, and you're essentially wearing a sign that says, "My product isn't really that good, but it's cheap!" Price too high without the brand cachet to back it up, and you're that person who shows up to a casual dinner wearing a tuxedo. Both scenarios end with uncomfortable silences and premature exits.

The truth is, after my own experience with a business that ultimately failed, I learned that pricing isn't just about covering costs and adding a margin. It's about positioning. When I underpriced my products because I was afraid nobody would buy them otherwise, I wasn't just sacrificing revenue—I was sabotaging my brand's perceived value. Don't make that mistake.

Common Pricing Models (And Why They Probably Won't Work For You)

Every SaaS founder goes through the same ritual: spending hours researching pricing models as if the perfect one will descend from the heavens with a choir of angels. Here's the reality check: no pricing model is perfect, and what works for one company might be disastrous for yours.

The Freemium Trap: Yes, everyone loves Dropbox's freemium model. But unless you've got millions in funding to support users who will never pay you a penny, be careful. I've seen too many founders (myself included) fall for the "users now, revenue later" fantasy. Most freemium users stay exactly that—free. Forever.

Tiered Pricing: The classic "Good, Better, Best" approach. Works brilliantly when done right, becomes a confusing mess when you try to cram every feature you've ever built into a comparison table. Remember: if your pricing page requires a degree in cryptography to decipher, you've already lost.

Usage-Based Pricing: "Only pay for what you use!" sounds customer-friendly until your users realize they have absolutely no idea what their bill will be each month. Predictability matters more than you think.

Per-User Pricing: Simple and clear, yes, but also creates a perverse incentive for your customers to limit adoption within their organisation. Do you really want your champion at a company discouraging colleagues from using your product because each new user costs more?

How to Actually Decide on a Price (Without Having an Existential Crisis)

After much trial, error, and the occasional bout of pricing-induced insomnia, here's what actually works:

• Start with value, not cost. What measurable benefit does your product provide? If you save someone 10 hours a month and their time is worth £50 an hour, you've created £500 of value. Your price should be a fraction of that—but not an insignificant one.
• Test different price points with actual customers, not just theoretical surveys. People lie about what they'd pay when it's hypothetical. They become remarkably honest when you ask for their credit card details.
• Consider your acquisition costs. If it costs you £500 to acquire a customer, your lifetime value needs to be significantly higher. This sounds obvious, but I've watched countless startups (including my own, at one point) ignore this basic math.
• Price for your ideal customer, not everyone. If you're solving a £100,000 problem for enterprise companies, don't price at £10/month because you're afraid of scaring people away. The right customers won't flinch.
• Factor in your support costs. Those bargain-hunting customers who squeeze you on price? They typically demand the most support. Make sure your pricing covers the true cost of servicing them.

The most enlightening pricing exercise I ever did was embarrassingly simple: I just asked potential customers, "If this product solved [specific problem] for you, what would be a no-brainer price?" Their answers were invariably higher than what I had planned to charge. The lesson? We consistently undervalue our own solutions. This is precisely why crafting a compelling value proposition is so crucial—it forces you to articulate the true worth of what you're building.

The Psychological Warfare of Pricing

Once you've settled on a basic approach, it's time for the finishing touches—the psychological triggers that transform a mere number into an irresistible offer:

The Rule of Three: Human beings are oddly comforted by having three options. Two feels limiting; four becomes overwhelming. Create three tiers, and design the middle one to be the most attractive. That's your money-maker.

The Anchoring Effect: Always include a premium tier that's significantly more expensive than your target option. It may rarely sell, but it makes your middle tier look like a bargain by comparison. I learned this the hard way after initially offering just two tiers and constantly hearing "it's a bit expensive"—until I added a third, pricier option.

The Annual Discount: Offer a compelling discount for annual payment. Not only does this improve your cash flow (which, trust me, you'll appreciate during those inevitable lean months), but it also reduces churn by locking customers in for longer periods.

The Secret Menu: Have an unadvertised enterprise tier with custom pricing. When someone inevitably asks, "But what if we need more than your top tier offers?" you can slide this across the table like you're doing them a special favour. Because technically, you are.

When to Change Your Pricing (And How to Do It Without a Revolt)

Your first pricing structure will be wrong. Accept this now. The question isn't if you'll need to change it, but when and how. After burning my fingers several times with clumsy pricing adjustments that triggered customer backlash, here's what I learned:

Grandfathering: Always, always grandfather existing customers into their current pricing. The goodwill this generates far outweighs any incremental revenue you might gain by forcing price increases on loyal early adopters.

Timing: Price increases should follow significant feature additions or improvements. Give customers more value, then ask for more money. This feels fair to everyone involved.

Communication: Frame price changes around increased value or sustainability, not profit. "We're increasing prices to ensure we can continue providing the level of service and innovation you expect" lands better than "We're increasing prices because we like money."

Having weathered the storm of a business that ultimately didn't make it, I can tell you that pricing mistakes were among the most costly errors I made. Not just in terms of lost revenue, but in terms of market positioning and customer perception. Get it wrong, and recovery is possible but painful. Get it right, and you've built a foundation for sustainable growth. Before you even reach pricing decisions, however, you need to ensure you're solving a problem that's genuinely worth solving—because the best pricing in the world won't save a product nobody truly needs.

The Final Pricing Sanity Check

Before you publish that pricing page, run through this final checklist:

• Does your pricing reflect the value you deliver, not just what you think people will pay?
• Could you explain your pricing structure to your grandmother in under 30 seconds?
• Would YOU pay this much for your own product if you were the target customer?
• Does your pricing give you enough margin to provide excellent service, not just adequate functionality?
• Have you built in room to offer occasional discounts without undermining your perceived value?

Remember: pricing isn't just about maximising short-term revenue. It's about creating a sustainable business that can afford to deliver exceptional value over the long term. Underpricing is just as dangerous as overpricing—perhaps more so, because it's harder to raise prices than to lower them.

When I look back at my failed business, one of my biggest regrets was not charging what our products were truly worth. I was so focused on making sales that I forgot to make a sustainable business. Don't repeat that mistake. As you navigate these pricing decisions, remember that transitioning from side project to full-time business requires sustainable economics from day one—and that starts with proper pricing.

Pricing isn't rocket science, but it's not finger-in-the-wind guesswork either. It's a strategic decision that reflects your understanding of your product's value, your market's needs, and your own business requirements. Get it right, and everything else becomes easier. Get it wrong, and you're swimming against the tide with every stroke.

And perhaps the most important pricing advice I can offer: once you've set it, resist the urge to obsess over it. Yes, it matters. No, it's probably not perfect. But endless pricing tweaks are usually a form of procrastination—a way to avoid the harder work of building something people genuinely want to buy. At any price.