SaaS Pricing Strategies: Value vs Usage vs Tiers
Pricing is a story about value, not just a billing mechanic. This guide compares three common pricing models and helps you choose the one that fits your product and customer behavior.
Table of contents
- The three pricing models
- Decision framework
- Examples: which model wins
- Common mistakes
- Action checklist
- Use the LTV/CAC Calculator for this
- FAQs
- Sources & further reading
- Related reading
The three pricing models
flowchart TD
A[Customer value driver] --> B{Predictable usage?}
B -->|Yes| C[Tiered pricing]
B -->|No| D[Usage-based pricing]
A --> E{Outcome measurable?}
E -->|Yes| F[Value-based pricing]
E -->|No| G[Tiers or usage]
- Value-based pricing: price tied to outcomes.
- Usage-based pricing: price scales with consumption.
- Tiered pricing: fixed bundles for clarity and simplicity.
For newer founders
For newer founders
Start with tiers unless your product has a clear usage metric. Tiers reduce decision friction and make it easier to test pricing changes.
For experienced founders
For experienced founders
If you can measure outcomes, value-based pricing often unlocks a higher willingness to pay, but requires strong ROI proof and customer success support.
Decision framework
Ask:
- Is usage predictable and easy to measure?
- Do customers tie spend to ROI?
- Is billing simplicity critical for adoption?
Examples: which model wins
Example 1: Dev tooling platform
- Usage varies wildly by team size
- Best fit: usage-based with spend caps
Example 2: HR workflow SaaS
- Outcome: time saved per hire
- Best fit: value-based + tiered bundles
Common mistakes
- Pricing without a usage metric.
- Adding too many tiers too early.
- Hiding usage fees that surprise buyers.
- Ignoring LTV/CAC impact.
Action checklist
- [ ] Identify your primary value metric.
- [ ] Map usage variability by segment.
- [ ] Test one pricing model change per quarter.
- [ ] Track churn and expansion after changes.
Use the LTV/CAC Calculator for this
Pricing changes must improve unit economics.
Run the LTV/CAC Calculator: Calculate unit economics
FAQs
What is the best SaaS pricing model? There is no single best model. Choose based on usage predictability, outcome measurability, and buyer preference for simplicity.
How do I choose between usage and tiers? If usage is predictable and easy to understand, tiers work well. If usage drives value and varies by customer, usage-based pricing fits better.
When should I use value-based pricing? Use value-based pricing when you can prove outcomes and link them directly to ROI.
Sources & further reading
- OpenView – Pricing research: https://openviewpartners.com/insights/
- ProfitWell – Pricing strategies: https://www.profitwell.com/resources
- Bessemer – State of the Cloud: https://www.bvp.com/cloud
- SaaS Capital – SaaS benchmarks: https://www.saas-capital.com/saas-benchmarks/
- SaaStr – Monetization playbooks: https://www.saastr.com/