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Increase SaaS profit by 11.1% using value-based pricing
Hello friends, welcome to GrowthShot #57. Today’s theme is:
How to execute value-based pricing for your SaaS- all in less than 250 words
Let’s dive in
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What is SaaS value-based pricing
The SaaS value metric measures the price per unit value of your product. It is based on your buyer’s perception of your product’s value to them.
Why you should switch to value-based pricing
Companies that use value metrics grow 2x more with 50% less churn and 200% expansion ARR compared to flat-fee or feature-based pricing.
This happens because value-based pricing bakes growth directly into your monetization strategy. As the amount of value received grows up, the customer pays more, and the more your revenue grows.
This allows you to make sure you're not charging a large customer the same as you'd charge a small customer while ensuring at the same time you don’t leave money on the table.
How to create your value metrics -
(A) Start by identifying 3-5 core outcomes (Jobs to be done) that your user cares about.
(B) Find out what your product value is and how is it tied to your user’s end outcome - is it time saved? is it money earned? is it % reduction in churn?
(C) Identify what value your product provides that corresponds to these outcomes.
(D) Measure (if possible) to what degree your product makes these outcomes likely.
(E) Ask your customers if they agree with this hypothesis.
(F) Test, implement, and iterate.
Checklist for a good value metric
A) Is it measurable & does your user agree with you on its measurement?
B) Does it scale up and down corresponding to your high & low-usage buyers?
C) Does the metric encourage retention?
Examples of SaaS value metrics
Zapier charges on number of Zaps - that’s their value metric. Dropbox charges on amount of storage. Unbounce charges based on number of conversions & visitors.
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