Chapter 2: Pricing

Why pricing is a growth lever, not a math problem

Most founders underprice because they're scared of rejection. But pricing is the single fastest way to increase revenue without acquiring a single new customer.

A 20% price increase with 5% churn increase = net positive. Always.

The 3 pricing models for early-stage SaaS

1. Flat rate One plan, one price. Simplest to implement, simplest to communicate.

When to use: < $5K MRR. You don't have enough data to justify tiers.

Example: "$49/month. Everything included. Cancel anytime."

Advantage: Zero friction in the buying decision. No "which plan is right for me?" paralysis.

2. Usage-based Price scales with usage (API calls, seats, emails sent, etc.).

When to use: When value delivered scales linearly with usage.

Warning: Unpredictable revenue. Hard to forecast MRR. Don't use this as your primary model unless your customers are developers.

3. Value-based tiers 2-3 plans differentiated by value, not features. The middle tier should be the obvious choice.

When to use: > $5K MRR with clear customer segments.

Rule of thumb: Free / $X / $3X. The 3x multiplier forces real differentiation between tiers.

Pricing psychology

Anchoring Show the expensive plan first. Everything after it looks reasonable.

The Decoy Effect Three plans where the middle one is the best value. The expensive plan exists to make the middle one look smart.

Annual discount Offer 2 months free on annual. This is your cash flow accelerator and churn reducer.

Price ending $49 beats $50. $99 beats $100. $199 beats $200. This still works in B2B SaaS, especially for solo buyers.

How to set your first price

Step 1: Find the pain threshold Ask 5 prospects: "If this solved [problem], what would you pay?" The answer is usually 2x what you'd guess.

Step 2: Start higher than comfortable You can always lower prices. Raising prices is harder psychologically (for you, not your customers).

Step 3: Test willingness to pay Launch at your target price. If > 5% of visitors convert, you might be too cheap. If < 1%, you might be too expensive or your positioning is off.

Common pricing mistakes

1. Freemium too early Free plans attract the wrong users and drain support bandwidth. Don't do freemium until you have PMF and a clear upgrade path.

2. Feature gating that punishes power users If your best customers hit limits constantly, they'll churn to a competitor. Gate on value, not frustration.

3. Hiding the price "Contact sales" for a $49/month product is insane. Show the price. Transparency builds trust.

4. Copying competitor pricing Your cost structure, value proposition, and ICP are different. Price based on your value, not their spreadsheet.

When to raise prices

Signals it's time: - Conversion rate is too high (> 8-10% of visitors → you're underpriced) - Zero pushback on price in sales conversations - Customers say "this is a no-brainer at this price" - Your NPS is > 50

How to raise: - Grandfather existing customers (they keep the old price) - Raise for new customers only - Add a feature or improvement alongside the increase (gives you a story) - Communicate the raise 30 days in advance

Pricing by MRR stage

Pre-revenue ($0) Don't overthink it. Pick a number ($29, $49, $99), launch, iterate. The goal is to learn, not to optimize.

Early revenue ($1-5K MRR) Survey your paying customers: "What would you pay 2x for?" Their answers reveal your pricing ceiling.

Growth ($5K-15K MRR) A/B test pricing pages. Introduce annual plans. Consider a higher tier for power users.

Action items

• [ ] Write down your current price and why you chose it
• [ ] Ask 3 customers: "Is this product worth more than what you pay?"
• [ ] Calculate your revenue if you raised prices 30% with 10% churn
• [ ] Decide: flat rate or tiers? Commit for the next 90 days