By Dean O'Meara · Founder, Wrapt
Pricing is the highest-leverage decision you will make as a SaaS founder. A 1% improvement in pricing has a bigger impact on revenue than a 1% improvement in acquisition or retention. Yet most founders spend weeks on their landing page and five minutes picking a price. Usually by looking at competitors and charging a bit less. That is a mistake.
The instinct to price based on competitors is natural but flawed. You do not know their cost structure, their margins, or whether their pricing is even working. Many startups price too low because their competitors priced too low first, and the whole market ends up in a race to the bottom. Your price should reflect the value you create, not what someone else charges. If your tool saves a business ten hours a week, that is worth far more than the cost of a Netflix subscription. Price accordingly.
Ask your customers four questions. What is the most you would pay before it becomes too expensive? What price would make you think it is a bargain? What price would make you start to question the quality? What price is too cheap to take seriously? Plot the answers. The intersection tells you the optimal price range. This is called the Van Westendorp method and it takes an afternoon to run. You only need twenty to thirty responses to get a useful signal. The results almost always surprise founders. Most discover they are charging 30 to 50% less than their customers would willingly pay.
One plan is too simple. Five plans confuse people. Three tiers work because they create natural anchoring. The middle tier should be the one you want most people to choose. The bottom tier exists to make the middle look good. The top tier exists to make the middle look reasonable by comparison and to capture the 10 to 15% of customers who will always buy the most expensive option. Name your tiers based on the customer, not the features. "Starter, Growth, Scale" tells people who the plan is for. "Basic, Standard, Premium" tells them nothing.
Free tiers make sense for products that benefit from network effects or viral growth. Slack, Figma, and Notion all grew through free tiers because the product spreads within organisations. For most B2B SaaS products, a free tier just attracts people who will never pay. They consume support resources, skew your metrics, and make you feel busier than you are. A free trial with a hard deadline is almost always better than a free tier with limited features. It creates urgency. People who try a product for fourteen days and like it will pay. People who use a stripped-down free version forever will not.
If nobody complains about your pricing, it is too low. Seriously. You should be losing some deals on price. If every prospect says yes without hesitation, you are leaving money on the table. The best time to raise prices is now. Grandfather existing customers if you want to keep goodwill, but charge new customers more. Then watch what happens. In most cases, conversion rates barely change but revenue per customer jumps significantly. You can always lower prices later if you overshoot. But in practice, almost no founder who raises prices regrets it.