For software as a service (SaaS) companies, product tiers are more than just feature lists with associated price levels. They’re strategic tools that can drive specific business outcomes.
Before designing your pricing strategy, it is crucial to understand your overarching organizational priorities and let this influence the price model configuration (see Figure 1).
- Maximizing customer acquisition involves driving rapid market penetration and user base growth through strategic pricing and feature allocation. A robust, free or low-cost base tier is essential, offering enough value to attract a wide audience while ensuring premium features provide additional value to encourage upgrades. By offering targeted add-ons for high-value segments, companies can increase adoption and optimize revenue. For instance, Zoom’s free Basic plan includes essential features that satisfy most users, facilitating widespread adoption while reserving advanced capabilities for paid tiers.
- Maximizing average contract value begins by providing basic functionality at the base tier while designing upgrade paths that highlight meaningful distinctions between tiers. Including high-value stand-alone add-ons can also drive higher revenue. An excellent example of this approach is Adobe Creative Cloud, which structures its pricing to encourage users to opt for the higher-value All Apps plan instead of single-app subscriptions.
- Encouraging tier upgrades involves motivating customers to move to higher-value tiers through strategic design. Starting with core functionality, companies can create compelling value in premium tiers to incentivize upgrades. Limiting the availability of certain features as add-ons further enhances the appeal of higher tiers. HubSpot exemplifies this strategy by naturally encouraging upgrades as businesses grow and require access to more advanced features.
- Optimizing cost rationalization requires aligning pricing with delivery expenses, particularly for resource-intensive features such as generative artificial intelligence (GenAI) functionality. Cost-intensive features should be excluded from the base offering and monetized in premium tiers or as high-cost add-ons. Notion employs this strategy effectively by charging an additional monthly fee for GenAI functionality access.
- Maximizing customer loyalty focuses on fostering long-term relationships through consistent value delivery and flexible offerings. Generous base features help build trust and deliver immediate value, while upgrades are positioned as enhancements rather than necessities. For example, Figma demonstrates this by offering robust free-tier capabilities that foster trust and encourage long-term use while providing clear upgrade paths for growing teams.
Most companies balance multiple objectives based on their market position and goals. The key is identifying your primary strategic priorities and designing a pricing structure that supports them.
Need help with your SaaS pricing strategy? Contact us to connect with L.E.K. Consulting’s pricing team for guidance on optimizing your pricing and packaging to drive business outcomes.
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