Price for value, not cost

Knowing what to charge for your startup’s product is hard, but you should always price for the value it creates for your customers, not how much it costs you to provide it. The current standard in SaaS is some version of three-tiered pricing – small, medium, and large (or enterprise) plans, with each progressive tier giving the customer increased access to the number of accounts they can have, emails sent, API calls made, etc. Typically, an increase in price is correlated with an incremental cost increase for the provider rather than tied to the value that the user is getting from the product.

Imposing this “step function” pricing implicitly says, “Every one of my customers is going to fall neatly into one of these three buckets.” In reality, within one product, the value each customer gets from using the product falls along a spectrum.

This is an important step when it comes to pricing your software.