Setting the right price for your SaaS product is essential to success. Unfortunately, many startups make common pricing mistakes that can doom their business. Here are four of the most common pricing mistakes and how to avoid them.
1. Selling to the wrong customers
Your product may be great, but it doesn't matter if you're selling to the wrong customers. Let's say your SaaS app shuts down after 30 days of free trial, and users are charged $20 per month. If your average customer makes $100,000 per year, then losing them after just 30 days of use is a massive loss. You need to be very clear on who your ideal customer is, how much they're willing to spend, and whether your product can deliver value long-term.
2. Not using feature differentiation
Pricing by the number of features in your software is risky because it doesn't reflect customer value. Two SaaS apps that do the exact same things can have vastly different prices based on how their features are organized, which is why feature differentiation is key to success. If you offer slightly more advanced features than your competition for a price similar to theirs, it's an easy way to establish pricing power without having to compete purely on price.
3. Neglecting to consider your competitors
It's not enough to just know what you're selling and to whom - it's also crucial to know who your competitors are, how much they charge, and how their pricing compares with yours. You need a thorough competitive analysis so that you can understand where the gaps in value lie and establish a pricing strategy that will help you win new customers.
4. Using one-size-fits-all pricing
You have to consider all of your potential customer segments, not just the biggest. If you only plan on targeting one niche market, your price doesn't need to be as competitive as a company whose product is more versatile and appeals to a wider range of customers. Ideally, the best pricing strategy is to find a balance between all segments to maximize revenue and profitability.
If you keep these four common mistakes in mind when deciding on a pricing strategy, your startup will be more likely to avoid failure and enjoy long-term success.