In a recent video titled "5-Step Methodology for SaaS Pricing," Ajit Ghuman, Co-founder and CEO of Monetizely Inc., shares his battle-tested pricing framework that has consistently delivered results across numerous consulting engagements. Drawing from his extensive experience as a product marketer and pricing consultant, Ghuman outlines a systematic approach to developing effective pricing strategies for SaaS businesses at any stage.
The Truth About Pricing Problems
Before diving into the framework, Ghuman makes a critical observation that challenges conventional thinking about pricing challenges:
"All pricing problems are almost never pricing problems—they're positioning problems and their ICP misidentification problems," he explains.
This insight sets the stage for his framework, which deliberately starts upstream with fundamental business and customer questions rather than jumping straight to price points. It's a reminder that pricing is an outcome of strategy, not a starting point.
Step 1: Define Clear Goals and Segments
The foundation of effective pricing begins with clarity on business objectives and customer segmentation. Ghuman emphasizes that before embarking on any pricing project, teams must:
- Clearly articulate what problem they're trying to solve with pricing
- Ensure executive alignment on these goals
- Consider the company's current stage (noting that by IPO, most companies will have undergone 7-8 major pricing revamps)
Perhaps most importantly, he stresses the critical importance of segmentation and Ideal Customer Profile (ICP) definition:
"If you get your segmentation right, if you truly understand the customer, then everything flows from there. You can design good packaging, you can design the right metric, you can design the right price point."
Even if your ICP is just a hypothesis, having this north star guides all subsequent pricing decisions.
Step 2: Design Packages for Your Segments
With clear segments established, the next step is designing packages that specifically address the needs of those segments. This is where many companies make a critical mistake.
"One of the biggest mistakes people do is they are enamored by this concept called 'good, better, best' and they'll start the pricing by saying, 'Okay, let me create good, better, best and go from there,' and have no thought process of all the work they did for segmentation and ICP before that," Ghuman warns.
The risk is creating packages that don't align with how customers see themselves or their needs. When this happens, enterprise buyers might think your offering is too cheap and not take you seriously, while mid-market customers might find it too expensive and demand discounts—derailing your sales process.
Ghuman suggests an analogy that clarifies this point: "If you're going to buy a car and I like the BMW brand, you already sort of know, 'Am I going to buy a 5 series or a 3 series or a 7 series?' It's never about 'I'm going to go there and now I'm going to figure out what segment I am.' The customer is not confused about who they are, and so when they see the offer in the market, they need to see 'Oh yes, this is for me.'"
Step 3: Select the Right Pricing Metric
Only after establishing packages that align with customer segments should you determine your pricing metric. This is about finding the unit of value that makes the most sense for your particular offering and customer relationship.
"There is so much debate right now in SaaS about should you have usage-based pricing, should you have user-based pricing… You need to figure out what is the right metric that aligns the relationship with you and the buyer and not be dogmatic about it," Ghuman advises.
He cites several examples of different approaches:
- OpenAI with token-based pricing
- Amazon with storage-based pricing
- Salesforce with user-based pricing
Rather than following market trends (which fluctuate—"2021 let's all [do] usage-based pricing, then now 2023, no, no, we're not sure anymore"), Ghuman recommends focusing on what makes sense for your specific business and customer relationships.
Step 4: Determine the Price Point
With goals, segments, packaging, and metrics established, you're finally ready to set actual price points. This should be based on:
- Your go-to-market strategy
- Competitive positioning
- Market testing
Ghuman illustrates how skipping the earlier steps can lead to pricing misalignments:
"The example given earlier today was about the price point, but it did not talk about packaging or pricing metric earlier. If you had not thought about packaging, if you had not thought about the segment, automatically you came to the answer that 'I am going to give this to you for $20,000.' But that was an Enterprise buyer. Had you already thought about the segment that you're going to deal with, you would have known that 'I am going to give them a different package, this is how much these guys generally charge, and I would never have even thought about giving a $20,000 offer.'"
This example underscores how price points cannot be determined in isolation from the strategic work done in earlier steps.
Step 5: Operationalize Your Pricing Strategy
The final step involves implementing your pricing strategy within your systems and processes. While perhaps less relevant for early-stage startups, this becomes increasingly important as companies scale.
"Even the best laid price of mice and men do not come true if your engineering team asks you to get lost," Ghuman notes wryly. "You have to instrument, you have to create billing systems, you have to have CPQ, you have to make sure the invoice gets to the customer."
He cautions that pricing innovation creates technical debt, and the most theoretically effective strategy may be impossible to implement. The best strategy is one that balances effectiveness with feasibility.
The Iterative Nature of Pricing
Throughout his presentation, Ghuman emphasizes that pricing isn't a one-and-done exercise. Successful companies continuously refine their approach:
"By the time a company IPOs, they'll have 7 to 8 large pricing revamps done, and it's an iterative process. But ideally, they'll be tweaking, tweaking every quarter."
Conclusion
Ajit Ghuman's 5-step pricing framework offers a methodical approach that addresses pricing as a strategic exercise deeply connected to customer understanding and business goals, rather than simply setting numbers.
By working through goals and segmentation, package design, pricing metrics, price points, and operationalization in sequence, SaaS companies can develop pricing strategies that resonate with customers, support business objectives, and avoid the common pitfalls of misalignment that lead to excessive discounting and sales friction.
For SaaS executives, the key takeaway is clear: effective pricing starts far upstream from the actual price point. It begins with a deep understanding of who your customers are and what they value—insights that should drive every aspect of your pricing strategy.