In the video "A Core 5-Step SaaS Pricing Framework" presented by Monetizely, pricing experts share a comprehensive approach to SaaS pricing that goes beyond simply setting numbers. The presentation breaks down a strategic framework designed to help businesses diagnose and optimize their pricing strategy effectively.
The Recipe for Pricing Transformation
Pricing is not one-size-fits-all. The speakers emphasize that there's no single pricing approach that works universally: "There is no one pricing that is good for everybody; it all depends what we are trying to accomplish." This foundational understanding sets the stage for their methodical approach to pricing transformation.
The framework presented is structured as a sequential process with five key elements that build upon each other:
1. Goal Setting & Segmentation
The journey begins with clearly defining what you want to achieve with your pricing strategy. This first step is critical because it establishes the direction for all subsequent decisions.
As the presenter notes: "We start in the upper left corner with goal setting… I've mentioned that you know there is no one pricing that is good for everybody; it all depends what we are trying to accomplish."
This stage involves aligning your executive team around specific objectives and understanding your customer segments. Defining your Ideal Customer Profile (ICP) is crucial for a successful pricing strategy, as it helps you tailor your approach to the customers who will provide the most value.
2. Packaging Design
Once you've established your goals, the next step is determining how to structure your offerings. The presenter explains: "Then we move to packaging so whether we are going to have a set of add-ons, what kind of packaging structures would give us the right kind of get us to the goals."
This phase involves deciding whether to use tiered packages, add-ons, or other structures that align with your customer segments. The speakers warn against common mistakes like defaulting to a "good, better, best" approach without considering your ICP.
3. Pricing Metric Selection
The third step involves choosing how you'll differentiate one package from another. As explained in the presentation: "The price metric will be how we differentiate one package from the other whether it is consumption like minutes of video or or number of signatures or some interactions or it's going to be feature based."
This critical decision determines whether your pricing will be usage-based, user-based, or based on another metric that makes sense for your product and business model.
4. Rate Setting (Price Point)
Only after completing the previous three steps do you arrive at what most people think of as "pricing" – setting the actual price points. The presenter clarifies: "Rate setting which is the element that is most commonly understood as pricing when when we just start up with a pricing team… that's more about getting the right price points."
This stage involves determining the optimal price points based on your market position, competitive landscape, and value proposition.
5. Discounting Strategy
The final piece addresses how to modify your base prices in specific situations: "Finally discounting, so how we're going to modify those price points on a kind of more ad hoc or structural basis from the base list prices."
This covers both systematic discounting policies and case-by-case adjustments to your pricing.
A Diagnostic Tool for Pricing Issues
Perhaps one of the most valuable aspects of this framework is its utility as a diagnostic tool. As one of the speakers explains: "This framework should, if we do our jobs right, you should be able to walk into pricing issue at any company and run this framework in your mind and diagnose where the issue is."
The framework provides a structured way to analyze pricing problems: "Very often I'm able to lay down this framework and say, 'Oh okay, seems like you have… the problem is in the pricing metric. The other things you don't have to do much.'"
This diagnostic capability transforms the consultant's approach: "When you bucket, create that bucket, you become a very effective consultant saying, 'Okay, I'm going to walk you through my five step framework and these are the places where I think there's some improvement and this is what I think you're getting right.'"
Conclusion: Beyond Just Numbers
The 5-step framework presented by Monetizely demonstrates that effective pricing is a strategic process rather than a simple numerical exercise. By systematically working through goal setting, packaging, metric selection, rate setting, and discounting, SaaS companies can develop pricing strategies that align with their business objectives and customer needs.
This methodical approach not only helps in creating a coherent pricing strategy but also provides a valuable diagnostic tool for identifying and addressing specific pricing issues. For SaaS executives looking to transform their pricing approach, this framework offers a clear roadmap to follow.