In a recent video titled "Six SaaS Pricing Myths That Hurt You" from the Monetizely channel, pricing expert Ajit Pal Ghuman breaks down the common misconceptions that plague SaaS pricing decisions. These myths often lead founders, executives, and even venture capitalists astray when determining their pricing strategy.
The Dangerous Misconceptions About SaaS Pricing
Myth 1: Pricing Is Just About Setting a Price Point
One of the most pervasive myths is that pricing simply means determining how much to charge. Ajit notes that this view is particularly common among senior leadership:
"It's funny that the more senior somebody is, the less receptive they are to understanding what pricing really is, and the more they make an assumption that pricing is about the price point, which it is absolutely not—price point is one of the last things to actually consider."
In reality, effective pricing is holistic, encompassing packaging, value proposition, customer segmentation, and a range of strategic decisions that come before setting the actual number.
Myth 2: Pricing Is Mostly About the Pricing Metric
The second myth revolves around an obsession with pricing metrics at the expense of broader strategy. Ajit observes how prevalent this is even in venture capital circles:
"I hear a lot of VC podcasts… and whenever they talk about pricing, they only talk about the pricing metric. They only talk about, 'Oh, should it be usage-based pricing or not?' When they say pricing model, that's what they mean."
He adds with particular candor: "Even if a VC is a billionaire… they still don't know pricing." This narrow focus on whether to use usage-based, outcome-based, or token-based pricing neglects the comprehensive framework necessary for effective pricing.
Myth 3: You Need to Choose from Many Different Pricing Strategies
Many newcomers to pricing become overwhelmed by the seemingly endless array of pricing strategies they encounter online. Ajit demystifies this:
"People think I need to choose my strategy from among 15 different options. And if you're new to pricing, what you will do is you'll Google and Google will say here are all the 10,000 different pricing quote unquote strategies. There are not 10,000 or 15 different strategies."
Instead, pricing comes down to a few key decisions. The complexity often comes from the unnecessary naming conventions and terminology rather than actual strategic complexity.
Myth 4: Competitive Pricing Should Be Your Primary Focus
Particularly common among early-stage founders is the tendency to obsessively focus on competitor pricing:
"Many of my sales conversations go about 'Hey, I'm thinking about pricing, this is what my competitor uses'… but you have told me nothing about where your company is, what your strategy is, what you want to do."
Ajit warns that by making pricing decisions primarily based on competition, "you are giving into their frame of business," which severely limits your strategic options and differentiation potential.
Myth 5: Charging Based on Development Difficulty
Technical teams often fall into this trap:
"This we will hear more from technical teams and from professional services teams and they say 'man this was so hard to build. Make sure you charge a lot for it.'"
Ajit explains why this logic fails: "You may get something built and it may be hard but it could still be table stakes… You may do something very hard and it may not even be helpful."
The reality? "You can only charge a lot because the perception of value is there in the mind of the prospect and the buyer. Otherwise, you can't really charge a lot for something."
Myth 6: Value-Based Pricing Means Charging a Percentage of Value Delivered
Even sophisticated pricing approaches like value-based pricing get misunderstood:
"A lot of people will say 'hey listen you told me to do value-based pricing. I'm doing value-based pricing. I am delivering so much value and I want x% of the return.'"
Using ChatGPT as an example, Ajit points out: "ChatGPT is offering so much value in our life. It is not taking 10% of the value. It is taking much lesser. Why? Because DeepSeek is free and all of the alternatives are free."
The crucial insight: "Even if you deliver outsized value to somebody, you can still only charge as much as the other alternative."
Getting Beyond the Myths
Understanding these myths is crucial for SaaS executives who want to develop truly effective pricing strategies. By recognizing these common pitfalls, you can approach pricing more holistically, focusing on customer value perception, market positioning, and strategic differentiation rather than falling into these conventional traps.
Pricing is both an art and a science that requires looking beyond simplistic formulas or competitor benchmarking. By understanding the true nature of pricing strategy, you can develop approaches that better align with your company's unique value proposition and growth objectives.