In a recent video titled "Value-Based Pricing: The Million-Dollar SaaS Strategy | Pricing Strategy Fundamentals" from the channel "AI, SaaS & Agentic Pricing with Monetizely," the presenter shares shocking findings from an analysis of over 200 SaaS companies. According to this research, 95% of founders are significantly underpricing their products and "literally burning money" by using traditional cost-plus pricing methods instead of value-based approaches.
The Fundamental Problem with SaaS Pricing
Most SaaS founders begin with a fundamentally flawed approach to pricing. They start by asking the wrong question: "What does it cost to deliver this product?" Then they simply add a margin on top and consider their pricing strategy complete. This cost-plus approach is completely backward and leaves substantial revenue on the table.
As the presenter emphatically states in the video, "You are literally burning money if you are pricing based on costs." This powerful statement encapsulates the central issue with traditional pricing models in the SaaS industry.
Instead of focusing on internal costs, the presenter suggests a transformative question that should guide pricing strategies: "How much money does our product save or make for our customers?" This question shifts the entire paradigm from what you spend to what value you create.
Understanding Value-Based Pricing
Value-based pricing is fundamentally different from cost-plus pricing. Rather than calculating your costs and adding a margin, this approach aligns your pricing directly with the economic impact your product has on customers' businesses.
The presenter explains how this works using a concrete example: "Imagine that you have built a CRM that helps sales teams close just one extra deal per month. For a mid-market company, that might be worth $10,000 in additional revenue each month or $120,000 annually."
With value-based pricing, you should aim to capture between 10-30% of that created value. In this example, that translates to charging between $12,000 and $36,000 per year for your product—potentially far more than what a cost-plus model would suggest.
The Proven Financial Impact
The research presented in the video provides compelling evidence for the effectiveness of this approach. According to the analysis of over 200 SaaS companies, "those using value-based pricing had profit margins 23% higher than those using cost-plus pricing."
This significant difference in profitability underscores why so many founders are leaving money on the table with traditional pricing strategies. By failing to capture the true economic value they deliver, they're effectively subsidizing their customers' success without appropriate compensation.
Implementing Value-Based Pricing: A Framework
While the concept is powerful, implementing value-based pricing requires methodical research and analysis. The presenter outlines a three-step framework to help SaaS founders get started:
- Identify specific, measurable business outcomes your product delivers
This means looking beyond features to focus on concrete results that customers achieve. - Quantify the financial impact of these outcomes for different customer segments
Different customers may derive different levels of value from your solution, which creates natural price segmentation opportunities. - Set your price to capture 10-30% of that value
The exact percentage depends on factors like competition and the uniqueness of your solution.
The presenter acknowledges that "the challenge is actually quantifying your economic impact on customers. This requires deep customer research, but it is 100% worth it." This honest assessment highlights that while value-based pricing isn't always easy to implement, the potential returns make it worth the investment.
The Scaling Advantage
One of the most powerful benefits of value-based pricing is how it naturally scales as you move upmarket. The presenter points out that "as you move up market and work with larger customers who derive more value from your solution, your pricing can scale accordingly without changing your product."
This means that the same product can command significantly different prices based on the value it delivers to different customer segments. A small business might pay less because they derive less absolute financial benefit, while an enterprise customer pays more because the impact on their business is proportionally larger.
Conclusion: Time to Reassess Your Pricing Strategy
If you're currently using cost-plus pricing for your SaaS product, the evidence suggests you're likely leaving significant revenue on the table. As the presenter concludes, "If you are currently using cost-plus pricing, you are probably charging way too less. It's time to reassess your pricing strategy and start capturing the true value you deliver."
The data is clear: value-based pricing leads to substantially higher profit margins while also creating a more equitable relationship between vendor and customer. By aligning what you charge with the value you create, you ensure that your business captures a fair share of the economic impact you generate for your customers.
For SaaS founders looking to transform their business overnight, reimagining your pricing strategy could be the single most powerful lever available to you. The question isn't whether you can afford to implement value-based pricing—it's whether you can afford not to.