Value-based Pricing

Value-based pricing is a SaaS pricing strategy that bases the price of a feature/product/service on how much the target customers believe it is worth. It is based on the value as perceived by the customer instead of drawing from internal (focused on costs, overheads, and profits) or competitor standards. 

Why value-based pricing works

Though it needs time and resources for it to be executed properly, it is truly representative of the customers’ needs as it translates the effectiveness of the offering in solving customer problems into a dollar value. It is especially helpful if you have a narrow identified target market. 

There are other benefits to this approach too, as outlined below:

1. Instead of a focus purely on cost-cutting or improving profit, it helps companies focus on their customers and improve the service and value they provide them. This naturally takes care of continuous product improvement and builds better relationships with the customer positively impacting downstream outcomes like CLV, churn, renewals, etc. 
2. In some cases, value-based pricing lets you price your offering higher than competitors because it depends on the customer’s perceived value.