The Art of Pricing Your SaaS

Pricing page do’s:

KEEP IT SIMPLE

One of the basic tenets of good design and good copywriting is that confused people don’t buy. You’ll see this with specific parts of your pricing page (for example, not overwhelming people with too many options — something we’ll be discussing in a moment), but it’s still a good rule of thumb overall. As you create (and review) your pricing page, look over it and ask yourself if you’re following the basic rules of typography, if the features and benefits listed clearly correspond to a specific plan, and if prices are clearly listed.

Evernote’s pricing page is a study in effective simplicity:

Here’s what it does right:

• The prices are very easy to spot
• Each price has its own name to differentiate it
• The list of features are clearly related to each tier
• And features that aren’t on a tier are grayed out, which clearly indicates they aren’t available, while subtly reminding the viewer what they could be getting on another tier

Looking at this pricing page, there is no way to be confused about what options are available for Evernote users, or what comes with each pricing tier.

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USE ANCHORING AND PRIMING

“Anchoring” and “priming” are essentially the same concept when it comes to pricing: you’re priming your audience towards a certain price or anchoring one price as the default option.

Essentially, nothing looks “cheap” or “expensive” on its own, only in comparison to something else. A $100 t-shirt looks like a reasonably priced item...if it’s on the shelf next to a $700 pair of shoes. But if it’s next to a $60 t-shirt, the $60 one looks more reasonably priced. In the first example, the shoes are the anchor that set price expectations and influence buying behavior; in the second example, it’s the more expensive shirt. To bring the concept back to your business, you might have a $299/month plan that exists mostly to make your $149/month plan seem like a steal.

These phenomena can also be influenced by confirmation bias, related to how much the reader originally thought it was going to cost. There’s not any point having three tiers at $300, $500, and $1,000, aiming to anchor at $500, if the reader assumed the product was going to be $30. This means that the rest of your site needs to reinforce the value of your product, so that your customer’s expectations are high once they do land on the pricing page.

For an example, you can see that on CrazyEgg’s upgrade page, they start with the highest plan at the left — where most of their readers’ eyes will land immediately, since English is read left-to-right. This primes the reader to expect a higher price:

For another example, Shopify’s pricing page takes advantage of the “center stage” effect:

A study in the Journal of Consumer Psychology found that the middle choice in an array of choices is most often chosen — but this can be affected by context (what prior knowledge the buyer has, prices, etc.). The theory is that the center stage effect is due to the belief that the product at the center is the most popular one, and, as we all know, people love to go along with social proof, something that seems to hold true even if that social proof is all in their head.

That same study showed that the advantage that comes from being front and center is weaker when there’s the same or less information available for that option — so make sure you aren’t skimping on the benefits, just because that tier is centered.

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USE DESIGN/UX BEST PRACTICES

Given that UX is about streamlining the user experience, a lot of these specific tips go back to #1: keep it simple. Here’s a few more specific pointers:

• You can build anchoring into the design, like Crazy Egg’s pricing page having the highest price point on the left.
• The pricing needs to be clear, but ideally, it’s not the biggest thing on the page — you don’t want people to make snap judgements based on pricing alone.
• You can visually highlight one plan to use the center stage effect to your advantage. Some places do this by making it slightly larger (see below), having a “most popular” banner above or around it (check out Shopify’s page, above), or using stars or another visual feature to call it out.

You can see all these design decisions at play on the BareMetrics pricing page:

Here’s why it works:

• They’ve used both priming/anchoring and a version of the center stage effect (highlighting one of the middle plans)
• Each plan is color coded, which, along with the bullets/columns, makes it easier to skim what’s included with each plan
• The sign-up button has a clear call to action, and is easy to see (it’s not the same color or anywhere close to the same color as the background)
• You can see all of the details from all of the plans without having to scroll up and down, while trying to remember which price goes with which column

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Pricing page don’t’s:

DON’T CREATE PLANS OR PRICING BASED ON YOUR INVESTMENT

Customers don’t care how long something took you to create. That has no bearing on how much value they get out of it (and as far as they’re concerned, that value is what they’re paying for).

Obviously, that doesn't mean you should price something unsustainably. If you’re losing money on each purchase, you won’t stay in business. It just means that “we spent so much time working on this!” can’t be your sole factor when choosing a price.

The flip side of this rule is that the customer also doesn't care if it took you virtually no time to create something. They’ll still pay a premium for it, if it solves their problems.

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DON’T OVERWHELM THEM WITH PRICING PLANS

If you’re new to the pricing game, it might seem better to include more pricing plans. You want to give your customers every possible option, right?

The problem is that more choices can actually lead to paralysis and your buyer being less satisfied with whatever choice they make. When people have too many options, they don’t know which one to choose, because the chance of making the wrong choice seems higher. And once they do choose, they’re measurably less satisfied with whatever choice they make — because they have more options to compare their choice to.

The authors of a paper in the Journal of Personality and Social Psychology, looking at the findings from several different studies, conclude that the findings “starkly challenge this implicit assumption that having more choices is necessarily more intrinsically motivating than having fewer. Having unlimited options, then, can lead people to be more dissatisfied with the choices they make.”

Research like this is one reason that you’ll often see pricing plans in sets of three and why, in an overview of nearly 400 startup pricing pages, the average number of tiers was 3.5.

For companies that really need to have more than three plans, you can still do that without immediately overwhelming the reader. The usual route is to have only three visible, with an extra-high tier and an extra-low tier being available, but not in the pricing chart. Shopify does exactly this, with these options available underneath their three-column pricing chart:

The presumable user flow on that pricing page is that a reader would land, see the three standard pricing tiers, be intrigued but need a different option, keep scrolling, and then see the two other options and sign up for one of them.

If you want to go the extra-minimalist route and make it nigh-impossible for your customers to second-guess themselves, there’s always just having one paid option. That’s what Groove does:

In a blog post, they cover how they came across this pricing model, testing two previous models:

• A model with three-agent based tiers, one of them being free for the first 50 tickets
• A ticket-based model (i.e. 16-74 tickets for $20/month) with six tiers

The simple two-tier plan they have now converted at nearly four times the rate of either of these models. Of course, that leads us into the next question...

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The great freemium debate: is it a do or don’t?

The debate over whether you should have a free tier tends to be divided into the following categories:

• You should have a free plan to get users when you start, then remove that free tier later so that non-paying users don't become a burden on your system
• You should always have a free plan available, so that you have as many users as possible to get feedback from
• You shouldn’t have a free plan, but should offer a free trial so users can test-drive your app

In camp one, the logic is that as a beginning company, you need as much feedback as possible — any users are good users, as they’ll tell you what should change about the app and, one assumes, help spread the word. Camp two, always have a free plan available, has similar beliefs as far as feedback and word of mouth. The potential downsides are that:

1. Users will cost you money, whether they’re free or paying — supporting many free users can become a burden on your time, energy, and money
2. It can cement the perception of your company as the “free alternative” in the space, which is going to cause a lot of resistance (and make you have to reposition your brand) when you switch everyone to paid plans
3. If you’re letting your product roadmap be influenced too much by people who aren’t paying you, you’re building a product for users that aren’t paying you (and can wind up losing paying customers over the direction your product takes)

Another problem that’s specific to the “free plan at first, then later switch everyone to paid plans” strategy is the “penny gap.” This is the name for the psychological phenomenon where people will have the most resistance to switching from paying nothing to paying $5, compared to switching from paying $10 to paying $50. In other words, once you make the decision to spend money, it’s a lot easier to make the decision to spend more money...but getting to that decision to spend money can be difficult.

That’s not to say that there aren’t companies making the freemium plan work. Groove, already highlighted above, is one example. Evernote is another, although it’s worth noting that Evernote exists in both the B2B and B2C space. In a B2B space, having a free plan is going to be viewed differently (possibly giving your company less legitimacy) than in the B2C space, where people take more convincing to hand over their money.

The last thing to note is that if you are relying on a free trial, or free-to-upgrade strategy, your onboarding process needs to be stellar. It should make users feel oriented in your product and see the value that it provides as quickly as possible. Covering all of the points of good onboarding deserves an article all on its own, but the UserOnboard teardowns are a great resource, as is this article at Intercom.

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And that’s it: everything you need to know to create a standout pricing page for your SaaS company.

If you’re thirsty for more resources, these will keep you busy for a while:

• 3 Secrets of High-Converting SaaS Free Trials
• Pricing Tables: Examples and Best Practices
• Freemium vs. Free: Why We Ditched Our Free Plan
• Sales coaching session with Steli: CloudSponge (covers case studies of experimenting with new pricing tiers and raising prices)
• The Psychology Behind SaaS Startup Pricing
• How SaaS Companies Can Turn A Price Increase Into A Win
• SaaS: Freemium or free trial? (Complete guide)
• Insightful Study of 386 SaaS Startup Pricing Pages
• Freemium or Free Trial? There’s a Better Question
• What Do The Best Website Pricing Pages Look Like?
• Pricing Strategy for SaaS: A Smarter Alternative to Freemium?
• Doubling SaaS Revenue By Changing The Pricing Model

And if you have any questions or need some hands-on help building your SaaS site, you can always get in touch with us.