SaaS Pricing Strategy: The Math Behind Sustainable Growth

Pricing is not a marketing decision. It's a math problem.

Your price determines:

• Customer acquisition viability
• CAC payback period
• Growth rate sustainability
• Business model scalability

Let's break down the numbers.

The Foundation: Unit Economics

Before setting any price, you need to understand your unit economics.

The Core Formula

LTV:CAC Ratio = (Average Revenue Per User × Gross Margin ÷ Churn Rate) ÷ Customer Acquisition Cost

Target benchmarks:

• LTV:CAC > 3x for healthy SaaS
• CAC payback < 12 months for efficient growth
• Gross margin > 70% for software businesses

Why This Matters for Pricing

Example 1: Too Cheap

• Price: $10/month
• CAC: $120
• Churn: 5%/month
• LTV: $200
• LTV:CAC = 1.67x ❌ Unsustainable

Example 2: Right Price

• Price: $49/month
• CAC: $147
• Churn: 3%/month
• LTV: $1,633
• LTV:CAC = 11.1x ✅ Highly scalable

Calculate your unit economics →

Pricing Model Selection

1. Per-User Pricing

Best for: Collaboration tools, team software

Math:

MRR = Active Users × Price Per User

Pros:

• Predictable expansion revenue
• Easy to understand
• Aligns value with usage

Cons:

• Can limit adoption
• Shared account risk
• Growth ceiling per customer

Examples: Slack ($8/user), Notion ($8/user)

2. Usage-Based Pricing

Best for: APIs, infrastructure, AI tools

Math:

Monthly Bill = Base Fee + (Units Consumed × Unit Price)

Pros:

• Scales with customer success
• Lower entry barrier
• Aligns perfectly with value

Cons:

• Unpredictable revenue
• Complex cost modeling required
• Customer bill shock risk

Examples: AWS, OpenAI, Twilio

Critical: Model your API costs carefully before offering usage-based pricing.

3. Tiered Pricing

Best for: Most SaaS products

Structure:

• Starter: $29/mo - Limited features
• Pro: $99/mo - Full features
• Enterprise: Custom - Volume + support

Psychology:

• 60% choose middle tier (anchoring effect)
• Top tier makes middle tier look reasonable
• Bottom tier captures price-sensitive users

Key insight: Middle tier should be your target customer's ideal plan.

Pricing Strategy by Stage

Early Stage: Price for Learning

Goal: Validate willingness to pay

Strategy:

1. Start higher than you think
2. Offer discounts for feedback
3. Test price sensitivity
4. Measure conversion at different price points

Mistake: Pricing too low "to get customers"

Why it fails:

• Attracts wrong customers
• Hard to raise prices later
• Makes unit economics impossible

Growth Stage: Price for Scale

Goal: Optimize LTV:CAC ratio

Strategy:

1. Segment by customer value
2. Introduce higher tiers
3. Add expansion revenue paths
4. Optimize CAC payback period

Key metrics:

• Net revenue retention > 110%
• CAC payback < 12 months
• Monthly expansion revenue > churn

Scale Stage: Price for Moat

Goal: Increase switching costs

Strategy:

1. Usage-based pricing elements
2. Enterprise tier with commitments
3. Platform pricing (multiple products)
4. Volume discounts for lock-in

The Payment Fee Trap

Most founders forget to account for payment processing fees.

Real Cost Examples

Stripe (2.9% + $0.30):

• $10/mo plan → $9.41 net (5.9% loss)
• $100/mo plan → $97.20 net (2.8% loss)
• $1000/mo plan → $971.30 net (2.87% loss)

Apple App Store (30%):

• $10/mo plan → $7.00 net (30% loss)
• $100/mo plan → $70.00 net (30% loss)

Impact on unit economics: If your gross margin is 80% and fees are 5%, your real margin is 75%. This affects your LTV calculation directly.

Calculate your net revenue →

Pricing Psychology Tactics

1. Anchoring

Show annual pricing first:

• ~~$1,188/year~~ $99/month
• Makes monthly price look reasonable

2. Decoy Pricing

Bad:

• Basic: $29
• Pro: $99

Good:

• Basic: $29
• Pro: $99
• Enterprise: $499

The Enterprise tier makes Pro look like a deal.

3. Price Positioning

Don't compete on price. Compete on value.

Wrong: "We're 20% cheaper than [Competitor]" Right: "We help you increase revenue by $50K/year"

Focus on ROI, not price.

Price Testing Framework

1. Set Hypothesis

"Increasing from $49 to $79 will decrease conversions by 15% but increase revenue by 35%"

2. Test Methodology

Option A: Gradual increase

• Week 1: $49 (baseline)
• Week 2: $59 (test)
• Week 3: $69 (test)
• Week 4: $79 (test)

Option B: Cohort testing

• 50% see $49
• 50% see $79
• Measure LTV difference

3. Measure Impact

Track:

• Conversion rate
• Revenue per visitor
• CAC payback period
• Customer complaints

Act on:

• Revenue per visitor (most important)
• Not conversion rate alone

4. Calculate Optimal Price

Optimal Price Point = Price where (Conversion Rate × Price) is maximized

Common Pricing Mistakes

1. Pricing by Cost

Wrong: "Our costs are $5/user, so we'll charge $10"

Right: "Customers get $500/month value, so we'll charge $99"

Price based on value, not cost.

2. Never Raising Prices

Impact:

• Inflation erodes real revenue by 3-5%/year
• CAC increases 20%/year on average
• Your unit economics deteriorate silently

Solution: Raise prices 5-10% annually for new customers.

3. Too Many Tiers

Bad: 5-7 pricing tiers Good: 3 tiers max

More choices = lower conversion (paradox of choice).

4. Ignoring Expansion Revenue

Mistake: Only optimizing for new customer acquisition

Reality: In mature SaaS, expansion revenue > new revenue

Fix: Design for expansion from day one:

• Usage-based elements
• Upsell paths
• Additional modules

The Pricing Formula

Combine everything into one formula:

Minimum Viable Price = (Target CAC × 3) ÷ (Gross Margin × Expected Lifetime Months)

Example:

• Target CAC: $150
• Gross margin: 80%
• Expected lifetime: 24 months

MVP = ($150 × 3) ÷ (0.80 × 24) = $450 ÷ 19.2 = $23.44/month

Round up to $29/month for psychological pricing.

Action Plan

This week:

1. Calculate current unit economics

   • Current LTV:CAC ratio
   • CAC payback period
   • Gross margin

2. Model price changes

   • Test 20% price increase scenario
   • Calculate breakeven conversion rate
   • Project revenue impact

3. Identify expansion paths

   • What can customers buy more of?
   • What premium features matter?
   • Who would pay 10x current price?

Use our unit economics calculator →

Final Thought

Pricing is not "set it and forget it."

It's a continuous optimization process based on:

• Market data
• Unit economics
• Customer feedback
• Competitive position

The only wrong approach is not testing.

Start with your best guess, measure everything, and iterate based on data.

Calculate your SaaS metrics for free at PureBuild. All tools, no spreadsheets required.