7 Steps to Pricing a Software As A Service for New Entrants

Nov 15, 20222 min read

Illustration of a man reaching for the stars on a ladder — Offering different pricing options helps meet customer needs.

As a founder of a startup, pricing a Software As A Service offering is primarily focused on value-based pricing. However, this is extremely difficult to do when launching a new software as a service solution.

When pricing a Software As A Service, the following are essential steps to take:

Identify the target market: Understand the target market's specific needs and pain points and how the software addresses them.
Determine the cost of delivery: Understand the costs associated with developing, hosting and maintaining the software, including any external costs such as third-party services, payment gateways, and hosting.
Research the competition: Look at similar software offerings in the market and their pricing structures to get an idea of what is considered fair and reasonable in the industry.
Test pricing with a small group: Test different pricing options with a small group of target customers to gather feedback and gauge their willingness to pay.
Set the price: Use the information gathered in steps 1-4 to set a price that accurately reflects the value of the software to the customer while also being competitive in the market.
Offer different pricing options: To accommodate different levels of usage and budgets, offer various pricing options such as monthly, annual, and usage-based plans.
Communicate your pricing clearly: Make sure your pricing is clearly communicated on your website and in any marketing materials and that customers understand the value they will receive for their investment.

As a new entrant into the market, the following are vital considerations when pricing a Software As A Service:

Establishing a brand: As a new entrant, you may need to price competitively to establish your brand and gain market share.
Building customer trust: As a new entrant, pricing may play a role in building customer trust, as they may be hesitant to pay premium prices for a product or service from an unknown company.
Differentiation: As a new entrant, it is crucial to differentiate your product from existing offerings in the market, and pricing can be an essential tool to achieve this.
Scaling: As a new entrant, you need to consider the scalability of your pricing model, as you may need to adjust it as your customer base grows.
Knowing your break-even point: Knowing your break-even point is vital for a new entrant, as it will help you understand the minimum revenue you need to generate to cover your costs.

Final Thoughts

Pricing a Software As A Service offering is challenging and requires constant attention, a focus on tweaking the various offerings and a clear understanding of the market and customer needs.

About the Author

Adam Ryan is a Professor of Practice (Adjunct Professor) at Monash University and is a principal at Watkins Bay. Adam has over twenty years of start-up experience in Australia and the USA. An expert in Company Structuring for Innovation, Strategy, Mergers & Acquisitions, and Capital for early and growth-stage businesses.