How to Price SaaS for Small Businesses in the Age of AI 💽

Running a small SaaS (Software as a Service) business comes with its fair share of challenges, and figuring out how to price SaaS products can be one of the hardest. As technology changes, especially with the rise of AI (artificial intelligence), the way we price software also needs to change. 

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Suppose you run a small SaaS business providing customer support software. For years, you’ve been using a typical pricing model where customers pay for each user they add, often called “per-seat pricing.” But now, with AI handling more and more of the support, your customers don’t need as many users on their end. Instead, they ask, “Why am I paying for each user if AI is doing most of the work?”

This question is becoming common, especially for smaller SaaS businesses. It’s prompting a shift in thinking – do old pricing models still make sense in this new AI world?

Key Factors That Influence How to Price SaaS for Small Businesses

Setting the right price for your SaaS product can be challenging. You need to balance profitability with customer appeal. Here are the key factors that influence how to price SaaS for small businesses.

1. Customer Value Perception — Customers pay based on how valuable they perceive your software to be. If your SaaS solution saves them time or money, they may be willing to pay more. Highlighting these benefits can justify a higher price.

2. Market Demand and Competition — Understanding your market helps position your pricing. If demand is high and competition is low, you can charge a premium. However, if similar products exist at lower prices, you may need to offer competitive pricing or additional value.

3. Cost Structure — Pricing should cover all costs—development, hosting, customer support, and marketing. A SaaS business with high infrastructure costs may need a higher price point, whereas a leaner operation can afford to be more flexible.

4. Pricing Model Choice — Different pricing models impact revenue and customer adoption. Subscription-based pricing ensures predictable revenue, while tiered pricing allows customers to choose a plan that suits their needs. Usage-based pricing works well for services where costs scale with usage.

5. Customer Acquisition and Retention — Lower prices may attract more customers, but retention matters. If your pricing leads to high churn, it might not be sustainable. Offering free trials or discounts can help balance acquisition and long-term customer loyalty.

These factors shape how to price SaaS effectively. The right balance ensures profitability while keeping customers engaged and satisfied.

Old Pricing Models in Small Businesses Offering Tech Solutions

One common mistake small SaaS businesses make is clinging to old pricing methods, even when these don’t fit customer needs anymore. Let’s say your SaaS business uses AI to handle customer service chats. If you’re charging based on the number of users, customers may feel they’re paying for “ghost users” if AI is doing most of the work. This can lead to frustration and may even drive customers away if they feel they aren’t getting real value for what they’re paying.

Shifting to Value-Based Pricing for SaaS AI Tools

So, what’s a better way to price? One idea is value-based pricing. Instead of charging per user, this model charges based on the actual results or “outcomes” your software delivers. For example, your customer service software might charge per conversation the AI handles, instead of per user. This way, the customer is paying for the value the software provides – the completed tasks or customer interactions – rather than paying for users they aren’t using.

This approach has two big benefits: it’s fairer to the customer, and it makes the software more appealing to smaller companies who don’t need a lot of users but want the software’s benefits. They feel more comfortable because they’re only paying for what they actually use.

How to Price SaaS Using Free Trials vs. Freemium vs. Paid Plans

​Choosing the right pricing strategy is crucial for small SaaS businesses. Let’s explore three common approaches: free trials, freemium models, and paid plans, to understand how to price SaaS effectively.​

Free Trials

Offering a free trial allows potential customers to experience your full product for a limited time, typically 7, 14, or 30 days. This approach can showcase the value of your software, encouraging users to convert to paid subscriptions. For example, a small project management tool might offer a 14-day free trial, giving users ample time to assess its features. However, it’s essential to balance the trial length; too short may not demonstrate value, while too long might reduce the urgency to subscribe. ​

Freemium Models

In a freemium model, you provide a basic version of your software for free, with the option to upgrade to a premium version for advanced features. This strategy can rapidly expand your user base and relies on a percentage of users upgrading. For instance, a small graphic design SaaS might offer limited templates for free, with premium designs available via subscription. The challenge lies in determining which features to include in the free version to entice users without diminishing the perceived value of the premium offering. ​

Paid Plans

Implementing a straightforward paid plan requires users to subscribe before accessing your software. This approach can attract serious customers and generate immediate revenue. For example, a niche accounting SaaS might charge a monthly fee for access. The key is to clearly communicate the value and benefits to justify the upfront cost.​

In deciding how to price SaaS, consider your target market, the nature of your product, and your business goals. Each model has its advantages and challenges, so choose the one that aligns best with your objectives and resources.

How to Price SaaS with Tiered and Flat-Rate Approach

For small SaaS businesses, a mix of tiered and flat-rate pricing can meet different customer needs and keep things simple.

With tiered pricing, you offer a few different levels or “tiers” that customers can choose from based on their needs. For example, you could have a basic plan with only AI support for those who just need the essentials. A premium plan might add human support for customers who want a bit more help. It’s like booking an economy or business-class flight: some people need only the basics, while others prefer more services. This way, customers can pick a plan that suits their budget and comfort, building trust because they feel they’re getting just what they need.

Another option to consider is flat-rate pricing—a single, fixed price that covers unlimited users or support tickets. For customers, this offers cost predictability, as they know what they’ll pay every month, no matter how much they use. Smaller businesses especially appreciate this option since they can scale up without worrying about extra fees.

By offering both tiered and flat-rate options, you can reach a wider range of customers. They get the flexibility to pick the plan that fits best, while you keep things simple and appealing for them.

How to Price SaaS that Shows Customers the Value

Setting the right price isn’t just about picking a number. It’s also about making sure customers understand why your product is worth it. Small SaaS businesses should be clear about how their software helps customers achieve their goals. Don’t just tell customers what the software does; explain how it saves them time or helps them get better results.

For example, if you have a marketing tool that uses AI to run campaigns, show customers how it can improve their results. When customers see the value clearly, they’re more likely to stick around and pay a price that feels fair.

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How to Price SaaS for Small Business Success

Small SaaS businesses are facing a new reality as AI transforms how people use and value software. At the end of the day, good pricing is about understanding your customers’ needs. When customers feel they’re getting value for their money, they’re more likely to stay loyal and recommend your service. 

Think about what your clients value most and how your pricing can reflect that. Take small steps to build trust and show real value—they’ll notice, and so will your bottom line. If you’re ready to rethink your approach or want to talk it through, don’t hesitate to reach out. We’re here to help you find the best fit for your business, and we’d love to support you on the journey.

For a comprehensive view of ensuring the continuous growth of your business, Download a complimentary brochure on How to Drive Pricing Strategy to Accelerate Sales & EBIT Growth.

Are you a small or medium-sized business in need of help aligning your pricing strategy, people and operations to deliver an immediate impact on profit?

If so, please call (+61) 2 8607 7001.

You can also email us at team@valueculture.com if you have any further questions.