Question 1

How do I set the right SaaS subscription price?

Accepted Answer

Price discovery process: (1) Cost-based floor — calculate COGS + desired margin; (2) Competitor benchmarking — where are similar tools priced?; (3) Value-based ceiling — what's the ROI to the customer?; (4) Willingness-to-pay research — survey 20+ potential customers with Van Westendorp pricing questions. Most founders underprice by 20-40%. A simple heuristic: charge 10x your COGS, or 5-10% of the value you deliver.

Question 2

Should I offer monthly and annual plans?

Accepted Answer

Yes — always offer both. Annual plans benefit you: 100% cash upfront, 70-80% lower churn than monthly, predictable revenue. Annual plans benefit customers: 15-25% savings. Industry data: 40-60% of SaaS customers prefer annual plans when given the option. Incentivize annual: offer 2 months free (17% discount) or 20% off — this frames the discount as getting months free rather than a percentage.

Question 3

What should I charge at different customer tiers?

Accepted Answer

Common SaaS pricing tiers: Starter ($9-49/mo): self-serve, limited features, no support SLA. Pro ($49-299/mo): full features, email support, teams of 2-5. Business ($299-999/mo): SSO, admin controls, priority support, teams of 10-50. Enterprise ($1,000+/mo or custom): compliance, SLA, dedicated CSM. Gap between tiers should be 3-5x. Don't put all features in the cheapest tier.

Question 4

How much does annual plan penetration affect revenue?

Accepted Answer

Going from 20% to 60% annual plan penetration: reduces average churn by 40-50% (annual customers churn at 2-5%/year vs 25-50%/year for monthly). Improves LTV by 2-3x. Provides better cash flow visibility. The tradeoff: you collect cash faster (annual upfront) but must earn it over 12 months — meaning you're exposed if a customer cancels early. Strong product = high annual plan penetration.

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