Imagine you’re at a buffet restaurant. You see a variety of dishes, but you’re not sure which ones you’ll like. You don’t want to pay for a full plate of something you might not enjoy. So you decide to try a small sample first. If you like it, you can go back for more. If not, you can move on to something else.

That’s how progressive pricing works for SaaS products. It’s a way of lowering the barrier to entry for new customers by offering them a low-cost or free trial of your product. Then, once they see the value and benefits of your product, you can upsell them to a higher-tier plan with more features and functionality.

Benefit Description
Increased Conversions Lowering the barrier to entry through progressive pricing can reduce friction and increase sign-ups
Reduced Churn Offering a low-risk proposition through progressive pricing can reduce buyer's remorse and increase customer retention
Boosted Revenue Segmentation of customers based on their needs and usage allows for optimization of pricing strategy and increased average revenue per user (ARPU)

Progressive pricing is not only good for customers, but also for SaaS businesses. It can help you:

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Increase conversions: By making it easy and affordable for potential customers to try your product, you can reduce friction and increase sign-ups.
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Reduce churn: By giving customers a taste of your product before they commit, you can reduce buyer’s remorse and increase retention.
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Boost revenue: By segmenting your customers based on their needs and usage, you can optimize your pricing strategy and increase your average revenue per user (ARPU).

But how do you implement progressive pricing effectively? Here are some tips and examples from successful SaaS companies that have used this strategy.

Start with a no-brainer offer

The first step is to make your initial offer irresistible. You want to attract as many users as possible with a low-risk proposition that showcases your product’s value proposition.

There are different ways to do this:

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Free trial: Offer limited-time access to your full product or a subset of features for free. This is common for products with high switching costs or requiring integration with other tools.
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Freemium: Offer a basic version of your product for free forever, with limited features or usage caps. This is common for products that have network effects or viral loops.
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Pay-as-you-go: Offer a flexible pricing model based on usage or consumption metrics. This is common for products that have variable demand or unpredictable costs.

For example, Soapbox is a tool that helps managers run better one-on-one meetings with their teams. They used to charge $15/month per user for their product, but they realized this was too high for some potential customers unfamiliar with their value proposition.

So they changed their smallest payment plan to $5/month for the first 5 users2. This way, they made it easier for managers to try their product without breaking the bank.

The result? Within the same month of implementing the new payment plan, customer conversions increased 4x higher than the monthly average.

Company Pricing Model Success Metric
Soapbox $5/month for the first 5 users Increased customer conversions 4x higher than the monthly average
Notion Freemium with 1,000 block limit per workspace Grew revenue by 18x in three years, reaching over $100 million in annual recurring revenue (ARR)
Slack Freemium with 10,000 searchable messages and 10 integrations limit Grew revenue by 57% year-over-year in 2020, reaching over $900 million in ARR

Nudge users to upgrade

The next step is to encourage your users to upgrade from their initial offer to a more comprehensive plan that suits their needs and goals.

There are different ways to do this:

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Feature gating: Limit access to certain features or functionality based on the user’s plan level. This creates an incentive for users who want more value or convenience from your product.
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Usage limits: Limit the amount of usage or consumption based on the user’s plan level. This creates an incentive for users who want more capacity or flexibility from your product.
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Value metrics: Align your pricing with the value that users get from your product based on usage or consumption metrics. This creates an incentive for users who want more outcomes or results from your product.

For example, Notion3 is an all-in-one workspace tool that lets users create notes, documents, databases, and more. They offer a freemium plan that allows users to create unlimited pages and blocks, but limits them to 1, 000 blocks per workspace4. This way, they attract users who want to try out their product without any restrictions, but nudge them to upgrade when they reach their limit.

The result? Notion has grown its revenue by 18x in three years5, reaching over $100 million in annual recurring revenue (ARR) in 2020.

Optimize over time

The final step is to monitor and optimize your progressive pricing strategy over time based on data and feedback from your users.

There are different ways to do this:

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Experimentation: Test different variations of your pricing plans, features, limits, and metrics to see what works best for different segments of users. Use tools like Optimizely or VWO.
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Analytics: Track and measure the performance of your pricing plans, features, limits, and metrics to see how they affect your key metrics like conversions, churn, and revenue. Use tools like ChartMogul or ProfitWell to get insights into your pricing strategy.
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Feedback: Collect and analyze feedback from your users to understand their needs, preferences, and pain points regarding your pricing plans, features, limits, and metrics. Use tools like SurveyMonkey or Typeform to gather feedback from your users.

For example, Slack is a collaboration tool that lets users communicate and work together in channels. They offer a freemium plan that allows users to create unlimited channels and messages, but limits them to 10,000 searchable messages and 10 integrations with other apps. This way, they attract users who want to try their product without any limitations, but nudge them to upgrade when they need more functionality or history.

The result? Slack has grown its revenue by 57% year-over-year in 2020, reaching over $900 million in ARR.

Progressive pricing is a powerful way to grow your SaaS business by lowering the barrier to entry for new customers and upselling them to higher-tier plans over time. It can help you increase conversions, reduce churn, and boost revenue.

To implement progressive pricing effectively, you need to:

  • Start with a no-brainer offer that showcases your product’s value proposition
  • Nudge users to upgrade based on their needs and usage
  • Optimize over time based on data and feedback

By following these tips and examples from successful SaaS companies that have used progressive pricing, you can create a win-win situation for both you and your customers.