SaaS Pricing Strategies: Which Model Suits Your Business Best?

Introduction: Your Pricing Strategy Determines Your Market Position

Pricing is one of the hardest decisions in SaaS. It’s not just about what you charge—it’s about how you position your product, the customers you attract, and the growth trajectory of your business.

I’ve had my fair share of pricing experiments. Some worked. Others? Let’s just say they were expensive lessons.

The truth is, no single pricing model works for every SaaS company. What matters is choosing a model that aligns with how your customers perceive value.

Let’s break down the three main SaaS pricing models—freemium, subscription, and usage-based—and how to decide which one fits best.

Freemium: The Viral Growth Engine or a Cash Drain?

The freemium model is one of the most tempting strategies, especially for early-stage SaaS startups. Who wouldn’t want to attract thousands (or millions) of users for free?

The playbook is simple:
1️⃣ Offer a free tier with limited functionality.
2️⃣ Hook users and get them to invest time into your product.
3️⃣ Convert them into paying customers when they need more features.

The upside? It can work beautifully—if done right.
✔️ Great for viral products (think Slack, Dropbox, Notion).
✔️ Removes friction from adoption, making it easier for users to try before they buy.
✔️ Built-in lead generation—your free users can refer paying customers.

But here’s the harsh reality:
❌ Conversion rates can be brutal (2-5% in many cases).
❌ Free users still cost you money in hosting, support, and infrastructure.
❌ If there’s no clear upgrade path, freemium just drains resources.

I’ve seen founders burn months building an elaborate freemium experience only to realize their ideal customers were never going to pay.

Subscription Pricing: The Gold Standard (With Some Caveats)

If there’s one SaaS pricing model that most companies default to, it’s subscription-based pricing.

Why? Because predictable revenue is king.

With a subscription model, customers pay a fixed monthly or annual fee based on:
🔹 Flat-rate pricing (e.g., $49/month for all features).
🔹 Tiered pricing (e.g., Starter, Pro, Enterprise).
🔹 Feature-based pricing (higher tiers unlock more value).

I personally love subscription pricing because:
✔️ It smooths out revenue, making forecasting easier.
✔️ It aligns well with customer expectations—B2B buyers are used to it.
✔️ It encourages long-term relationships, reducing the risk of one-off transactions.

But here’s what SaaS founders don’t talk about enough:
📉 Churn is a constant battle—the moment a customer stops seeing value, they leave.
📉 Subscription fatigue is real—businesses are drowning in recurring costs.
📉 Enterprise buyers often prefer custom pricing over rigid subscription tiers.

From experience, hybrid models work best.
🔹 Annual discounts increase retention.
🔹 Usage-based add-ons help monetize power users.
🔹 Value-based pricing ensures customers pay for what they actually need.

Usage-Based Pricing: Fair or Unpredictable?

Usage-based (or pay-as-you-go) pricing is gaining serious momentum in SaaS, especially in cloud computing, API-driven platforms, and AI services.

Instead of paying a fixed monthly fee, customers pay for what they use—whether that’s storage (AWS), API calls (Twilio), or data processing (Snowflake).

What makes it appealing?
✔️ Lowers the barrier to entry—customers pay only for what they need.
✔️ Aligns price with value—small users pay less, large users pay more.
✔️ Encourages organic expansion—as customers grow, so does your revenue.

But here’s the flip side:
❌ Revenue predictability takes a hit—no guaranteed MRR.
❌ Customers can get bill shock, which can lead to churn.
❌ Requires robust tracking and billing infrastructure (which is harder than it looks).

Would I use pure usage-based pricing for most SaaS products? Probably not.

So, What’s the Best SaaS Pricing Model?

Honestly? It depends.

Here’s my framework for choosing:

✅ Freemium if your product has strong virality and low marginal costs (think Notion, Slack).
✅ Subscription if you want predictable revenue and scalable growth (think HubSpot, Adobe).
✅ Usage-based if your costs scale with usage or your product delivers value per transaction (think AWS, Stripe).
✅ Hybrid if you want the best of all worlds—combining recurring revenue with flexible pricing tiers.

One thing I’ve learned? Pricing is never “final.” The best SaaS companies are constantly testing, tweaking, and refining their pricing models based on customer behavior and market shifts.

If you’re running a SaaS business, what pricing strategy has worked for you? Let’s talk—I’d love to hear your thoughts.

Stay connected,

Angelo