Price Sensitivity Analysis

 Price Sensitivity Analysis (PSA) is a vital tool to understand how potential customers perceive a product’s price and its corresponding value. This method involves querying individuals on their willingness to buy at various price points, from what they consider a bargain to prohibitively expensive.

By identifying the price points at which a product is deemed too costly or suspiciously cheap, businesses can gain insights into the acceptable and ideal pricing for their SaaS products.

For most SaaS businesses, a common pitfall is the lack of a solid understanding of their value and thus their customers’ willingness to pay at different levels. This often leads to many SaaS businesses undercharging customers and failing to grow as quickly as they could.

The Significance of a Strategic Pricing Model in A B2B SaaS Business

Without a deliberate pricing strategy, a B2B SaaS company navigates without a compass. This oversight can result in poor pricing structures that deter potential customers or fail to capture the full revenue potential by not aligning prices with the value delivered.

Studies show that a 1% improvement in price optimization can result in an average boost of 11.1% in profits, highlighting why a well-thought-out pricing strategy promotes growth while extracting maximum value from each customer engagement.

A PSA directly influences the optimization of pricing strategies, helping to identify the ‘indifference point’ — the juncture where the transition from ‘too cheap’ to ‘too expensive’ occurs. This analysis aids in establishing price boundaries that maximize profitability while ensuring customer satisfaction and demand. It is especially crucial in the competitive SaaS landscape, where the right price can significantly impact customer acquisition and retention.

The Importance of Increasing Conversions and Reducing Churn

For many SaaS projects, pricing seems straightforward: “Will people pay the price we’re asking?” In reality, the nuances of smart pricing affect conversions, sales and marketing efforts, customer retention, and many other areas that may not be apparent at first glance.

Our comprehensive price sensitivity analysis reveals what customers are willing to pay and informs you of pricing adjustments that can increase conversions and reduce churn.

Running a Van Westendorp Price Sensitivity Analysis

At JHMG, our approach to conducting a price sensitivity analysis is thorough and data-driven. Price sensitivity analysis projects start by utilizing the tried and true Van Westendorp Price Sensitivity Meter, gathering data on four critical questions to potential customers, and gauging their perceptions of different pricing levels.

  • At what price would you consider the B2B SaaS product so expensive that you would not consider buying it? (Too expensive)
  • At what price would you consider the product to be priced so low that you would feel the quality couldn’t be very good? (Too cheap)
  • At what price would you consider the product starting to get expensive so that it is not out of the question, but you would have to consider buying it? (Expensive/High Side)
  • At what price would you consider the product a bargain—a great buy for the money? (Cheap/Good Value)

These questions are important in B2B sales consulting for early-stage startups to help delineate the thresholds for what is considered too expensive and cheap and the sweet spots in between—where B2B SaaS products are seen as good value for money.

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Going Beyond the Standard
Price Sensitivity Meter Survey

For larger surveys, we employ a refined strategy: We select a subset of these questions to maintain efficiency without compromising the quality of insights. Our method involves compiling responses across a sufficiently large sample size, allowing us to accurately define your SaaS product’s acceptable price range and indifference point.

Our thorough price sensitivity analysis ensures stakeholders understand this service’s full scope and significance. Whether you are launching a new product or reevaluating the pricing of an existing one, JHMG offers the expertise to navigate the complexities of price optimization in SaaS. We deliver actionable recommendations for crafting a competitive pricing model aligning with market demand and business goals.

Price Sensitivity Analysis Deliverables for B2B SaaS

The deliverables for our price sensitivity analysis consulting services include:

Visual Representation of Consumer Price Preferences

This includes charts and graphs that visually map out the data collected from the survey questions. It helps understand potential customers’ range of acceptable prices versus those deemed too expensive or suspiciously cheap.

Report on Recommended Pricing Levels

Based on the analysis, we deliver a detailed report outlining recommended pricing strategies. These recommendations are tailored to align your pricing with the market’s perception of value, ensuring that your SaaS product is competitively and profitably priced.

Summary of Key Findings

A concise summary document will highlight the main insights derived from the analysis—such as the optimal price point, the indifference point, and the perceived value at different price levels.

Data Analysis Documentation

All raw data and the methodology used during the analysis will be provided, allowing for transparency and the ability to review or build upon the findings in the future.

Strategic Pricing Framework

Based on the analysis, a strategic framework will be created, which you can use to make informed decisions about pricing adjustments in response to market changes or internal business objectives.
These deliverables are designed to provide actionable insights and a clear path forward for setting or adjusting the price of your SaaS product.

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