If you run a technical or engineering business and you’re turning a tool you built for yourselves into a product, or you’re launching a SaaS company’s first paid plan, the price often gets less thought than the product. Pricing your first SaaS product often comes down to copying a competitor or picking a round number that feels safe. This guide shows a better way: start from what the product saves the customer, check what each customer costs you to serve, then test the number with real prospects before you commit.

Pricing your first SaaS product: why copying a competitor is risky

A competitor’s price tells you what they charge, not what their product is worth to your customer or what it costs you to deliver. They may have far more customers to spread their costs over, investors covering losses, or a product that does less. If you copy a low price, you also teach your first customers that this is what the product is worth, and raising it later means a difficult conversation with the people who backed you early.

A low launch price also changes the sums for the whole business. Every pound you leave off the price is a pound of gross profit gone, because hosting, support and development cost the same whatever you charge.

Step 1: work out what the product is worth to the customer

Start with the job your product does and put a £ figure on it. Most business software saves time, avoids a mistake, or brings in revenue. Pick the one that is easiest to measure and ask prospects for their own numbers.

Worked example (made-up company)

Example Inspection Software Ltd is a made-up spin-out from an engineering consultancy. Its tool turns site inspection notes into finished reports. Prospects tell them an engineer spends about 6 hours a week writing reports, and the tool cuts that to 2.

• Time saved: 4 hours a week per engineer
• Cost of an engineer’s hour (the customer’s figure): £40
• Working weeks: 46
• Value to the customer: 4 × £40 × 46 = £7,360 a year per engineer

A common starting point is to charge a modest share of the value you create, so the customer keeps most of the gain and the decision is easy to justify to their finance director. At £90 per user per month, the customer pays £1,080 a year (£90 × 12) to save £7,360, about 15% of the value. The nearest competitor charges £29.

Step 2: check what each customer costs you

Next, work out your cost to serve. For a small SaaS business this is usually hosting, support time and payment processing fees. Development is a fixed cost you carry anyway; keep it separate.

Using the same made-up company, per user per month:

• Hosting and third-party services: £4
• Support: about 1 hour per customer account a month at £35, with an average of 5 users per account = £7 per user
• Card or direct debit fees: assume 2% (check your own provider’s rate) = £1.80 at £90

That’s £12.80 per user per month. At £90, gross profit is £77.20 per user (86%). At the competitor’s £29, fees drop to £0.58, cost to serve is £11.58, and gross profit is £17.42 per user (60%).

Now scale it. With 100 users, £90 brings in £92,640 of gross profit a year (£77.20 × 100 × 12). £29 brings in £20,904 (£17.42 × 100 × 12). The gap is £71,736 a year from the same customers and the same product.

Another way to see it: to cover one developer costing £60,000 a year, you’d need 65 users at £90 (£60,000 ÷ £926.40 a year each) but 288 users at £29 (£60,000 ÷ £209.04). Finding 288 users takes far longer than finding 65, and cash runs out while you look.

Step 3: choose what you charge for

The pricing metric (per user, per site, per project, per asset, or a flat fee) matters as much as the number. Pick the one that grows as the customer gets more value. In the example, value grows with each engineer using the tool, so per user works. For a monitoring product, value might grow with the number of sites or assets watched, so per site would fit better.

Avoid metrics customers can’t predict, such as charging per report generated, unless they already think in those units. Finance teams prefer a bill they can forecast.

Step 4: test the price with real prospects

You don’t need a big survey. You need ten honest conversations and a few paid commitments.

1. Ask for their numbers first. Before showing any price, ask how long the task takes now, who does it and what that person costs. Write it down. This is your value figure.
2. Show three tiers. A basic plan, the plan you expect most to choose, and a fuller plan. Ask which they’d pick and why. If almost everyone picks the cheapest, the middle tier isn’t showing enough extra value.
3. Ask where the price stops being reasonable. “At what monthly price would this be too expensive to consider?” and “At what price would it seem too cheap to trust?” The range between the answers is where your price should sit.
4. Charge for pilots. A paid pilot, even at a reduced first-month fee, tells you far more than a free trial. Someone who pays has a real problem and a budget for it.
5. Watch for no pushback. If nearly every prospect accepts the price without a pause, it is probably too low. Some resistance is a healthy sign.

Step 5: set a review date before you launch

Put a price review in the diary for 90 days after launch and agree, in advance, what would make you change it. Look at how many prospects who saw the price went on to buy, the reasons people gave for saying no, how many support hours each customer is actually using, and whether any customers have outgrown their tier.

Raising prices for new customers is far easier than for existing ones, so err on the high side at launch. Our guide on how to raise prices without losing customers covers what to do when existing customers need to move up.

Don’t forget the cash side

Price is only half of it; when the money arrives matters too. Monthly billing by direct debit or card gives steady, predictable income with little chasing. Annual billing in advance brings the cash in earlier, which can fund the next stage of development: in the example, 20 customers of 5 users paying annually would pay £108,000 upfront (20 × 5 × £1,080) rather than £9,000 a month.

Many SaaS businesses offer both and let larger customers choose. If you sell to engineering and technical firms that pay by invoice, put clear payment terms on the order form and collect payment details at sign-up. VAT on software sold to customers outside the UK has its own rules, so speak to your accountant before you sell abroad.

What to do this week

• Write down your cost to serve per user or per account: hosting, support hours and fees.
• Call three prospects or existing users and ask for the time and cost of the job your product replaces.
• Work out the value per customer per year and see what share of it your current price represents.
• Draft a three-tier page and show it to five prospects.
• Put a 90-day price review in the diary.

Want a second pair of eyes on the numbers?

We help SaaS and technical businesses with 10 to 50 staff find where they lose money, including pricing set below cost or value. See how a review works and our services.

To get a rough figure for your own business, try our free leak calculator, which includes an estimate of your price gap. If you’d like to talk it through, book a free 30-minute call.