PLG Pricing Strategies for Startups
In this article, we’ll cover the pros and cons of the most established PLG pricing strategies and what’s important to consider when implementing them. As someone who’s guided countless startups and established firms through PLG pricing evolutions, let me give you some insights so you can drive SaaS growth for your business.
What’s PLG Pricing All About?
PLG pricing isn’t about randomly assigning a price to your product. It’s a strategic approach to aligning your pricing model with product-led growth principles. The endgame? Driving adoption, encouraging upgrades, and fueling your company’s growth.
Why Your PLG Pricing Strategy Is Crucial
Get it right, and you’ll witness:
- Higher conversion rates
- Improved customer lifetime value
- Accelerated growth
Get it wrong, and you might struggle to attract users or monetise effectively.
5 Key PLG Pricing Strategies
1. Freemium: The PLG Classic
Think of freemium as offering a free sample at your local supermarket. Users get a taste of your product without opening their wallets.
Pros:
- Low barrier to entry
- Potential for viral growth
- Builds a large user base
Cons:
- Can attract non-ideal users
- Might cannibalise paid offerings
Examples: Dropbox, Slack, Zoom
2. Usage-Based Pricing: Pay As You Grow
This model links pricing to usage, aligning costs with the value users extract from your product.
Pros:
- Fair and transparent
- Encourages product adoption
- Scales with customer growth
Cons:
- Can be unpredictable for users
- Might limit usage for cost-conscious customers
Examples: Twilio, AWS, Stripe
3. Tiered Pricing: Something for Everyone
Tiered pricing offers various feature sets at different price points, catering to diverse user segments.
Pros:
- Caters to diverse user needs
- Clear upgrade path
- Can maximise revenue from different segments
Cons:
- Can be complex to manage
- Might create artificial feature limitations
Examples: Mailchimp, HubSpot, Ahrefs
4. Time-Limited Free Trial: Try Before You Buy
Offer full access to your product for a limited time, allowing users to experience its full value before committing.
Pros:
- Allows users to experience full product value
- Creates urgency to convert
- Can lead to higher-quality leads
Cons:
- Shorter time to prove value
- Risk of users churning after trial
Examples: Netflix, Adobe Creative Cloud, Shopify
5. Reverse Trial: Full Access with Gradual Feature Removal
Start users with full access, then gradually remove features until they upgrade.
Pros:
- Users experience full product value
- Creates ‘fear of missing out’
- Can lead to higher conversion rates
Cons:
- Risk of negative user experience
- Complex to implement
Example: Chargebee (in the past)
Implementing Your PLG Pricing Strategy: Best Practices
Now that we’ve covered the main strategies, how do you actually put them into practice? Here are some key steps:
1. Know Your Users
Understanding your users is crucial. What problems are they trying to solve? What features do they value most? Use this information to guide your pricing structure.
Best Practice: Conduct regular user surveys and analyse usage data to understand which features provide the most value.
2. Align with Your Product’s Value Metric
Your pricing should reflect the core value your product provides. Is it storage space? Number of users? API calls? Align your pricing with this value metric.
Best Practice: Choose a value metric that grows with your customers’ success. This ensures your revenue scales as your customers derive more value from your product.
3. Make it Easy to Get Started
Remember, the ‘product-led’ part of PLG means your product should sell itself. Make it dead simple for users to sign up and start using your product.
Best Practice: Implement a frictionless onboarding process. Minimise the steps required to start using your product and experiencing its value.
4. Create a Clear Upgrade Path
Your free or lower-tier offerings should naturally lead users to want more. Make the benefits of upgrading crystal clear.
Best Practice: Use in-product prompts to highlight premium features when users hit usage limits or try to access gated functionality.
5. Continually Test and Iterate
Your initial pricing strategy probably won’t be perfect. That’s okay. Continually test different approaches and refine them based on user behaviour and feedback.
Best Practice: Implement A/B testing for pricing pages and monitor key metrics like conversion rates, average revenue per user (ARPU), and churn rates.
Common PLG Pricing Pitfalls to Avoid
As you develop your strategy, watch out for these common mistakes:
- Overcomplicating your pricing structure
- Undervaluing your product
- Not aligning pricing with user value
- Failing to provide a clear upgrade path
- Ignoring user feedback on pricing
The Bottom Line
There’s no one-size-fits-all approach to PLG pricing strategies. The right strategy for you will depend on your product, your market, and your users. The key is to align your pricing with your product’s value, make it easy for users to get started, and create clear incentives for upgrades.
Remember, your pricing strategy isn’t set in stone. Be prepared to experiment, gather data, and adjust as you learn more about how users interact with your product.
Implementing an effective PLG pricing strategy isn’t a walk in the park, but get it right, and you’ll create a powerful engine for sustainable growth.
Need help with that? Let’s chat 👉 Contact us