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SaaS Pricing Strategy: Cost-Plus vs Value-Based
Cost-plus pricing sets a floor — the minimum you can charge and still make money. Value-based pricing sets a ceiling — the maximum customers will pay. The right price lives between these two numbers, anchored closer to value than cost.
COGS per Customer = Infrastructure + Support + Customer Success
Cost-Plus Price = COGS ÷ (1 − Target Gross Margin %)
Value-Based Price = Customer Monthly Value × Value Capture Rate (10–30%)
Gross Margin = (Price − COGS) ÷ Price
MRR = Price × Active Customers
Cost-Plus Price = COGS ÷ (1 − Target Gross Margin %)
Value-Based Price = Customer Monthly Value × Value Capture Rate (10–30%)
Gross Margin = (Price − COGS) ÷ Price
MRR = Price × Active Customers
Value Capture Rates by Market Segment
- SMB tools (productivity, project management): Capture 5–15% of delivered value
- Mid-market (analytics, automation): Capture 10–20% of delivered value
- Enterprise (security, compliance, ERP): Capture 15–30% of delivered value
- Infrastructure/developer tools: Often usage-based, price on consumption
Should I use cost-plus or value-based pricing for SaaS?
Always anchor on value-based pricing — cost-plus is a floor check, not a pricing strategy. The most common SaaS pricing mistake is charging what it costs to build rather than what it's worth to the customer. If your COGS is $17/month and you price at $29 (just above cost-plus), you're leaving enormous money on the table when the customer is saving $500/month in value. Price at 10–20% of delivered value. Run regular pricing experiments — most SaaS companies that raise prices lose fewer customers than they fear and gain significantly more revenue.
What gross margin should SaaS aim for?
Venture-backed SaaS benchmarks: 70–80% gross margin is considered healthy; 80%+ is excellent; below 60% raises concern and suggests either high infrastructure costs or heavy service components. Rule of thumb: if your gross margin is under 60%, investigate whether you're including all COGS correctly (support, CS, hosting) and whether your pricing reflects the value delivered. Public SaaS companies like Salesforce run ~75–77%; pure infrastructure-as-code companies like HashiCorp ~80%; cloud infrastructure providers like Snowflake ~65–70% due to hosting costs.