The SaaS Pricing Mistakes Every SaaS Startup Should Avoid at All Costs

Pricing isn’t just a number—it’s your strategy, your market signal, and sometimes the difference between thriving and barely surviving within competitive SaaS pricing models. It’s a lever that shapes not only your revenue but also your company's positioning in the eyes of your customers. Yet, many SaaS startups stumble into pricing like it’s an afterthought, only to later realize its make-or-break role in their growth direction.?

Let’s look into three of the most common—and costly—pricing mistakes SaaS startups make and how avoiding them can fundamentally change the game.

Mistake #1: Not Understanding the Unique Needs of Your Customer Segmentation

Imagine you’re designing a product to serve multiple types of customers—an enterprise buyer who values scalability and compliance, a mid-market customer looking for affordability, and a small business chasing simplicity. Now, what happens if you bundle them all under one-size-fits-all pricing? Chaos.

The truth is, misaligned segmentation is where most pricing problems begin especially in SaaS business model pricing. Without a clear understanding of your Ideal Customer Profile (ICP), you’re not just leaving money on the table—you’re actively pushing customers away.

The truth is, misaligned segmentation is where most SaaS pricing problems begin, especially in SaaS business model pricing. Without a clear understanding of your Ideal Customer Profile (ICP), you’re not just leaving money on the table—you’re actively pushing customers away.

Let’s take the example of a company where I used to work, Narvar .

Narvar specializes in post-purchase retail/merchant consumer experiences.

When I joined the company in 2019, it initially struggled with a rigid tiered pricing model (later we had resolved this). The problem arose because the company’s pricing tiers failed to reflect the distinct needs of its customer segments. Smaller businesses often needed minor add-ons—costing $3,000–$5,000—but the poorly designed tiers forced customers to upgrade to an enterprise-tier package, which would have caused a 50–60% increase in price for these customers.

This misalignment left smaller companies with packages that exceeded their needs, while sales teams resorted to heavy discounting to make deals work, which created two major issues:

• Heavy discounting to close deals that reduced Average Selling Prices (ASPs), hurting revenue.
• Shelfware and customer frustration as the customers were forced to pay for features they didn’t need or use saw. This not only led to dissatisfaction but also blocked future upsell opportunities, as unused features were already included in the initial package.

Narvar resolved these issues by redesigning its pricing structure to offer flexible, incremental pricing options. This allowed customers to scale their usage without being forced into higher-priced plans. As a result, the reliance on discounts decreased, shelfware was minimized, and ASPs increased, all while improving customer satisfaction and retention.?

Mistake #2: Blindly Copying Good Better Best

The “Good-Better-Best” (GBB) model is one of the most widely used and misused pricing frameworks for B2B SaaS pricing by SaaS companies. It seems like an easy way to structure pricing and upsell customers, but when implemented without understanding customer needs, it can create more problems than it solves.

Let me walk you through a real case of Gainsight on how their poorly fitted package impacted their sales motion.?

Gainsight is a leader in the Customer Success (CS) software industry, similar to Salesforce for CRM and Workday for HR. By establishing Customer Success as a key business function, Gainsight has helped organizations understand the importance of roles like Chief Customer Officer (CCO) and has contributed to developing effective customer retention strategies.

Despite its leadership, Gainsight struggled with the GBB model. The approach was intended to make it easier for customers to choose and upgrade their services. However, this model didn’t work well with mid-market customers. The middle tier was often too simple or too complex, pushing customers to choose the lowest tier or skip to the highest. This not only skewed the company’s pricing strategy but also diluted the average selling price (ASP) due to the need for heavy discounts to make the top tier appealing.? The 'Best' tier resulted in shelfware, with customers paying for features they barely used, thereby increasing frustration and blocking potential upsell opportunities.

Realizing this issue, Gainsight moved away from its fixed packages to a more flexible, modular system. This allowed customers to customize their packages by choosing only the needed features without overspending.

This strategic overhaul was a game-changer as it allowed Gainsight to:

• Align pricing more closely with actual customer usage and value
• Reduce the incidence of shelfware
• Improve financial metrics such as ASP and ARR by offering solutions that customers genuinely need and value.

Mistake #3: Choosing the Wrong Pricing Metric

Your pricing metric—the way you charge your customers—is a direct reflection of how your product delivers value. But the problem here is that many SaaS startups pick metrics that misalign with customer expectations or their own cost structure, creating friction and confusion.

Let's explore Mixpanel's journey. The company is renowned for its product analytics platform. In 2019, Pranav Kashyap, the Head of Pricing at Mixpanel, gave me an insider view of their transformative approach to pricing.

Initially, Mixpanel charged customers based on the number of events—every user interaction with their site. This model was simple with small businesses as their usage levels were predictable. However, expanding into the enterprise sector, the cracks in this model began to show:

• Enterprise clients, generating millions of events, saw their costs explode unexpectedly.
• Customers struggled to see how more events equated to more value, especially when extra interactions didn't lead to tangible business outcomes.
• The constant need to upgrade plans as event volumes grew led to customer dissatisfaction and churn rate.

To deliver value to its actual customers, Mixpanel boldly switched to an MTU-based pricing model in 2019. This change allowed customers to pay based on the number of unique users they tracked each month, a metric that better matched how they derived value from the product.

This way, Mixpanel didn't just stop at changing their pricing metric; instead, they overhauled their entire package structure to meet their diverse customer base better:

• Data Pipelines Package for engineers
• Messaging Package for marketing teams
• Groups Package for B2B customers

These targeted packages allowed customers to choose exactly what they needed without paying for superfluous features.

This strategic realignment brought Mixpanel closer to its customers. By anchoring its pricing to a metric that customers understood and valued, Mixpanel enhanced its market positioning. The new model reduced friction at renewal and onboarding times cut down on customer churn and aligned costs more closely with customer success.

Takeaway

These mistakes boil down to one simple truth: pricing is never just about putting a number on your product. When pricing is off—the impact is felt everywhere. Deals stall, customers churn, and growth slows.

But fixing these mistakes doesn’t require magic. It just takes thoughtful decisions, a willingness to listen to your customers, and the discipline to adapt as your business evolves. Pricing done right doesn’t just bring in revenue—it builds relationships, drives loyalty, and ensures a steady and predictable sales pipeline through effective SaaS pricing and packaging and expert pricing consultancy.

This is where expertise makes all the difference. At Monetizely , we make it rain… Our team is here to help you implement the best practices in SaaS pricing, ensuring that your pricing models are competitive but also scalable and sustainable. With over 28 years of experience leading top pricing teams at companies such as Twilio , Narvar, Medallia , etc, we make sure that your pricing doesn’t just work—it works for you. To learn more, you can book your free demo with us today, and get your hands on our new edition of Price to Scale Vol 2.?