SaaS Pricing Trends: What Buyers Reward and Penalise
Pricing is rarely just a number. For a founder, it is often a battle scar, the result of years of experimentation, negotiation, and intuition. However, when we place a business under the microscope of a sell-side process, pricing transforms into something else entirely. It becomes a proxy for product-market fit, a test of your competitive moat, and a predictor of future cash flow durability.
In the current M&A environment, buyers have shifted their focus. The "growth at all costs" mentality, where pricing discipline was often sacrificed for logo acquisition, has receded. Today, private equity groups and strategic acquirers scrutinise the underlying mechanics of how you charge, not just how much you charge.
They are looking for evidence of pricing power: the ability to capture more value over time without increasing churn. Understanding what sophisticated buyers reward, and what they penalise, is essential for founders preparing for an exit in the coming years.
The Shift Toward Consumption and Hybrid Models
For a decade, the flat-rate subscription or seat-based licence was the gold standard. It was predictable, easy to model, and easy to sell. While buyers still value the predictability of seat-based SaaS, there is a growing premium placed on consumption-based or hybrid pricing models.
The logic is rooted in alignment. In a pure seat-based model, a customer can double their usage of your software, and the value they derive from it, without paying you a penny more. This effectively caps your Net Revenue Retention (NRR) unless you can upsell new modules.
Buyers reward models where revenue scales naturally with customer success. Whether this is based on API calls, transactions processed, or data storage, consumption metrics prove that the product is essential to the client's operations. According to Maxio's research on hybrid pricing, companies using hybrid models report the highest median growth rate at 21 per cent, with high-growth companies overwhelmingly preferring hybrid models.
However, a warning is necessary. Consumption models introduce volatility. If your revenue dips significantly during a client's slow season, it can complicate the "run-rate" calculation during due diligence.
The Buyer's View:
- Reward: Pricing that captures the upside of customer growth automatically.
- Penalise: Rigid seat-based caps that leave money on the table when heavy users extract massive value for a low fixed price.
Net Revenue Retention as a Valuation Lever
We cannot discuss pricing without discussing retention. In valuation discussions, Net Revenue Retention (NRR) is arguably the single most important metric after core ARR growth. It tells the buyer whether your business would continue to grow even if you stopped acquiring new customers today.
To be clear on the mechanics:
NRR = (Starting ARR + Expansion Revenue - Churn - Contraction) ÷ Starting ARR
Pricing strategy is the primary driver of the "Expansion Revenue" variable in this formula. Buyers are looking for structural upsell paths. They want to see that you have priced your tiers or add-ons in a way that encourages customers to migrate upward over time.
If your pricing is static, your NRR is capped at 100 per cent minus your churn rate. This forces you to rely entirely on new sales to grow, which is expensive and risky (high CAC). Conversely, a pricing model that facilitates expansion allows for an NRR of 110 per cent or 120 per cent.
In deal terms, this difference is substantial. McKinsey's analysis of more than 100 B2B SaaS companies found that top-quartile NRR performers sustain higher valuations through both bull and bear markets, with median enterprise-value-to-revenue multiples of 24x compared with just 5x for bottom-quartile peers. A business with 120 per cent NRR commands a significantly higher multiple than an identical business with 95 per cent NRR, because the future cash flows are viewed as compounding rather than decaying.
The Penalty for "Grandfathered" Pricing
Loyalty is a virtue in relationships, but in M&A, excessive loyalty to legacy pricing is often viewed as a liability. It is common for founders to keep early adopters on pricing plans from five years ago to avoid rocking the boat.
While the sentiment is understandable, buyers view this as "revenue leakage." If 30 per cent of your customer base is paying half the market rate, the buyer sees a risk-adjusted opportunity cost. They will calculate the potential revenue uplift, but they will also model the churn risk associated with forced price convergence post-acquisition.
Furthermore, a refusal to raise prices on legacy customers suggests a lack of confidence in the product's stickiness. The assumption is that if the product is truly mission-critical, a 10 per cent annual uplift should be absorbable.
The Buyer's View:
- Reward: A history of systematic, modest price increases across the entire base (e.g., 5 to 7 per cent annually) which proves pricing power.
- Penalise: A large cohort of legacy customers on deep discounts, which creates a "re-pricing cliff" that the buyer must manage post-close.
Complexity and Discounting Discipline
Nothing slows down a due diligence process faster than a "Gross to Net" analysis that reveals no standard pricing logic. When every contract is a bespoke negotiation, it signals to the buyer that the sales team lacks discipline or the product lacks a defined market value. As Bain & Company's research on SaaS pricing notes, pricing set casually or based on internal cost metrics generally fails to generate the anticipated growth, or leaves a substantial amount of value on the table.
Buyers analyse the dispersion of pricing for similar cohorts. If Customer A pays £20,000 and Customer B pays £50,000 for the exact same usage and feature set, the buyer will typically aggressively discount the revenue quality of the higher-paying cohort, assuming those customers are at risk of churning or demanding lower fees upon renewal.
Additionally, complex pricing matrices, such as those with twenty different line items, platform fees, implementation fees, and obscure usage buffers, create friction. They make revenue recognition difficult for the finance team and make the product harder to buy.
The Buyer's View:
- Reward: Standardised rate cards with strict limits on discounting authority (e.g., sales reps can discount up to 10 per cent; anything above requires CFO approval).
- Penalise: Bespoke contracts that require manual invoicing or heavy administrative overhead to track entitlements.
Inflation Protection and Contract Terms
Finally, we are seeing a heightened focus on contractual mechanics regarding inflation. In a low-inflation environment, multi-year contracts with flat pricing were seen as great for locking in retention. Today, they are viewed with caution.
If your cost base (wages, cloud hosting, services) is increasing by 4 to 6 per cent annually, but your revenue is locked flat for three years, your margins are compressing in real terms.
Buyers are specifically looking for auto-renewal clauses that include an automatic CPI (Consumer Price Index) or fixed percentage uplift. This seemingly minor legal detail has a direct impact on the terminal value of the business. It shifts the burden of negotiation from "asking for a raise" to the customer "opting out of the standard term."
Pricing as a Strategic Lever
Pricing is not merely a marketing tactic; it is a structural component of your company's value. When we prepare a business for market at Levera Partners, we often find that pricing reforms are among the highest-leverage changes a founder can make in the 12 to 24 months prior to an exit.
Buyers pay for certainty and growth. A pricing strategy that demonstrates discipline, aligns with customer value, and drives NRR above 100 per cent provides that certainty. Conversely, bespoke discounting and fear of price increases signal fragility.
As you review your strategy for the coming year, look at your pricing through the lens of a future investor. Does it prove your value, or does it apologise for it?
If you are thinking about an exit and would value a discreet, no-pressure conversation about how your current metrics might be viewed by the market, get in touch with our team.