Balancing Value, Cost, And Customer Needs

From the outside it may seem like a simple choice, but pricing is one of the most complex and strategic decisions any company will face.

In fact, pricing is never only a number.

The level you price your product or services sends a signal to the market whether you intend to do so or not. There are plenty of benchmarks, but no playbook for what makes for optimal pricing, and CEOs and their CROs left navigating a complex terrain where crafting a compelling narrative, understanding your market, and aligning with the value your business brings is just the begining.

But how do you decide what your product or service is worth?

Is it about covering costs, reflecting value, driving adoption or something else entirely?

Although there’s much advice to be had on the topic, the truth is we’re far from consensus on pricing strategies. If anything, it’s an evolving form of art, born from the pains of CEOs who often grapple with these questions without clear signposts or support.

At the same time, the stakes couldn’t be higher: pricing decisions affect everything from customer acquisition to long-term growth. While there may not be a singular “right” answer, there are clearly better and worse ways to approach this critical element of business strategy.

To better understand the landscape, let’s delve into the diverse types of pricing models and the considerations that underpin them.

Why Pricing Is More Than Just a Number

Offering a product or service for free is one of the boldest pricing strategies a company can adopt.

At first glance, it seems entirely counterintuitive. How can giving something away drive profitability?

But this approach is a calculated gamble, often designed to lower adoption barriers, build trust, and create long-term value; a gamble that Zeffy has decided to take.

For nonprofits, where every dollar counts, the decision to adopt technology is often hindered by tight budgets.

François de Kerret, Co-founder of Zeffy, understands this reality intimately.

Zeffy provides fundraising tools to nonprofits without charging fees, relying instead on voluntary donor tips to sustain its operations. “We wanted to eliminate any friction for nonprofits,” François explains. “By removing fees, we allow organizations to get the technology that is needed for their mission, regardless of their budget.”

This model shifts the pricing conversation from transactional to relational.

Instead of charging the user directly, which would limit both the amount of donations they can give and their ability to engage with potential recipients, Zeffy opted for a system where donations drive profits instead.

Offering a product for free doesn’t mean there’s no business model mind you. It just means the revenue strategy operates differently than what most companies are comfortable with even trying.

Zeffy’s approach relies on aligning its success with that of its users, and on the face of it the strategy seems to be working well enough. If nonprofits thrive and donors are satisfied with the platform, they’re more likely to voluntarily contribute. This alignment creates a reinforcing loop of value and trust.

One of the immediate tradeoffs is that estimating future revenue can become more complex, as it depends on variables outside the company’s direct control.

It also requires an unwavering commitment to transparency. Companies adopting this strategy must ensure that their intentions are clear and that their users genuinely see the benefits of the free offering. Any perception of hidden costs or ulterior motives can erode the trust on which the model depends.

“It’s a forecasting challenge ultimately, but one we are willing to take on,” François acknowledges. “You need a deep understanding of your customer base and their willingness to contribute voluntarily. It’s a risk, but it works when built on trust and transparency.”

But offering something for free doesn’t always mean giving everything away. Many companies use free products as the starting point in a carefully designed pathway, offering incremental value as users grow and their needs evolve. This mix of free and premium elements can create an ecosystem that serves both the customer and the business.

Some companies, like Sonar, demonstrate how free offerings can coexist with a value-based approach. Sonar provides core products for free indefinitely, allowing users to benefit from essential features without financial commitment. This removes initial barriers and creates a relationship based on value delivery from day one.

However, the strategy doesn’t end there.

Sonar integrates a pathway for customers to access advanced capabilities and expanded services as their needs grow. Tariq Shaukat, CEO of Sonar, explains, “We want users to experience the value of our product upfront, without any friction. The free tier establishes that foundation, and as customers realize the deeper impact we can have, they naturally see the advantages of scaling with us.”

This approach combines the principles of freemium and value-based pricing, ensuring that every step of the customer journey is rooted in delivering outcomes. “Pricing has to align with the results you deliver,” Tariq continues.

To succeed with such a hybrid model, companies must balance accessibility with scalability. Free products must deliver enough value to attract and retain users, while premium offerings need to clearly justify the added cost. This demands a deep understanding of customer needs, a commitment to transparency, and the ability to articulate ROI effectively.

“If your customers don’t understand your pricing, you’re not just confusing them—you’re losing their trust,” Tariq warns. Sonar ensures that every offering, whether free or paid, reinforces the product’s value proposition and helps customers achieve measurable results.

For companies like Sonar, this balance not only drives revenue but also fosters long-term relationships with customers who see the value in growing with the platform. It’s a model that prioritizes outcomes, aligning the success of the business with the success of its users.

The Art of Balancing Free and Premium Pricing Tiers

Freemium models have become a cornerstone of the SaaS industry, but their appeal extends far beyond software.

At their core, these models are designed to lower the barrier to entry, enabling companies to acquire a broad user base with minimal resistance. By offering a basic version of the product for free, businesses can engage users early and often, with the goal of converting a percentage of them to paid, premium offerings over time.

The key advantage of freemium lies in its scalability. By removing cost as an initial hurdle, companies can cast a wider net, reaching customers who might otherwise hesitate to make a purchase. This inclusivity helps build brand recognition and trust, creating opportunities for deeper engagement.

However, the success of freemium strategies hinges on execution.

The free version must deliver enough value to attract and retain users while leaving a clear path for upselling premium features. Companies must strike a delicate balance—offer too little for free, and users won’t stick around; offer too much, and they may never feel compelled to upgrade.

Matthieu Rouif, CEO of Photoroom, illustrates this dynamic well.

Photoroom’s visual editing tools are tailored to help users create professional-grade images, a critical need for e-commerce sellers and creatives. “We focus on saving time and delivering results that matter. For our clients, a great product image can make or break a sale,” Rouif explains.

By offering core features for free, Photoroom ensures accessibility while showcasing the potential impact of its platform.

But the journey doesn’t end there.

“It’s crucial to not only attract users but to demonstrate the tangible benefits of upgrading to premium,” Matthieu explains.

Photoroom’s freemium strategy includes features like background removal and quick image editing as part of its free offering, while advanced tools for branding and customizations are reserved for premium users. This creates a clear and enticing path for users to upgrade once they experience the platform’s value.

Freemium models also come with risks.

Customer acquisition costs can be high, particularly if a large percentage of users never convert to paid plans. Companies must carefully monitor conversion rates and customer retention metrics to ensure the model is financially sustainable.

A poorly executed freemium strategy can lead to significant resources being allocated toward users who never generate revenue. This is where using the freemium offerings as a gateway, and a signal of what’s coming, is critical.

“Our goal with freemium is to deliver immediate value while clearly showcasing the additional possibilities that premium features unlock,” Matthieu notes. “Subscriptions play a key role here, allowing us to build lasting relationships with users who see the ongoing value we bring to their workflows.”

This seamless transition from free to paid creates a framework for deeper engagement and consistent revenue streams. Subscription models, often paired with freemium, extend the lifecycle of customer relationships and they provide predictable revenue streams and foster ongoing engagement.

Netflix, for instance, has mastered the subscription model by consistently adding new content, while Adobe has successfully transitioned its creative suite to subscriptions by offering regular updates and cloud-based features.

Both companies demonstrate the importance of keeping the user experience fresh and relevant to justify ongoing payments.

Real-World Examples of Pricing Models That Drive Success

While freemium and subscription models dominate the software landscape, the principles of strategic pricing extend well beyond the digital sphere.

In industries like construction, automation, and hybrid work solutions, pricing decisions must address a unique mix of upfront costs, long-term value, and customer trust.

For companies in these sectors, the stakes are often more tangible than they are in pure software: safety, efficiency, and accessibility drive purchasing decisions, and pricing must reflect these priorities.

Fyld offers an excellent example of a company that is navigating pricing in the intersection of software and the hardest of the hard industries; construction.

Their technology uses predictive analytics to identify and mitigate operational and safety risks, saving companies from costly downtime and accidents, and it is offered through ROI-driven pricing structures.

Shelley Copsey, CEO of Fyld, explains the rationale behind their choice: “We always price based on the value our customers can achieve. When companies see the reduction in accidents and the improvement in project timelines, they quickly understand that the solution pays for itself.”

Fyld’s approach to pricing targets the value their offering creates and it highlights the value of safety as an investment in a company’s workforce and bottom line.

“Safety isn’t optional, and neither is productivity,” Shelley adds. “Our pricing reflects the value we bring and companies see both immediate and long-term benefits.”

This model requires Fyld to engage closely with its customers, showcasing measurable outcomes. “Our clients expect transparency. We provide detailed reports that show exactly how our tools impact their operations, helping them see the ROI clearly,” Shelley emphasizes.

Automation is another space where pricing must bridge immediate cost savings and long-term transformation. Mytra, an emerging player in industrial automation, helps companies streamline operations with AI-driven tools.

Chris Walti, CEO of Mytra, explains how they approach pricing: “We aim to reflect the dual value we provide which includes short-term efficiencies and long-term shifts in how our customers operate. It’s not just about what we save today but how we set companies up for success in the future.”

For Mytra, pricing also plays a role in building trust and fostering adoption. “Automation can seem daunting, especially for companies new to it. Our pricing model is designed to reduce that barrier, showing that the value far outweighs the investment,” Chris notes.

Their focus on customer success is central to their strategy. “We don’t just sell a product; we partner with our customers to ensure they see the impact of automation at every stage,” Chris adds.

A Universal Truth For All CEOs: Pricing is storytelling

While the products and services they offer may differ, the principles remain the same across every industry and market: pricing is a strategic tool that shapes how customers perceive and engage with a company. The best pricing models tell a story—not just of what the product does, but of the value it creates for those who use it. Here are the most common approaches and how they play out in real-world scenarios:

Value-based pricing: Aligning with customer perceptions

Value-based pricing is centered on what the customer perceives the product or service to be worth. This approach requires a deep understanding of customer pain points, needs, and the measurable impact your product provides.

For instance, Apple exemplifies value-based pricing with its premium products. Customers aren’t just buying a phone; they’re buying a seamless ecosystem, exceptional design, and brand prestige. The pricing reflects the emotional and functional value that Apple products deliver. Similarly, B2B SaaS providers like HubSpot align pricing with the tangible ROI their tools generate for businesses, such as lead conversions or operational efficiency.

While value-based pricing often maximizes margins, it demands strong brand positioning and the ability to clearly articulate the product’s unique benefits. Misjudging customer perceptions or failing to communicate value effectively can lead to lost sales.

Cost-plus pricing: Simplicity meets sustainability

Cost-plus pricing involves calculating the cost of production and adding a fixed markup. This approach is straightforward and ensures profitability, making it a staple in traditional industries like manufacturing and retail.

For example, grocery stores frequently employ cost-plus pricing to maintain consistent margins across thousands of products. Similarly, in construction or custom goods industries, this approach provides transparency and predictability for both businesses and customers.

However, the simplicity of cost-plus pricing can be its downfall. It often ignores market dynamics, competitor pricing, and the value customers perceive. For innovative or premium products, cost-plus pricing can leave money on the table by underpricing the value customers are willing to pay.

Freemium models: Creating a gateway to premium

Freemium strategies offer core features for free while charging for premium capabilities, making them a popular choice in software and digital services. This model lowers barriers to entry, allowing companies to acquire a broad user base while driving revenue through upselling.

Take Spotify, which provides a free tier supported by ads and a premium tier offering ad-free listening and offline downloads. By giving users a taste of the experience, Spotify converts many free users into paying subscribers. Similarly, design tool Canva offers a robust free version that attracts millions of users while encouraging upgrades for advanced features like branding kits and collaborative tools.

Freemium models excel in scaling rapidly, but they come with risks. High customer acquisition costs and reliance on conversions from free to premium can create profitability challenges. Companies must strike a balance between delivering enough value for free to attract users while keeping premium features enticing enough to convert them.

Cost avoidance: Selling efficiency

Cost avoidance pricing emphasizes the savings or efficiencies a product delivers to its customers, making it especially prevalent in B2B markets. Instead of focusing on product features, this approach highlights the operational, financial, or time-saving benefits of the solution.

For example, Amazon Web Services (AWS) uses cost avoidance as a key component of its pricing strategy, demonstrating how its cloud infrastructure helps companies reduce IT expenses and scale efficiently. Similarly, energy management systems that optimize electricity usage often justify high upfront costs by showcasing long-term savings on utility bills.

The success of cost avoidance pricing hinges on clear communication of ROI. Companies must quantify and articulate the savings or efficiencies their product delivers, often requiring robust case studies or data-driven demonstrations. Without this, customers may view the pricing as unjustifiably high.

The challenge for CEOs is determining which model aligns best with their goals. Value-based pricing may maximize margins but requires strong brand positioning. Freemium models may scale rapidly but come with high customer acquisition costs. Every approach has trade-offs, and the key lies in finding the one that best supports your business strategy.