Ramp pricing: what it is, how it works, and why it matters in SaaS

Pricing can make or break a deal when it comes to making a sale in SaaS. Seems like common sense, right?

This is when strategic pricing approaches come into play, a key one being ramp pricing. This method is all about allowing you to ease your customers into payments over time.

This article will break down everything you need to know about ramp pricing, including how it works and why it’s so important.

Let’s start with what it is.

What is ramp pricing?

Ramp pricing is a pricing strategy that focuses on gradually increasing the cost of a product or service over a certain period of time.

So, instead of charging full price from the get-go, a company could use a ramp pricing model to make it easier and more cost-effective for customers to sign up.

SaaS businesses especially benefit from this method, since they aim to attract and retain customers with scalable pricing structures.

Ramping up pricing in phases reduces friction between you and your customers because there is no need for an upfront commitment.

Essentially, you benefit from long-term revenue growth while your customers benefit from low-stakes purchasing.

How does ramp pricing work?

Simply put, ramp pricing works by setting a lower initial price, then gradually increasing it over time.

You can do this by tying the price increase to time periods of product usage, increases in usage, or even customer milestones.

The primary goal is to have the pricing model align with the customer’s realization of the product’s value so that it’s easier for them to commit to a long-term contract or upgrade.

In SaaS, for example, a company could offer an intro price of $500 per month for their service/product for the first year. Then, they could increase that price to $1,000 per month after their first year, allowing customers to onboard at a lower price and integrate the software before worrying about higher costs.

Since managing ramp pricing manually can be complex and inefficient, especially when dealing with multiple pricing tiers and customer contracts, a CPQ (configure, price, quote) tool can be useful.

The right CPQ solution can help your customers transition to higher pricing models smoother while you maintain accurate revenue forecasting.

PandaDoc CPQ software helps you simplify and automate sales processes, including pricing adjustments. With user-friendly tools and native integration with leading CRMs like HubSpot and Salesforce, our solution allows you to automate quotes, add upsell discounts, and edit quotes directly in your CRM.

Ultimately, a CPQ solution can help you make more sales conversions along the customer journey. Just ask one of our clients, Pixelhaus, who increased their conversions by 50% with PandaDoc.

“We’ve only been using PandaDoc for a couple of months but in that time we have seen a 50% increase in sales conversions. As much as I’d like to put it down to our fabulousness, we have to take our hats off to PandaDoc. It allows us to respond quicker to quotation requests and track the client’s activity,” says Richard Gosler, Creative Director of Pixelhaus.

Top benefits of ramp pricing

1. Lower barrier to entry – Your customers can embrace a new solution without high-cost upfront commitment. This makes it easier for you to close deals. 
2. Improved customer retention – With gradual price increases, your customers get the opportunity to see the value of your solution before diving too deep. This reduces churn and leads to better engagement long-term. 
3. Better revenue predictability – Ramp pricing allows you to forecast revenue growth as your prices scale, which makes financial planning more accurate—a necessity for sustainable business success. 
4. Easier negotiations – A phased pricing approach means sales teams can close deals faster by taking care of budget constraints and reducing objections from customers. 

Want to learn more about pricing methods for your business? Read more on mastering your pricing strategy with CPQ.

Challenges and risks of ramp pricing

Despite its advantages, there are some risks you want to keep in mind when considering a ramp pricing model:

• Complex implementation – Having to manage different pricing tiers over time means you need to carefully plan and coordinate efforts between sales, finance, and customer success teams. 
• Customer pushback – It’s fair to say that some customers might be hesitant about future price increases if they don’t understand the long-term value immediately. 
• Revenue delays – With ramp pricing, you have to be patient, as it can take time for your business to realize the full revenue potential. This can impact cash flow in the short term.

Curious about other pricing strategies? Read more on tiered pricing here.

Ramp pricing in SaaS: what’s the big deal?

Customer acquisition and retention are key in SaaS, and ramp pricing helps with both.

How? By making it easier for customers to integrate new software while making sure the price aligns with how much they use the product.

It also helps sales teams negotiate contracts more effectively to reduce friction during the buying process.

Another plus of ramp pricing is creating stronger customer relationships. When you provide a pricing model that matches a customer’s success, it can showcase your commitment to long-term partnerships over quick sales.

Common ramp pricing models you should know

Here are several approaches to ramp pricing you should keep in mind:

• Fixed vs. variable ramp pricing – Fixed pricing has a predetermined schedule, while variable pricing changes based on performance metrics and customer growth.
• Tied ramp pricing – This approach ties pricing increases to specific milestones. For example, the price could go up when a customer adds more users, reaches a certain level of usage, or unlocks advanced product features.  
• Usage-based vs. time-based ramp pricing – One pricing model could increase its prices based on product usage, while another could follow a set time schedule, increasing prices quarterly or annually, for example.

How does ramp pricing affect customer acquisition and retention?

The answer is pretty simple: Since ramp pricing can help you lower initial costs, it’s easier to gain new customers.

Allowing them to scale payments gradually allows you to build trust and demonstrate the value of your product, which leads to higher retention rates.

When customers see the return on investment before reaching the full price, they are more likely to stick with your product in the long run.

If you’re a SaaS provider, then this pricing strategy allows you to customize pricing plans for different customer segments.

For example, enterprise clients could opt for longer ramp periods to align with their budget cycles, while a startup might want to increase faster as they scale quickly.

Ramp pricing vs. ramp-up price: What’s the difference?

While these terms sound similar, let’s break down their distinct meanings:

• Ramp pricing is a pricing structure that focuses on increasing the price of a product or service over time.
• Ramp-up price refers to the period of time when a company increases production or service capacity before reaching full operational efficiency. This term is more commonly used in industries outside of SaaS, such as manufacturing or logistics.

What are ramp fees?

These are additional costs to the customer that come with scaling a service over time. Your ramp pricing model can include implementation fees, onboarding costs, or performance-based charges, all of which would fall under ramp fees.

It’s important to be transparent with your customers about these fees so that they understand the total cost they are opting to pay.

More transparency means more trust between you and your customers, which ultimately leads to better long-term relationships and higher business success.

Factors that influence ramp pricing

Your ramp pricing structure will likely be determined by several factors:

• Customer growth potential – If your customers are scaling more rapidly, a usage-based model might make more sense for you. However, smaller companies might benefit from a fixed-price increase.
• Market competition – If your competitors are offering flexible pricing, you want to remain agile so you can adjust your approach to appeal to more customers. This is where pricing analytics can be useful, as it can help you set optimal price points, maximize revenue, meet customer needs, and develop competitive pricing.
• Sales cycle length – A longer sales process could mean gradual price increases will help your customers commit more easily. 
• Product adoption rates – You can raise your prices sooner if your customer adapts to your product quickly. But if they need more time to integrate it into their workflow, you might be better off with a slower ramp-up model. 

To wrap up

For SaaS in particular, ramp pricing is a strategy you want to keep in mind if your goal is attracting and retaining customers while maximizing revenue.

The right CPQ software can help you manage pricing during the sales process so that you can speed up contracts and close more deals.

With our real-time pricing engine, PandaDoc CPQ can automatically apply discounts, calculate custom pricing, and adhere to customer-specific rules set by your team. You even have the power to set approval workflows so that pricing beyond a specific limit triggers a separate review process.

Ready to optimize your pricing strategy with PandaDoc CPQ? Check out our 14-day free trial or request a demo today.