Measuring Price Elasticity

Price elasticity measures how sensitive demand is to price changes. Elastic demand means a price increase causes a proportionally larger decrease in volume. Inelastic demand means price increases have minimal impact on volume. SaaS products with strong differentiation and high switching costs tend to be inelastic — customers absorb price increases rather than switch. But "tend to be" is not "are." You need to measure elasticity before you set prices, not discover it after churn spikes.

1. Van Westendorp Price Sensitivity Survey prospects with four questions: at what price is this too cheap (quality concern)? A bargain? Getting expensive? Too expensive? The intersection of the curves defines the acceptable price range and the optimal price point. This is the fastest way to establish a pricing range — 100 survey responses produce statistically meaningful results.
2. Conjoint Analysis Present prospects with feature/price bundles and ask them to choose. Statistical analysis reveals the implicit value they assign to each feature and the price sensitivity of the overall package. More rigorous than Van Westendorp but requires 300+ responses and statistical modeling. Use it for major pricing changes or new product launches.
3. A/B Price Testing Show different price points to randomized prospect segments and measure conversion rates. The conversion curve by price point directly reveals elasticity. A 20% price increase that reduces conversion by 5% means inelastic demand — take the price increase. A 20% increase that reduces conversion by 30% means elastic demand — hold the line.