Price elasticity and willingness to pay (WTP) are two related but distinct pricing concepts that SaaS founders often conflate. Understanding both — and how they interact — leads to better pricing decisions.
Willingness to Pay (WTP)
Willingness to pay is the maximum price a specific customer or customer segment would pay for your product before declining to purchase. It's a threshold, not a rate.
WTP varies by customer: - A 500-person enterprise company might have WTP of $10,000/year for a collaboration tool - A solo founder might have WTP of $29/month for the same tool
WTP is measured with surveys (Van Westendorp, Gabor-Granger, conjoint analysis) and is the basis for segmented pricing — charging different customer segments different prices.
Price Elasticity
Price elasticity measures the aggregate sensitivity of your entire customer base to price changes. It's a population-level measure, not an individual one.
Elasticity is measured with A/B tests or by observing demand changes after price changes.
How they interact
If your WTP research shows high variance across customers (some will pay $50/month, others $500/month), that's an opportunity for tiered pricing — not a single price that tries to serve all segments.
If your elasticity data shows inelastic demand overall, that tells you the entire market is relatively price-insensitive — you can raise prices across all tiers.
Practical implications
When WTP research shows you're underpriced: raise list prices without needing elasticity data. The surveys tell you directly where the price ceiling is.
When elasticity research shows inelastic demand: raise prices confidently. Demand will fall less than proportionally.
When elasticity shows elastic demand: focus on WTP to find which customer segment is price-sensitive, and consider whether you're selling to the wrong segment.
Use the Pricing Elasticity Calculator to model revenue outcomes at different price points given your elasticity estimate.