Introduction
From a public market perspective, the SaaSpocalypse definitely happened in 2026. Publicly traded SaaS companies saw approximately $1 trillion in market value erased during the first half of the year. Private company SaaS valuations have seen similar compression, with the lowest tiers now only trading at Enterprise Valuations at 1-2X revenue.
However, all is not gloom and doom. With the right product in place (covered in the last post), the right pricing models, and the right financial KPIs – premium valuations can continue to be obtained. This post covers what this looks like to serve as a lighthouse to obtaining a premium valuation in the 2nd half of 2026 and beyond. (Caveat: Capital markets are moving at unprecedented speed and conditions may change rapidly from when this post was written.)
Seat-based Pricing (by itself) is Dead; Long Live Hybrid Pricing
End-user seats have been the lifeblood of SaaS since the very beginning. Markets loved it – for every user of the platform there was guaranteed revenue per year. The more the users, the more the revenue. This worked particularly well up through the pandemic when most companies were seeing continued year-on-year headcount growth.
Then, the harsh new world of efficiency set in and employee headcount has been flat-to-declining over the last few years. AI has also changed the game, as the cost-to-serve is often times much greater and linearly dependent on usage – at much lower margins. Typical SaaS has been 80% gross margins. Native AI features are typically at 50% gross margins.
The answer is very simple; Hybrid Pricing. Seats remain for core functionality. Usage-based pricing then applies whenever and wherever it makes sense on top of the core seat licenses. It will pay for itself; in 2026 usage-based pricing shows a core Net Revenue Retention (NRR) of 108% vs. pure seat-based at 98%. This nets out in a well-structured hybrid model of 115-130% NRR versus a traditional pure-seat model of 95-105%.
Getting pricing right is probably the easiest financial engineering move one can make. Typical pricing cycles used to last 18-24+ months. Now, pricing should be revised every 6 months and product leaders should plan for this. And not be afraid to introduce experiments on limited audiences.
Where should I utilize based pricing? There are two types of usage-based pricing. The first is credit/usage based. For example, I get X API calls for a monthly fee of Y. Additional API calls over/above X are charged at a rate of Z per call. The second is business outcome-based. For example, for every support ticket resolved by AI, you are charged X.
For example, Fin (Intercom) charged on an outcome basis of $0.99 per resolved conversation with a $1M performance guarantee. They grew outcome-based revenue from $100-$100M in 2.5 quarters which most certainly helped their premium valuation exit to Salesforce.
Salesforce itself with Agentforce used $2/conversation and then $0.10/action Flex Credits on top of their Seat-based fee of $125/user/month. Agentforce reached $800M in ARR up 169% year-on-year with 20T tokens processed and >60% of Q4 bookings from existing customer expansion per their February 2026 earnings.
The rule-of-thumb for Outcome-based pricing is simple. Wherever a logical unit of customer value is delivered such as a resolved support case, this is a candidate for pricing on a per outcome basis. Performance guarantees should be leveraged to prevent issues and customer dissatisfaction.
The rule-of-thumb for Usage-based pricing is fortunately not that much more complex. Wherever value is delivered that does not rely upon a user-seat, it is a candidate for usage based pricing. A typical example would be API usage. Instead of offering it bundled, this is a prime candidate for now charging on a per unit basis.
Other prime candidates would be any AI-based or agentic features; these by nature should be charged for separately given likely lower margins. For those in the e-commerce/payment spaces, taking a percentage of revenue is a well-established practice (e.g. almost half of Shopify’s revenue is per transaction fees) dating back to the days when Demandware introduced the concept in 2004.
A concern many have is starting to charge for things that used to be bundled with seats. This fear simply needs to be ignored, as everyone else is doing it to. It is absolutely a moment to keep up with the Joneses.
Lastly, as mentioned earlier – pricing needs to absolutely be revisited every 6 months. The market is simply moving too quickly and one risks being outmaneuvered by competition unless a vigilant watch is maintained. For example, within the first year, Zendesk’s usage-based pricing dropped by almost 50% to simply avoid being undercut by the likes of Fin.
**Premium Valuations Door #1 == Profitable Growth through Excellent Core Product + Hybrid Pricing
With the right product and the right pricing model in place, premium valuations can be obtained by demonstrating the right levels of profitable growth AND/OR the right operating margin. Here, we are going to be talking about growth and the underlying KPIs to support it.
Private SaaS growth has declined to a a median of approximately 20%-25% over the last several years. Prior to any pricing adjustments or new AI-based products, one must look at the core seat-based business and the health of the product and the go-to-market (GTM) motions. If it isn’t a sustainable 20%+, the core business probably needs a get-well plan devised and executed in addition to looking at pricing and AI-based optimizations. (And, tread carefully – if the core product has issues, that is NOT the time to change pricing.)
Re-pricing and the introduction of consumption-based capabilities should add at minimum +10% on top of the core growth rate on a sustainable basis. This would anchor net growth rates at 30-35%, with best-in-class being 40%+. For companies >= $50MM in ARR, that would see growth being in line with AI-first companies and the requisite valuations.
Core NRR outside on the legacy seat-based model should be at or above 100%. Top performers are at ~110%. Again, if that is not being achieved – there is a leaky boat in play that needs remediation prior to starting to introduce new hybrid pricing. Adding new AI capabilities and hybrid pricing should add at least +10% to this number. This puts best-in-class between 110%-120%, with absolute top performers exceeding 130%. When factoring in profitable growth, the Rule of 40 metric should be at least 25%. Top performers will be 40%. AI-only gross margins should be at ~50% in 2026 and ~60% in 2027 if forecasted efficiency gains across the industry are realized. This translates into overall gross margins blended around 65-75% depending on the amount of AI features in the mix.
Valuations based on ARR went from ~16X revenue in 2021 to ~3X revenue in mid-2026, the lowest value since 2011. Doing everything right as described herein should still command a 7X-10X premium valuation. Those in the middle should still be able to command between a 3X-6X valuation. Those with growth in the 10-20% will be in the 1.5x-3X valuation. Flat growth will be 1X-2X at most, provided a buyer can even be found.
Premium Valuations Door #2 = Become a Cash Printing Machine
If profitable growth, for whatever reason, is simply unobtainable – the other alternative is to become a cash printing machine. This means at least 40% true operating margins, inclusive of stock-based compensation (no more hiding dilution as an expense). Achieving top performer status would be 50%+ true operating margins inclusive of stock-based compensation.
This is going to require a radical overhaul of every department and operating structure while leveraging AI to maximize efficiencies. Orthogonally, this will require increasing internal AI consumption budgets while reducing other headcount- and operational expense-related spend. Significant RIFs will almost certainly be involved.
The reward? Closing a private deal on an EBTIDA multiple versus a revenue multiple. Cash printing businesses can obtain valuations based on 6-18X EBITDA based upon the margins and sustainability, with most falling in the 8-12X range. The threshold is 75% gross margin; above that it’s valued as SaaS and commands a premium EBITDa multiple and below that it will be viewed as technology-enabled services business.
Summary / Closing
Established SaaS companies today have really two paths forward today given traditional valuations have collapsed from 16X ARR to 3X ARR. Neither path, however, is going to be particularly easy-to-execute.
The simpler of the two paths is to simply become an EBITDA-producing machine, albeit requiring exceptional margins and massive restructuring and retooling operations in an AI-first manner. Provided that it is sustainable and the amount of ongoing EBITDA is material enough, valuations between 6X-18X EBITDA (with a typical range of 8X-12X) are possible.
The more complex path requires the right product, the right pricing, the right growth rates, the right gross margins, the right net retention, and the right level of EBITDA. It is an extremely delicate balancing act assuming the core seat-based SaaS was healthy to begin with. But, done right – 7X-10X ARR multiples are still achievable. And, in the unicorn case additional profitability can be gleaned – it’s only going to get better from there.
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