Whether you are deciding or considering a SaaS pricing model for the first time, the process of deciding on the best pricing model can be equally complex. However, for successful SaaS, it is important to choose a pricing strategy and evaluate the appropriate pricing model.
But how do you choose the model that your customers prefer when pricing SaaS? First, you need to understand how SaaS pricing differs from traditional product pricing. And understand the different SaaS pricing models. Then you can choose the one that best suits your business.
What is SaaS Pricing?
Choosing a SaaS pricing models for a SaaS product is a bit more complicated than pricing a traditional product. In a subscription-based business model, customers pay a fixed amount on a regular basis in exchange for continued use of the company’s SaaS products or services.
This means that SaaS companies do not rely on one-time purchases to determine the right balance of value and revenue that can serve their customers and earn significant rewards. In addition, the products are centrally hosted, giving you even more flexibility to offer your products in different variations.
These factors allow SaaS companies to create a variety of subscription options, but they also mean that they need to consider further when choosing a pricing model.
Successful SaaS Pricing Models
Pricing plays a major role in the success of your business. To choose the right pricing model, you need to understand the best SaaS pricing model and its main strengths and weaknesses.
Pay-Per-User SaaS Pricing
PayPerUser, also known as Per Seat, is a widely used SaaS pricing model. Monthly charges for products (or services) are based on the number of users. Customers pay a fixed monthly fee for each user in their account. If you want to add another user, the price will be higher.
Similar to flat rates and traditional software licenses, the user-based model provides full product access. Customers can easily understand and calculate their monthly subscriptions. In addition, each user account is charged, allowing SaaS companies to more accurately predict revenue. However, per-user pricing does not reflect the true value of the product and may limit widespread adoption. And even higher churn rates.
Pay-As-You-Go SaaS Pricing
The pay-as-you-go model is directly related to the use of SaaS products. The more products or services you use, the more you spend. Common examples of usage-based pricing include billing per action, percentage of transactions processed, or gigabytes of storage used.
Customers often find the usage-based model to be the fairest because it is proportional to usage and has no hidden costs. The low initial cost means that individual users with low product usage and small startups can afford it, but heavy users pay a price proportional to the increase in usage. The downside of SaaS companies using the pay-as-you-go model is that the value of their product is separate from the product. Also, usage-based billing can vary from month to month, making it difficult to predict revenue and customer costs.
Feature-Based Pricing Model
Feature-based pricing models are sometimes referred to as “add-on” pricing. This is because the customer pays an additional amount for an additional feature set that is not part of the core product. In this pricing model, price is directly linked to the value of the product. A higher price range that offers a wider range of features.
The good news is that feature pricing gives customers a clear reason to upgrade, assuming they need additional features. SaaS companies can also adequately supplement high-cost features by including them in higher-level packages.
However, customer needs are so different that SaaS companies can struggle to combine the right features for each tier and discourage hiring. Also, customers may not be happy to pay a monthly fee to use the product, but they may have missed some important features.
Tiered Pricing Model
Gradual pricing is the most common SaaS pricing model in use today. This approach allows enterprises to offer different packages that combine different feature sets at different prices. Depending on the type of product, the hierarchy may be based on the number of features available, the number of user accounts, or usage. There are usually two to five layers that customers can choose from. By using tiered pricing, companies can target a wider market to serve, increase market share, and maximize potential revenue. It also gives you the opportunity to choose the best plan for you. While leaving room to upsell customers to a higher level.
However, if the layer isn’t created based on the needs of the targeted customer, if the name is wrong, or if there are too many choices, the customer can be confused, overwhelmed, and left without buying. There is sex.
Freemium (Free-Based Model)
Freemium is another common example of SaaS pricing. This allows businesses to trick customers into using free versions of their products. Freemium is usually part of a step-by-step pricing approach where regularly paid packages are offered with free entry options. However, this free option has various restrictions to encourage customers to upgrade. Limit the availability, capacity, or usage of features. The freemium model is perfect for pulling customers out of the door and maybe a virus. It’s also ideal for testing new features without bothering revenue-generating customers. However, the conversion rate from free to paid customers is so low that you can lose revenue. And it makes abandonment much easier, which can reduce the value of the product to the customer’s eyes.