How much you charge for your service impacts how people see it and whether your company stands to make a profit. SaaS (software as a service) pricing models that balance flexibility, value, and revenue perform best.
These models include different pricing levels and features that fit various customer preferences. Choosing the right pricing model for a business with ongoing revenue can ensure a steady income and support growth. A well-thought-out pricing model encourages trials, promotes adoption, and fosters long-term user loyalty.
A recent study shows that over 80% of SaaS companies have updated their pricing strategies in the past two years. However, another study states that businesses only spend 6 hours on their pricing strategy in the entire operating history — not nearly enough to get it right.
Read on to discover the pros and cons of SaaS pricing models. We’ve also included tips on how to create and customize your own pricing model to bring the highest value to your customers.
The first SaaS pricing models were as simple as they were ineffective. Client companies used to purchase licenses based on a per-user approach. This offered little value to the end user, as it did not cater to their specific needs.
Later on, subscription pricing took off. Users would access the product based on a recurring price, billed annually or monthly. This was beneficial for both the user and the provider. How? It made billing predictable for the user and ensured a steady income for the SaaS company.
As tiered pricing started to emerge, value for the end user increased. Clients could now choose the best package for their changing needs regarding features, data limits, and user numbers. Tiered pricing was also very convenient because it worked for businesses of any size and profile.
SaaS pricing models changed as customer expectations evolved. When perpetual licenses turned into subscriptions, starting costs went down. This made SaaS accessible for businesses of all sizes, including startups.
🎯 SaaS pricing models now allow for more flexibility and personalization than ever before. They include free trial tiers that foster client trust and reduce risk. This means people no longer have to commit to a product they are unfamiliar with. Clients who do commit to a product want to pay only for what they need, so they will seek providers offering just that.
Pricing plays a crucial role in the scaling of a SaaS business. It serves as a balance between attracting customers and maximizing revenue. SaaS companies can appeal to a broad audience by implementing flexible pricing models. This approach promotes sustainable growth by aligning product value with customer preferences.
Here are the most common SaaS pricing models businesses use to attract customers:
This pricing strategy allows you to provide basic services for free and charge for advanced or premium features.
👍 Best suited for: Products that benefit from wide adoption. Can clearly differentiate between basic and premium offerings.
Image source: wistia.com
Pros:
Cons:
This model has customers pay a recurring fee at regular intervals (monthly, quarterly, annually) for access to the software.
👍 Best suited for: Services offering continuous value over time and requiring regular use.
Image source: textmagic.com
Pricing is determined based on the actual usage of the service. The final calculation considers the number of transactions, the volume of data processed, or hours used.
👍 Best suited for: SaaS products where customer usage varies. Usage can be measured accurately.
Image source: zapier.com
This model offers different pricing levels based on the features or capabilities included in the package.
👍 Best suited for: Products with many features that appeal to different customer segments.
Image source: wix.com
This model is similar to feature-based pricing. However, it arranges products into different packages or tiers. Each tier has progressively more features, capacity, or other benefits.
👍 Best suited for: SaaS products that can organize their features into categories for various customer groups.
Image source: betterproposals.io
In a per-user pricing model, costs depend on how many people use the software. Providers can also calculate the final cost based on how many licenses the client needs.
👍 Best suited for: SaaS products used collaboratively by teams or organizations. Usage scales with the number of users.
Image source: app.slack.com
As you can see, it’s important to have varied strategies to adjust to different client needs when pricing your SaaS product. Let’s see how enterprise SaaS pricing differs from its small to medium business (SMB) counterpart.
Enterprise SaaS clients need flexible solutions that can be customized. They already have systems and workflows in place, so any service they acquire has to fit into their existing structure. This includes bespoke software versions and customized features they can’t find in standard packages:
The price matches the degree of customization and is, therefore, flexible. As the solution scales, so does the price. The price will then reflect:
Enterprise clients usually acquire in-bulk subscriptions, so they get volume discounts. This reduces per-unit costs, helping both the SaaS provider and the client gain financial advantages.
Discounts are also available for clients that commit to long-term contracts. These contracts ensure predictable, recurring revenue streams for the software provider. They often include a scalability clause, enabling enterprise clients to tweak usage levels as needed.
Because enterprise deals are so personalized and flexible for potential market shifts, they require extensive negotiations. This is where the client’s needs and the provider’s capabilities meet head-on, covering aspects like:
🤝 The goal is to reach a mutually advantageous agreement. SaaS providers foster long-term relationships that can lead to upselling or cross-selling opportunities. At the same time, the client finds the best solution for their needs.
Keeping pricing simple and clear is vital for SMBs to manage their limited resources. It helps them make better financial decisions and plan their budgets more effectively. This prevents billing discrepancies, ensuring no surprise fees make their way into the ledgers.
Inclusive pricing helps promote transparency. It avoids hidden fees by covering all essential features in one monthly or yearly payment. This way, SMB clients know what to expect from the start.
SMBs prefer monthly subscriptions because they require a lower initial investment. This helps them stay within budget while testing different products to see what the best fit is. SMB owners usually prefer paying for services monthly. They want to save the rest of their money for unexpected costs that frequently occur in smaller businesses.
Feature-based pricing models ensure SMBs only pay for what they need and can scale their pricing plan as their business grows. Each development stage benefits from increasingly competitive features, but initial costs are low. This makes company owners feel like the value they receive is high.
Pricing model templates help you standardize your pricing strategy across offerings. They help ensure consistency, transparency, and ease of understanding for potential customers.
Here is a step-by-step guide to creating a basic SaaS pricing model template. It aims to facilitate easy adjustments as the market, competition, or your product evolves.
We’ve compiled a couple of SaaS pricing model templates to help you get started. They are fully customizable, so tailor them to your business needs.
This model is ideal for SaaS companies offering simple products to a specific audience. It’s also good for making buying decisions easier for customers.
This model offers various tiers to cater to different segments of your market. It allows customers to choose the package that best fits their needs and budget.
At this stage, you likely have a more profound understanding of creating a SaaS pricing model. We invited Alexandra Ilie, our product marketing manager, to share insights into what makes one successful:
“The key to a successful SaaS pricing model is understanding your customers’ journey and value perception. It’s not just about covering costs or maximizing short-term profits; it’s about aligning your pricing with the customer’s success. This alignment ensures that as your customers grow and derive more value from your service, your pricing strategy supports and accelerates this growth rather than hindering it.”
Follow these practices to ensure that your SaaS pricing model turns into a successful one.
To optimize your pricing strategy, you need to employ various tests. Start with A/B testing different pricing tiers, discounts, and promotions to see what works best for your audience.
💡Customer usage data provides great insights into which features your clients prefer. Adjust your pricing strategy accordingly by placing preferred features into Exclusive or Premium plans.
No matter how good your value proposition is, clients can’t know it fits their needs until they try out your product.
🛠️ The key to creating the perfect pricing plan is outlining how your product solves clients’ problems better or differently from your competitors. Once you’ve grasped the real value of your SaaS product, you can adjust pricing to match it.
Customer feedback helps you assess if your product aligns with its perceived value. It offers insights into which features clients appreciate most.
📌 Don’t just create standard pricing models. Allow users to choose which features they need most and set the price accordingly.
SaaS markets are subject to constant change. As technology evolves, so do customer preferences.
As the SaaS landscape continues to shift, so will pricing. Clients are increasingly interested in personalization and gaining full control over which product features they want to use. SaaS providers will continuously adjust their pricing models to reflect that, leading the way to tailored subscriptions and dynamic pricing strategies.
The advancements in machine learning and in-depth analytics will also impact SaaS pricing strategies. They will generate models that can be tweaked based on usage patterns, perceived value, and customer behavior. Artificial intelligence (AI) will be able to predict emerging market trends, setting the pace for real-time pricing modifications.
Stay tuned to our blog to find out more about SaaS pricing trends.
Raluca Mocanu is a seasoned content writer, specializing in content marketing since 2016. With a strong focus on customer behavior analysis and SEO optimization, she crafts compelling narratives that drive engagement and boost conversions.
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