Owners all time want to create the brilliant SaaS platform. They make questionnaires for users, add new implementation capabilities, and conduct AB testing of the interface.
But in fact, the main goal should always be to create not a perfect, but a profitable product.
The SaaS pricing model is the foundation for successful cloud software. By the way, according to personal observations, teams spend only 6 hours on a pricing model.
But experience shows that this is not enough, because you need to include a lot of factors.
To help you get the most out of your SaaS platform, we will go over the three main SaaS pricing models and explore the pros and cons of each. There is still more to learn about product pricing, but we will start with essential approaches.
The pricing models described below will tell you about the best ways to enter the market, increase sales, and develop your business.
Flat rates (Flat Rate Pricing) – this is perhaps the easiest way to sell SaaS-solutions: you offer one product, one set of features, and a single price.
In this form, this idea is in many ways similar to the software licensing system that existed even before the advent of cloud technologies, but with additional benefits, plus payment of bills here, as a rule, occurs monthly.
There are a few examples. Thus, the Buffer Awesome tariff plan is only one of many of their more attractive price offers. However, still, some companies continue to use it (for example, eCommerce-SaaS-firm CartHook).
A single monthly price of $ 300 (or $ 2400 per year) gives you access to all the product features:
- increase in monthly profits to $ 50,000;
- unlimited funnels;
- unlimited traffic;
- up-sales after the primary purchase in one click;
- built-in solutions for visitors leaving the basket without a purchase;
- 14-day free version
Easier to sell. Offering one product at a single price allows you to focus all marketing energy on the sale of one clearly defined offer.
Easier to convey. SaaS pricing models can be quite complex, but any potential customer quickly and easily understands a fixed-rate pricing policy.
It is difficult to determine the price that suits different users. If you focus on small and medium-sized businesses and use a pricing strategy focused on them, then there is a chance to miss out on large companies.
Lack of space for maneuvers. Potential customers will either want to receive the package or not. With a fixed price, you cannot do much to influence their decision.
- Payment upon consumption
Payment on the fact (Usage-Based Pricing, also Pay As You Go Model) directly connects the cost of a SaaS product with its use: the more services you use, the higher your account; useless – prices will be less.
In practice, this pricing strategy is most common in infrastructure and platform companies (e.g., Amazon Web Services), where fees are charged based on the number of API requests, processed transactions, or gigabytes of data used
Nevertheless, SaaS companies are increasingly finding new ways to adapt this model, for example, to tools for working with social networks (paid posts are planned) or accounting tools (payment is made for each processed account).
Pay-as-you-go works exceptionally well for regularly renewed billing platforms such as Chargify. By directly correlating the price with the profit, you can guarantee that the price increase will occur only at the same time as the increase in customer income. Thus customers can always afford your services, and a change in price will be justified in their eyes.
“Plans created for growth together with your business” – Chargify charges 1.2% of the income of consumers of its services every month, plus premiums for more advanced options.
The price increases depending on the actual use of the services. Such a correlation is not without meaning: if you have volatile demand and use fewer services this month, why should you pay the same amount as in a good month?
Barriers to use are being removed. The need for significant upfront costs disappears, and even the smallest startups can safely start working with your product, knowing that prices will only increase as the service is used.
Cost accounting for heavy users. In the case of packages with a fixed price, there is always a risk that intensive users will take disproportionate volumes of the resources you supply, without compensating for this with an increase in costs.
Value is separated from the product. Do your users care about the number of generated API requests? Or are they more interested in the seamless integration of two essential software components?
It’s more difficult to predict income. Consumption pricing usually means that invoices will vary from month to month, and this makes revenue forecasting much more difficult.
It is harder to predict customer costs. The same problem applies to customers: those with volatile service consumption may experience unexpected (and sometimes unpleasant) fluctuations in their monthly service bill.
- Differentiated pricing
Fixed price and payment upon use are relatively unconventional strategies for SaaS, but most companies use differentiated pricing (Tiered Pricing). This approach allows you to offer a variety of “service packages” with different sets of characteristics according to different price categories.
The average number of packages is 3.5 – often, this is a low, medium, and high tariff.
HubSpot successfully uses differentiated pricing: each price category is tied to the specific needs (and budget) of different types of potential customers and varies from “newcomers to incoming marketing” (Basic) to “professional marketers” (Pro) and “marketing teams” (Enterprise).
It can be applied to different customers. The presence of only one package deprives your offer of versatility. With differentiated pricing, packages can be customized to find a response among most ideal buyers (Buyer Personas).
Less money is wasted. Turning to several images of ideal buyers, you can maximize the income received from different types of customers. By offering one package for $ 100, you will lose users who are ready to give only $ 10, as well as those who can spend $ 200 (learning from Amazon’s model).
The clear path to upselling. When your client “outgrows” his current package, he will have a direct route to the next price benchmark.
A potentially confusing system. The problem of choice can become insurmountable, and an attempt to solve between ten price categories will result in an unfulfilled purchase.
Search for response among too full of a target audience. Creating a wide range of packages serving all kinds of needs is very tempting, but as they say, you cannot be everything for everyone.
The risk of heavy users. If users of the most high level regularly exceed the volume of distributed services, you will not have the opportunity to resort to collecting additional fees to offset costs.
I hope that this article helped you understand this confusing and multifaceted world of SaaS pricing models.
Conduct user research and compose value offers. Analyze the best-fit pricing strategies and approaches. Test different combinations and discover what works most efficiently.