The greatest challenge for SaaS companies is pricing.
If you intend to grow a profitable business, choosing the right SaaS pricing model is critical. However, according to Price Intelligently, most companies spend only 6 hours on their pricing strategy in the entire history of their business.
“That’s kind of like trying to power a jet with a steam engine.”
Fortunately, there are a variety of strategies and ideas you can apply to your SaaS pricing model. Strategies that can be, and should be, modified and altered every few months to improve your business results.
So, let’s take a look at some of the most common SaaS pricing models used today and how you can fine-tune your services.
- Flat-Rate Pricing
Flat rate pricing is one of the simplest forms of SaaS pricing. It works like this: you offer a single solution, a single set of features, and a single price.
This is similar to the flat rate pricing used for software licensing models used before the existence of cloud infrastructure. However, this model comes with the added benefit of being billed monthly.
A great example of flat rate pricing was Buffer’s Awesome plan. This simple flat fee introduced users to their platform in the initial startup of their business. Since then, they have changed their model to use a different pricing strategy (See Tier Pricing Model).
- Per Feature Pricing
If your service can be differentiated by different features, you can offer upgrades and tiers to access your service. Many customers are used to making decisions based on features.
For example, when someone wants a computer, they have various choices. From a basic computer to a high-end model with all the bells and whistles.
The key to success for feature-based pricing involves obvious value at different tiers. If these features can be distinctly understood, it allows buyers to position themselves in the right tier for their business and move up as their needs grow.
GoToMeeting uses a per feature pricing model which is clearly outlined in their pricing table. As you upgrade from Starter to Enterprise, you unlock more features and functionality.
- Per Account Pricing
If your business allows multiple accounts to be integrated into your service, you can use a per account pricing model. This is the same pricing model Buffer now uses.
All features remain the same for their Premium, Small Business, and Medium Business subscription. However, the difference is, you can add more social accounts to the platform.
- Pay Per Usage (aka Pay As You Go)
In the “Pay As You Go” SaaS pricing model, customers are charged entirely on usage. The best example of this is Google Cloud Computing. This has a great advantage because it allows small companies to get started at a lower cost and scale up as they grow.
There is minimal worry about pricing to get started with a pay per usage pricing model. However, it can be difficult to calculate costs if they’re not entirely sure what counts as “usage.”
Back to Google. From a performance point of view, Google’s pay per use has allowed them to quickly tap into the market of cloud computing. In a recent report, it was found that Google is the leader in affordable, cost-effective pricing for their small to large Virtual Machines.
Access the full report here.
- Per User Pricing
Right now, a trend in SaaS pricing appears to be per user pricing models. In a survey by Pacific Crest, they found that per user pricing was the most popular used across various companies they surveyed.
This pricing model is simple and straight forward as it reveals exactly how much a user will be charged to access the service.
Google’s G Suite charges per user per month. It’s a straightforward plan that allows users to have access to a custom email address for their domain or organization.
- Per Active User Pricing
Similar to the per user SaaS pricing model, per active user pricing a straight-forward and transparent billing method. If a user becomes inactive, billing stops. This is a great guarantee for SaaS companies targeting a large user base in an organization. If an employee stops using, it reduces the worry of unnecessary costs for a service that is not being used.
Slack has one of the best examples of per active user pricing. In their “Fair Billing Policy”:
“At Slack, you only get billed for what you use. So you don’t pay for the users that aren’t using Slack. And if someone you’ve already paid for becomes inactive, we’ll even add a prorated credit to your account for the unused time. Fair’s fair.”
Essentially, they offered a free-to-use product with supplemental, add-on features (to be purchased).
Freemium pricing models are typically used with tier SaaS strategies to encourage users to try things out, get comfortable with the basic features, then upgrade over time.
It’s a strong strategy to onboarding a large number of users which can be nurtured throughout your sales funnel.
Evernote continues to use its Freemium model but also promote its Premium and Business tiers with a free trial.
Deciding Your SaaS Pricing
When it comes to your SaaS Pricing model, be sure to analyze the performance of the model you use and modify it to see major changes lead to better results. You can change your pricing up or down, add new tiers, or include free entry-level access to onboard new users.
Here are some of the main categories you can change in your pricing:
- Raising or lowering prices: If you are collecting data about your users, you’ll get to see exactly where your prospects and customers sit on the pricing scale. USe this data to alter your pricing to maximize revenue and conversions.
- Acquisition changes via free or free-trials: Which aspect of your service can you offer for free? How long could a trial be? Test this to see which leads to the most users signing up and staying with your business.
- Expanding or contracting tiers: If you upgrade your service or shuffle the access to features, which sets can be segmented to add more value to both your users and your business? Sometimes, people just need to see the right set of features to make the leap from a lower tier to the upper tiers.
To learn about SaaS Marketing Strategies, read this.