If you are considering the pricing structure for your SaaS products, you’re correct.
Unfortunately, SaaS company don’t recognize that combining a good SaaS product with appropriate pricing can impact their acquisition process more than anything else.
Pricing your product while maintaining its worth is a tricky procedure, especially in light of the intense competition in the market.
And for this, you should learn your alternatives to pricing models that can help you produce a great pricing strategy that will keep your business financially long-lasting.
Hence, this guide will help you understand the most common SaaS pricing models available. And which pricing model you should apply according to your company’s budget, necessities, and objectives.
What are SaaS Pricing Models?
Pricing models are packages of your SaaS products or services with a hooked cost. Determining the expenses for your products relies on multiple factors, such as the originality of your product, your target market, and the ranking of your business.
However, since it’s the most significant thing that influences your revenue, you should carefully plan which pricing model to employ. Each model has distinct advantages and disadvantages, and not every model is appropriate for every SaaS business.
One remarkable thing about pricing standards in SaaS is that you can quickly change and adjust them as per your requirements. You can modify them as numerous times as you desire. Your prices should correspond to your consumers’ perceived product value.
Further, you can specify different prices for distinct customers with a broad range of investment and revenue streamlets. Pricing in SaaS offers you adequate flexibility and testing options.
Individual clients can also be efficiently tracked, permitting usage-based or per-user pricing.
Various pricing measures have other unique benefits.
To begin with, they can deliver you a competitive boundary. Examining your competition and the price affixed to their products can give you insight into how identical products are billed. So you won’t overcharge or undercharge your products because either can cause consumers away.
Designating a suitable price for your product implies that your possible customers can match value with their budget. They can efficiently justify this outlay, and you can later leverage this for future development.
Different Pricing Models in SaaS
You should carefully consider every pricing model to monetize your customers nicely. SaaS pricing models proceed in and out of fashion, but here are some of the most prevalent ones to examine.
In a flat rate pricing model, users pay one fixed price for a SaaS product. You can charge your consumers the same amount each month or annually, and it’s a good approach for companies with a particular target market.
Though this model relies on a one-size-fits-all method, it’s rarely employed for SaaS because of many drawbacks. Still, let’s converse about the positives first. The advantage of the flat-rate strategy is that it’s a straightforward method and very comfortable to market.
Everyone is knowledgeable about a fixed pricing approach, and sales groups have no issues clearly outlining what consumers get for their funds. The second benefit is that forecasting revenue is valid. Hence it can make the accounting procedure less complex, unlike other pricing models.
Further, the cons that turn many SaaS companies away from this pricing standard include it has no upselling opportunities and that scaling revenue in this is very challenging.
Read Also: Detailed Explanation of SaaS Business Model
Bigger businesses can also exhaust your resources, and you can’t do anything concerning it since they pay the same charge as your smaller buyers.
Additionally, give up on contacting enterprise companies to upscale. Fixed costs with a predetermined set of features won't appeal to these customers because they desire personalized plans. This model uses mainly by corporations that trade physical products.
In the usage-based SaaS pricing method, you can ask your customers to pay depending on how much they utilize your product. It’s also called the pay-as-you-go strategy.
It’s a very evident pricing measure since the price relies entirely on how much your customers will employ your product at a particular time. Determining the use depends on your product—the number of emails sent, done deals, calls, etc.
Consumers generally perceive it as the fairest approach. It’s helpful for organizations with products that rely on their customers’ expansion.
Further, you can provide one-off or bulk services that your consumers won’t employ daily; they only obtain what they pay for based on their current demands.
This model also has some advantages, like its flexibility. Users are delighted to adhere to your service when they know they’re not committed to a particular plan.
They might pursue other solutions if they don’t operate a product to its entire prospect, so having the ability to pay based on their requirements in different terms is valuable. Also, everyone can do business with you since your pricing is fully adjustable to their necessities.
The disadvantages include customers usually can’t perceive the value of a product at first glimpse. The size of your company sometimes isn’t imaged in the usage. Big organizations may not use your product as much as small startups. So you can lose potential revenue.
In a tiered pricing approach, distinct versions of the same product have assorted expenses.
Each tier has a typical set of advantages with a cost usually estimated to convince the consumer to opt for the highest possibility.
As a result, the priciest levels have more affordable prices and a more comprehensive selection. To cater to a broad spectrum of clients, businesses typically construct 2 to 5 tiers. The initial tier is frequently a freemium or a trial to draw clients in.
Multiple SaaS businesses employ this method because of its advantages, like a sizeable upselling opportunity. Also, users with restricted features in the freemium model can switch easily once they see the product’s value.
Read Also: What is a subscription business model?
Like the usage-based methods, you can enhance your market stake and demand to beginners and advanced users. You can also provide their picks to use your product based on their requirements, thus improving their customer experience.
You can price your product based on the qualities you present to your customers. It’s very identical to tiered pricing since the number of features presented in a product ranges in price.
However, the per-feature pricing method concentrates entirely on features, while the tiered pricing model can contain anything—characteristics, count of users, usage, etc.
The wonderful thing about this pricing model is that as your clients prosper, they can scale with your service simultaneously. Hence, upgrades are connected to their business development, which is an excellent indicator of your maturation.
You can also examine which features are the most employed, saving on prices for upgrades and maintenance on parts your customers don’t use.
Freemium plans are unsuitable for all SaaS companies. It is a pricing model in which you deliver the basic version of your service for free for an indefinite time. Companies usually construct them to facilitate users to become expanding customers.
You can restrict your customers in your freemium schemes on available characteristics, usage, capability, or support. However, freemium strategies are not a one-size-fits-all kind of model.
The most prominent attraction of freemium models is delivering value before monetization. Consumers enjoy the lack of commitment, and organizations can use this as an opportunity to construct business relationships.
The con is that some clients might satisfy with the qualities that you include in your freemium, so they never sense the demand to upgrade.
You can utilize your current customer base to build cross-selling possibilities. If your consumers want more from your service but don’t desire to commit to a planned advancement, you can try raising the services within their existing scheme.
Sometimes they don’t require a complete set of new attributes but a minor addition, so this is your cross-selling possibility. You can do several things in this model, like create additional features for your original service. And you are selling third-party products that combine with your product.
The per-user pricing permits companies to scale their revenue depending on user adoption in the customer’s enterprise. Customers are only authorized based on the number of people who operate the product.
Thus, it’s moderately easy to forecast revenue and for shoppers to budget their spending. Recently, numerous have left per-user pricing, claiming it’s not bearable for SaaS.
However, it depends on your product type and your target market. The per-user method performs well with SaaS desired at teams and firms. Both add new customers daily, and their business scales, so their SaaS requirements.
The per-active-user pricing is more appealing for users because they only spend for active accounts.
While all your buyers have unlimited access to your product, there is a chance of misuse of your pricing model.
It is a fantastic model for big companies that must implement new solutions company-wide. When they’re only assessed for the number of individuals who actively use it, there is more possibility for overall user adoption and more rare chances of churn.
Further, the per-active-user plan doesn’t work with small groups since the company-wide implementation is assured. And yet, even though some consumers have access to the product, they might not utilize it.
In the SaaS industry, pricing models, are constantly evolving, and businesses are continually looking for the one that best suits their business strategy.
Don't give up if you weren't able to figure out the answer immediately away. Knowing your selections makes it simpler to choose the one that will increase your revenue in the desired manner.
Moreover, Noetic IT Services hopes that this article will assist you greatly in forming a pricing model for your SaaS business; if you have more questions, comment to us.