You have an outstanding SaaS product with features that provide great value to your customers. But how do you price the product to remain competitive yet not compromise with profits?
We get it, pricing is hard; you do not want to scare off your prospects by setting the pricing too high. You also do not want to leave money on the table by pricing your product too low. After all, you want to be compensated fairly for your hard work and the value your customers get out of your product.
Setting an optimal pricing strategy is a very important step for any SaaS business. A complicated pricing model can confuse your customers and be a cause for customer churn in the future. So it's always advisable you provide a clear idea of your product features and how much your customers are paying for it.
Before you set up a pricing model, it is ideal to perform a comprehensive analysis of your business model and answer the following questions:
Now that you have answered these questions, let's dive into the different models available to you to monetize your product.
There are several types of pricing strategies to choose from depending on your business, your product features, and use cases. In this guide, we will look at the different pricing models and their pros and cons.
Usage-based pricing or pay-as-you-go pricing model is dynamic pricing that is configured based on how much usage is consumed. This model is often used by businesses that charge their customers based on the number of API requests performed, transactions processed, bandwidth used, or a percentage of revenue made.
This pricing method is commonly used by SaaS and IoT companies. Zapier has a usage-based pricing model where people are charged based on the number of “Zaps” or tasks they use.
The flat-rate pricing model is a one size fits all pricing strategy where customers are charged a fixed amount monthly, quarterly, or annually depending on their chosen subscription package. This is one of the simplest SaaS pricing strategies: everyone gets the same features and pays the same price.
Basecamp, a remote working tool uses the flat-rate pricing model effectively by clearly explaining its simple pricing strategy.
This is one of the best, and most commonly used B2B SaaS pricing models. With tiered pricing, you can offer different packages, with separate features, customization, and pricing for each level. The pricing also differs depending on product usage or the number of users allowed to access the digital product.
This model offers multiple tiers to choose from and works for both small businesses and startups and enterprise-level accounts. Tiered pricing allows you to tailor the pricing based on different customer personas.
Hubspot has a tiered pricing model and there is a big jump in pricing each time you get to a higher tier. The software is priced to be used by small businesses all the way up to enterprise-grade teams.
The per-user pricing model as the name suggests charges businesses based on the total number of users that are registered to use the software. This pricing strategy is simple and easy to adopt, so it's one of the most commonly used models by SaaS businesses. With per-user pricing, you can easily forecast recurring revenue as it charges each user account.
Canva charges on a per-user basis. They have three packages wherein each package comes with additional features.
Freemium model is a common SaaS product pricing strategy where you let customers use certain features of your product for free. This is a great marketing and lead generation tool for your business.
The freemium model is used as a part of the tiered pricing model, allowing potential customers to first use the product for free before upgrading to the paid version of the package. If your product provides great value, your customers will likely upgrade to the paid version.
Several leading SaaS companies like Dropbox, Slack, Zapier, etc. use the freemium model to allow potential customers to experience the product before paying for it.
Mailchimp offers a free version which they offer to accounts with less than 20,000 contacts. The freemium model acts as a lead magnet and allows the company to acquire and grow users before they can grow in size and are ready to become paid users.
Now that you have some insights into the different strategies for pricing a SaaS product, you are better positioned to analyze and understand which one is best suited for your business.
As you may have already noticed, all the pricing models discussed in this guide have both pros and cons. Some of them may be more suitable for your business now. As you grow and scale your business, a different pricing strategy may be more effective for you. So, it is always advisable to evaluate and revisit your pricing strategy every few years whether you are a SaaS startup or a large organization,
Here are 3 key takeaways we would like you to remember about SaaS platform pricing -
We hope that you found this guide helpful and are closer to finding the best SaaS pricing model for your business.
Ryan is a seasoned telecommunications expert with a broad background in both the service provider and software vendor sides of the business. Ryan is currently responsible for worldwide sales at LogiSense. During his tenure, Ryan has held executive level positions including Senior Sales Executive, and Director of Sales. In these roles, he has provided strategic sales, product, and market guidance for our next generation IP service management solutions.