Guide to SaaS Pricing Models and Strategies

March 10, 2022

Businesses of all sizes choose SaaS over traditional software delivery methods because it offers low initial costs and more flexibility. Aside from these, there is the scalability that comes with a service-based model and integration and usability.

SaaS companies can offer new features to their customers without changing the software they are using. This is especially useful for growing businesses that may not have enough resources or time to upgrade technologies.

SaaS can be a little more complicated than it seems at first glance. There are some things to keep in mind if you want the best return on your IT investment.

Businesses need to consider flexible and scalable subscriptions because business needs change over time. If a company can’t adapt quickly, it will not keep up with market trends.

No matter what subscription model you choose, it should be possible to scale up or down in less than a month. This will allow your business to increase without any downtime.

One of the most important factors to consider when introducing a SaaS tool is how flexible its pricing model will be. If it’s very flexible, then there are more opportunities to earn a return on investment and adapt to changes.

This guide will provide the most popular SaaS pricing models and strategies. These should help you decide which one is best for your needs.

SaaS Pricing Models

pricing strategy metrics

Per-user Pricing

Per-user pricing is a popular choice because it’s so simple. You pay for the number of users, and you can choose any price per user that fits your budget.

With a per-user pricing model, the company only has to decide how many users they want and then pay accordingly.

SaaS models are an excellent option for small-scale businesses that still want to test the waters of using Saas. This way, you can get an idea of whether or not it is suitable for your business by selecting employees from within and assessing their experience with the model.

After you learn about how SasS models work, it is up to you whether the model will benefit your business.

Per Active-user Pricing

Per active-user pricing is a variant of the per-user model, and it can be used by enterprises that are not sure how many people will use their software. It works for businesses with many users but may want to restrict access based on usage.

With this system, businesses can sign up for as many users as they want without paying the total price. There will be no charge if that user does not use it or if their account lapses.

Slack has a great business model. You only pay for active users, but they are still charged on prorated credit if an inactive user comes back to the service.

This pricing strategy is perfect for businesses that constantly hire and fire employees. This saves you money in the long run because you won’t have to keep paying an account once it’s no longer being used or lose any of your existing accounts when someone leaves.

Usage-based Pricing

Businesses that want to use the pay-as-you-go pricing model can only buy services when they need them. This is mainly used for cloud computing, which has unpredictable usage patterns.

Usage-based pricing is when you pay for what you use – for example, data usage in GBs or API requests.

It is essential to consider all the advantages and disadvantages of this pricing strategy before you decide. If your business operates similarly to Amazon Web Services, it might be worth testing out but do not expect things to go well if they don’t.

This pricing strategy is a gamble and can be difficult to predict. Not accounting for this when planning an operation could lead you to bankruptcy.

Tiered Pricing

Tiered pricing is a way for SaaS providers to offer different software packages at different prices and features.

HubSpot offers tailored pricing for different levels of marketers, which is helpful if you need to provide specific features or functionalities. The main advantage of tiered pricing over other models like per-seat licensing is flexibility; however, businesses must consider what they need before choosing their plan.

Features/Functionality based Pricing

Businesses can choose and pay for the features they need to find what works best in a feature-based pricing model. For example, you will have more integration options and upgrade your package as required with an expensive subscription.

Pricing for a service is not as simple as looking at the cost of your materials and multiplying that by two. The price has to be worth it for both parties, which means you have to know what’s involved in making an informed decision.

Flat Rate Pricing

A flat-rate pricing structure is similar to the traditional software licensing model.

With SaaS, the price is fixed, and you pay on a monthly, quarterly, or annual basis. The main difference between these two models is that there’s more flexibility in how much you want to spend with flat-rate pricing.

Businesses that offer this model will have a more predictable budget and easier planning, but it is rare to find companies with these features.

If you are a small business, fixed-price software might not be the best option because it can make scalability and customization difficult. Fixed pricing means that if your company is growing quickly or needs more features or functionality to increase, this type of program may not work for you.

Freemium Services

One way to offer software is through freemium pricing, which allows businesses of all sizes to try out a solution before deciding on whether or not they want it. Users can use the free version for limited functionality and can upgrade if they feel satisfied with what was offered.

In the past, when a user purchased an app, they would have to pay for all of its features. There is a pricing model where users can start with only some parts and upgrade as needed.

Some freemium services, such as Spotify and Pandora Radio, are ad-supported. Users can watch ads or pay a fee to remove them.

Customizable Pricing

Many SaaS providers allow businesses to customize their pricing model. They can pick the package that best suits them while still using any of the features they want.

The pricing model for small and medium businesses is good because they know what they need.

In Sum

There is no one-size-fits-all pricing model in the SaaS world. There are different budgets for SMBs and LMBs than for enterprises, while small businesses need to be mindful of what features they do not want to sacrifice.

Different SaaS pricing models allow companies of all sizes to purchase the features they need without wasting money on additional items.

Many factors go into choosing a suitable pricing model, but it mainly depends on budget and forecasted growth. The SaaS model has made things easier for small to medium businesses because they don’t have to invest heavily in their IT infrastructure before taking advantage of modern technologies.

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