If you’re a startup looking for the best way to monetize your software, look no further! In this post, we’ll explore the 4 best software monetization models for startups. From subscription-based models to lead magnets, there’s sure to be a model that fits your business perfectly.
I remember when I was first starting my software company. I had no idea how I was going to make money off of my product. But after doing some research and exploring different options, I found the perfect model for my business: subscription-based pricing. With this model, I was able to charge customers every month and provide them with access to all of our features and updates. It worked out great for both me and my customers!
Software Monetization Models
There are a variety of software monetization models, including subscription, pay-per-use, and advertising-based.
In a subscription model, users pay a regular fee to access the software.
In a pay-per-use model, users are charged based on their usage of the software.
In an advertising-based model, the software is free to use but includes advertisements.
What is Monetization?
A monetization model is a way for you to make money from your product, service, creation, intellectual property, or even your personal brand. This could be done by charging for downloads, adding in-app purchases, including advertisements, or any combination of these methods.
Depending on the product, there may be other monetization models that make more sense. For example, if you have created a piece of valuable intellectual property, you could choose to license it to others for use with their own branding.
You could also sell access under your brand, or create free access with a freemium upsell.
What is Software Monetization?
The strategy of maximizing the profits of software products and devices is called “software monetization”.
Software monetization is a strategy employed by software companies and device vendors to maximize the profitability of their software. The process of software monetization ensures that your software is safe and perfectly fit for the market, thus maximizing your software revenue.
You obviously have put a lot of time and energy into building your software.
Now your goal is to sell your product or service to the right people and earn a profit.
Without a proper plan for monetizing your software products, all your hard work could go to waste. Make sure you take the time to plan out your strategy to maximize revenue from your apps!
One of the biggest mistakes that start-ups make is not monetizing their software products correctly.
An application isn’t worth anything until it starts to generate some revenue — Sofiya Merenych, Business and Tech Writer
An app is only as good as its ability to generate money.
Pricing Strategy 1: Monetizing by Free Trial
Christina Bechhold Russ is the Director of Samsung NEXT. Part of her role is finding early-stage startups that are aligned with Samsung’s investments and acquisitions. She led a $2.5 million investment in a company called Beekeeper.
Beekeeper created a mobile-first platform for non-desk employees to collaborate and communicate. This was something never seen before and had the potential to make a big difference.
Most digital tools and services are designed for desk workers. However, many non-desk workers and managers still rely on paperwork for day-to-day communication and organization.
The Beekeeper Free Trial Model
When deciding how much to charge for your services, the first step is to figure out what your value is. In other words, how are customers using your product? Are they saving money? Are they earning from it?
Another crucial monetization component is who is your ideal customer?
Once you figure out which of your customers are likely to purchase your software products, all you need to do to turn a profit is fulfill those expectations.
Beekeeper chose the free-trial monetization model because customers that purchase services like the one they offer prefer to test out the product before committing to a contract.
On the other hand, the freemium model is more suited to small businesses where software is paid for with a credit card.
Beekeeper does not display its prices online because each client has specific needs so the price of the service will vary.
Common Mistakes in Pricing
One of the biggest pitfalls in software monetization is setting a price too low. Startups often choose a price point that is hard to resist but that will usually attract customers who do not see the value of your product.
If you are solving a real business problem, then customers will be happy to pay the appropriate price. Ideally, as you continue to grow and expand your reach within the organization, they’ll be willing to pay even more over time.
Another common mistake that software companies make is adopting a “per user per month” pricing model. This isn’t always the best strategy and can cause issues in the future.
Also, freemium pricing can be tricky and is often overhyped.
Pricing Strategy 2: Freemium
AJ Bruno has founded two SaaS companies — a PR software called TrendKite which he sold to Cision for $225 million, and QuotaPath which is a tool for commissions.
TrendKite was a startup incubator, it went from idea to product to monetization in three months. At the end of that period, they had three paying customers.
Since his background is B2B cold calling, he continued doing that — cold emailing, cold calling, setting up a demo, and finally closing.
Out of 100 prospects, they closed two to three every two months!
As a Cision-owned company, TrendKite is still marketed as a free trial product. But QuotaPath is slightly different.
The QuotaPath Freemium Model
With the product-led approach to marketing, Bruno decided to offer a freemium version of his product.
Individual reps and sales managers can use the QuotaPath app completely free. The company believes that before it starts charging for the software, it should provide users with a great user experience – something that will make them want to come back.
Because customer satisfaction is a priority, they made sure they were fulfilling customers’ needs first.
Bruno’s focus on product and customer retention comes from his previous experience with TrendKite.
TrendKite doubled down on its efforts to acquire new customers instead of keeping their existing ones. Because of that, customer retention suffered. Bruno is making sure that won’t happen to QuotaPath.
The freemium model works when the core of your product is high quality and people see the value in the premium version. A good example of this would be Slack.
Pricing Strategy 3: Pay As You Grow
In 2011, Itai Lahan, Tal Lev-Ami, and Nadav Soferman launched Cloudinary which is a cloud-based image and video management platform.
The inspiration behind Cloudinary was a story known to most software developers: they needed to solve the same problem, so they created it for their own needs.
After realizing other development teams struggled with the same issue, the team decided to repackage their solution and sell it to other companies.
After just a few months, the startup had attracted several paying clients and was gaining steam. Now, the company offers three different tiers of paid services — Plus, Advanced, and Custom — along with a freemium version.
Some of its high-profile clients include CNN, TED, Just Eat, Trivago, and WeWork.
Lahan attributes much of Cloudinary’s success to its developer-centric approach in the early days, which helped them grow organically through word-of-mouth from the satisfied developer community.
They also appreciated honest feedback, which allowed them to improve their product.
As it continues to grow its software, Cloudinary will always be committed to its roots — developers building for developers.
The Cloudinary Pay-As-You-Grow Model
With a free plan and tiered pricing, Cloudinary allows people to use their app for as long as they want before committing.
The three different pricing plans reflect the different levels of experience the developers have, allowing clients to “pay as you grow” or scale-up.
With no external pressure from venture capitalists, the team can focus on the needs of its developer community as the platform continues to grow.
From the outset, they knew that they wanted to offer more than a free trial. A free plan and multi-tier pricing would allow developers to try the product and then use it for as long as they like.
By focusing on the success of your clients, you ensure your own company’s growth. As the needs of your clientele grow, so do you. This is an excellent way to ensure that you and your client are both always growing and succeeding.
Being bootstrapped allowed Cloudinary to chart its own path. It’s impossible to know whether they would have succeeded had they taken outside funding.
Their success was in large part due to organic growth, which allowed them to build the foundation and culture that they wanted.
Freemium vs. Pay-As-You-Grow
Some might argue that pay-per-grow is a sub-category of freemium pricing.
So, what’s the difference between these two?
Offering a free, limited version of a product is a way to get customers hooked on your product and convince them to upgrade to the paid version.
The pay-as-you-grow model is designed for businesses that will need more a resource as they expand. This type of pricing allows companies to only pay for what they use when they need it.
Pricing Strategy 4: Software as a Lead Magnet
Marie Poulin and Ben Borowski run a creative digital agency called Oki Doki. They help businesses plan, design, and market their digital products and services.
When they launched Doki years ago, it was designed to help small businesses create online training courses and knowledge bases.
Doki was a product of client services that involved custom design, development, and integrations for entrepreneurs.
The tools help deliver services more efficiently and quickly.
But, in this case, the software isn’t the main source of income. A lot of customers who were signing up for the software needed help beyond just using the product.
Many course creators were jumping in without laying the proper groundwork for success. Without a sound foundation, their online course was doomed to fail before it even got started.
Doki helped open new doors.
The course creation software was appealing to beginners, who were using it to create simple online courses. However, many of the users were having trouble monetizing their courses and making sales.
They didn’t have any experience doing any research and didn’t have any technical knowledge.
As the course business grew, they realized that they could use their product demonstrations as a lead generator for their higher-end consulting work. By giving potential customers a demo of their products, they were able to generate interest in the services they were offering and turn them into paying clients.
Many of their new clients hired them on a retainer basis for 10 times the monthly fee!
They were not against doing a pure SaaS model, but they were mistaken in thinking that after the software solved their problem, that alone would be enough to keep them happy.
They also created their own training course for their software, and they invite customers to book demos, but if they need more help.
Their free training is also a great way to try their software out, and it all contributes to their growing client base.
Having built our own SAAS, worked on many other software products, worked with many clients, and helped clients with their own products, we have a comprehensive understanding of both.
We’ve had the opportunity to work with a lot of different types of businesses, and we’ve seen a lot of different ways that they operate. We’re able to take all of those insights and compile them into something really valuable for our clients.
There you have it! The 4 best software monetization models for startups. Hopefully, this post has helped you narrow down your options and find the perfect model for your business. If not, don’t worry! There are plenty of other great models out there. Just keep exploring until you find the one that works best for you and your customers.