Understanding SaaS Pricing Strategies

My Post (73).pngThe SaaS industry is laden with products, from martech to accounting software to ecommerce platforms, and surviving in this hectic industry is no easy feat.

Products with a healthy product-market fit have a good chance, but outside of their core features, there’s one key to success — and simultaneously, to failure — that every SaaS company should be concerned with; Price.

Thus, the cost of the SaaS membership, as well as the design and presentation of the pricing page itself, is paramount. So much so, that a 1% improvement in price optimization can result in 11.1% more profit.

In this article, CMSWire leans on the expertise of SaaS professionals to find out why.

Common SaaS Pricing Models

Before we get into specific pricing strategies and tactics, let’s understand what the pricing models are. The most common SaaS pricing models fall under the following three categories, and many companies use more than one in their overall pricing strategy.

1. Tiered Pricing

Matthew White, CEO of Qebot, believes the pricing models most “common these days are subscription based models using month-to-month billing with a typical option to pay for a year at a time up front for a discount.” Tiered pricing allows SaaS companies to offer multiple packages at price points that make sense for their potential customers.

If SaaS companies keep tier offerings simple, they can appeal to many types of potential customers. It may also be easier to upsell, as customers may perceive greater value from a higher tier than the one they initially intended to get.

2. Usage-based Pricing

Manan Shah, co-founder and CEO of Recruiterflow, considers the most common pricing model to be usage-based. He says this category “covers almost half of all the pricing models seen in [the] SaaS universe.” This category, he explains, “is also generally divided [into] two axis — Features/Storage or Users.”

  • Features/Storage: This pricing model is useful for SaaS companies with a quantifiable product because it lets SaaS companies closely correlate their prices with the customer’s revenue. SaaS companies can make sure they’re charging for the increased value they provide as their customers grow. White says this “would be like an email marketing company charging on how many [emails] you send per month, or a hosting company charging by how much space and computing power is being used.”
  • Users: With a user-based pricing model, SaaS companies charge by the number of licenses, or user accounts, that a customer purchases. The simplicity of the pricing model makes it easy for sales teams to explain to potential customers, and it’s also more straightforward to forecast recurring revenue. The ability to increase revenue is only limited to the adoption rate of the SaaS product itself. – Read more

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