As a growing SaaS business, if you are not giving your pricing strategy a serious thought, you are leaving money on the table. But many SaaS founders find it challenging to choose the most appropriate pricing model, not only because balancing revenue and value is hard but also because pricing is a critical aspect of the product.
Your pricing model will influence your marketing strategy as well as your customer journey map. Finally, your pricing model will influence your gross profit. So, if you choose the wrong pricing model, it may stun your product's growth.
Many SaaS companies that I have worked with struggle to find the right pricing model. That's why I wrote this article to help you (and them) understand the most popular pricing models and make an informed decision.
5 Most Popular SaaS Pricing Models (with examples)
There are over a dozen ways to price your SaaS product, but most companies follow a handful of popular pricing models. Here are five popular SaaS pricing models to help you to single out which model is best for your business.
1. The usage-based pricing model
In this model, prices increase along with usage - the more you use, the more you pay. This model rarely appears as a choice for SaaS companies. But is heavily used by platforms that charge on bandwidth or API requests performed.
One such platform is Twilio, an SMS platform that charges a base rate of $0.0075 for each text message sent.
Image source: Twilio, SMS pricing for text messages
The downside of the usage-based pricing model is that it does not always correlate to value for customers. It makes predicting costs and revenue a challenge, as usage can change dramatically on a monthly basis.
2. Per-user pricing model
If you've spent a few minutes browsing pricing pages, you would've noticed the per-user pricing model (or per-seat pricing) as the go-to SaaS pricing model. This pricing model has gained popularity because of the simplicity it offers - a single user pays a fixed price, and if he adds another user, the price doubles, and so on. This model makes it extremely easy for SaaS startups to manage and predict their revenue.
Product Plan makes the most of the per-user pricing model.
Image Source: Product Plan
3. Flat rate pricing model
Flat rate pricing is the most basic pricing model for SaaS companies - one price, one product, and one set of features. Every customer is on the same plan. Even though this pricing model is easy to communicate and sell, many SaaS companies don't implement it.
BaseCamp is one such company that provides unlimited access for unlimited users at $99 per month.
Image source: BaseCamp
4. Per feature pricing model
This is a pricing model where the user can pick and choose which features they would like to pay for. Per feature, pricing is easy for customers to understand, and companies can easily charge more or less for specific features based on customer's willingness to pay.
For example, Evernote provides a different range of features on offers with new functionality on each upgrade.
Image source: Evernote
5. Tiered pricing model
The idea of tiered pricing is to create different levels of service, each with its own subscription fee. Adopters of the model are typically larger companies who need more than just one or two plans, and it makes sense for them to buy into multiple tiers that best suit their needs.
HubSpot is a great example of a tiered pricing model. Each tier is designed around specific needs and different types of potential customers.
Image Source: HubSpot
The Bottom Line
Whether you're a huge or small SaaS business, it never hurts to take a second look at pricing. Although it is difficult to find the perfect pricing model for your business, there are many options that will allow you to compete in today's market. Whether you need something simple and flat or an innovative tiered plan, these 5 SaaS pricing models should help guide you towards a solution. If none of them seem like they would work well with your company, feel free to contact us so we can help you identify opportunities and optimize pricing to grow your subscription business end-to-end.