Top 10 Product Pricing Models with Examples

While building a product, you have to think of monetization in the initial stages only. Otherwise, you will have to start all over again.

You will have to decide which monetization model is suitable for your product and business need. Remember, there is no one-size-fits-all pricing approach. One approach may suit one product but won’t be successful for another product type, so choose wisely.

The ideal pricing approach will involve setting your prices based on how much value your product will deliver to customers.

I am providing a list of 10 pricing models that are most popular these days and are followed by some of the top products —

1. Flat subscription

One product — one fixed set of features — a single price.

For example, Basecamp — $ 99 per month — unlimited users — unlimited projects.

Image source: https://basecamp.com/pricing

Advantages:

1. Transparent — easy to understand pricing model, users know exactly what they are paying for in the first place.
2. Easy to sell — considering the ease of understanding, makes it easy to sell.

Disadvantages:

1. You miss out on potential revenue by offering unlimited users, especially within large organizations.
2. Customers are not the same! This pricing is more suitable for larger organizations but not small organizations with limited revenue streams.

2. Per-user pricing

Different costs based on the number of people using the service. Per-user payment plans are available. Single user pays a fixed monthly price, by adding more users, pricing increases simultaneously, etc.

For example, Salesforce has different customizable plans available based on your feature requirements and user count— Essential, Professional, Enterprise, and Unlimited.

Image source: https://www.salesforce.com/in/editions-pricing/sales-cloud/

Advantages:

1. Easy to understand — pick the pricing plan you are comfortable with based on the features you need and start using it.
2. Predictable revenue — pricing scales with the number of users so forecasting profits get easier.

Disadvantages:

1. Easier to churn — limited licenses for limited employees.
2. Limits adoption — this plan reduces the number of people within a company who can use the software.

3. Per-user with Free participation

Again, payment is based on the number of users but it allows customers to share limited access with a number of participants that scales as the prices increase.

For Example, Zoom offers a variety of solutions with an option of Free plan, which is a basic plan with limited features available.

Image source: https://zoom.us/pricing

Advantages:

1. Opportunity to grow — the willingness to pay increases as they need to add more participants/hosts.
2. Viral effect simulation — as participants are granted access, they are exposed to a great experience.

Disadvantages:

1. Can discourage the number of paying users — if a user is happy with the free access content being offered then he doesn’t need to actually buy/convert.

4. Tiered Pricing

Multiple packages with different combinations of features or value-added services.

For example, Netflix has multiple plans available based on device type, video quality, etc.

Advantages:

1. Different customer needs are fulfilled based on the features you want and the cost you are comfortable with.
2. It can simulate a viral effect.

Disadvantages:

1. So many packages being offered can at times confuse users.
2. Maintaining a balance can be tricky between packages and features offered in each package.

5. Freemium

An acquisition model that offers 2 options — Free or Premium.

Free users have access to your product with limited capabilities & features.

Premium users pay a fee for greater access in terms of additional features, usage, etc.

For example, LinkedIn offers both a Free plan and a Premium plan, with a fixed price. Start by using the LinkedIn platform for free, once you like it and are happy with it, you can upgrade to Premium, to enjoy more benefits and gain insights.

Image source: https://www.linkedin.com/premium/products/intent/

Advantages:

Attracts users easily as no financial information needs to be shared in the beginning.

Disadvantages:

1. Even free users cost money to acquire and if they are not converting down the line into Premium users, then that cost won’t be recovered and not generate revenue.
2. A free product is easier to churn.
3. A user would not be interested in paying if the free version solves his/her problems to a good extent.

6. Per visitor/traffic

Performance-based pricing — users pay based on the number of visitors coming to their website or engagement with their ads.

The payment is based on the number of clicks, impressions, or conversions an ad receives.

For example, Google Ads

Image source: https://ads.google.com/intl/en_in/home/pricing/

Advantages:

1. Clients pay for results — the more leads you generate for the users, the more they would be willing to pay.
2. Natural growth incentives — companies will spend more as their results improve so there is a natural incentive to deliver better results.

Disadvantages:

1. Lost customers — if customers don’t see results, they will abandon your product because of not getting an ROI on their investment.
2. Security can be a roadblock — if you don’t make security a priority, users won’t trust the company enough to purchase.

7. Free with advertising

Primary service is offered to users for free but the platform generates revenue through online advertising.

For example, Facebook is a free platform but it earns through the ads displayed on its platform.

Image source: https://www.facebook.com/

Advantages:

1. Easy adoption — when the product or service is free, adoption comes easy.
2. Large userbase — with a large customer base, you can attract advertisers who would want to reach out to that valuable base.

Disadvantages:

1. The focus is required on customer acquisition, otherwise, advertisers would not want to spend a lot of money on the platform.
2. Revenue is dependent on the advertisers and not on loyal customers so more users do not necessarily mean more revenue.

8. Broker Fee/Peer to peer

P2P platform is essentially a matchmaking platform that connects individuals selling a service or product. Revenue is often generated through brokerage fees on sales through the platform.

For example, Airbnb is an online marketplace that connects people who want to rent out their homes(Hosts) with people who are looking for accommodations(Guests). Airbnb earns commission/brokerage fee per hosting experience booked through its platform.

Image source: https://www.airbnb.co.in/host/homes

Advantages:

1. There’s potential for rapid growth — establishing a market place is inexpensive and ROI is quick.
2. People trust user reviews which helps add transparency and trust to the platform.

Disadvantages:

1. A potential loss of revenue if the buyer and seller form a relationship outside the platform.
2. A quality assurance problem can arise since the third party seller is removed from the equation.

9. Storage

Users pay based on the amount of storage they need. Often a limited amount of storage is offered for free and then the user has to pay for additional space.

For example, Dropbox provides storage for all your files in one secure space.

Advantages:

1. Users pay based on the amount of storage they need.
2. Often a limited amount of storage is offered for free and then the user has to pay for additional space.
3. As users increase, the amount of storage and price also increases.

Disadvantages:

1. Expansion can be difficult — users may never exceed their allotted amount of free storage.

10. Per Item/Contact

Consumptive pricing — The customer pays according to the number of items or contacts you host in the system.

For Example, Hubspot is a marketing software that offers consumptive pricing plans.

Image source: https://www.hubspot.com/pricing/marketing?term=annual&edition=starter

Advantages:

1. Simple — charging a fixed rate per item/contact makes it easier to understand for a user what they are paying for.
2. There’s a clear revenue path — if users are more successful, you are more successful.

Disadvantages:

Growth is based on the success of your customers.

In conclusion, when selecting your preferred pricing model, the most important thing to keep in mind is that you should choose a model that aligns with your customer’s goals and their ability to pay if they find your product useful.