SaaS Pricing Made Simple: Models, Strategies, Templates and More

Published in

roketto

13 min readDec 22, 2020

When it comes to the world of business, pricing can be one of the biggest hurdles to overcome. Are you setting them too high and pricing yourself out of the market? Are you lowballing yourself and not getting the sales you desperately desire? There are a plethora of questions you’ll likely be asking yourself.

SaaS businesses in particular have it even worse. With so many different models you can use and the fact that you’re selling a subscription-based service, the possibilities are endless. And knowing whether you’ve gone down the right path becomes even more difficult. You’re certainly not alone here. Many budding SaaS businesses have faced the same struggles that you have, and even the most successful SaaS companies know that their pricing strategies play a huge role in their success.

SaaS PricingTraditional Product Pricing

Value is spread out over a longer period due to the subscription model

Typically one-off purchases

Many different models for pricing

Far less to consider when pricing

Why is SaaS Pricing So Important?

Img Source — https://www.atlassian.com/software/jira

Far too often, SaaS companies will invest a wealth of time into creating a service that ticks all the boxes. It solves a problem for their target audience, sets itself apart from competitors, is user friendly, etc.

From there, they spend minimal time creating a pricing strategy and dive straight into marketing their service. Even with a well-optimized saas marketing strategy using the best inbound methods, the business fails because they didn’t spend enough time coming up with a proper pricing model and pricing strategy.

Pro Tip: Nailing your SaaS pricing is just as important, if not more important than creating the perfect service.

It must align with the value and expectations of your audience, and fit your own SaaS businesses needs.

So what does this mean for you?

Well, you’ll need to understand that pricing isn’t about setting it and forgetting it. Your SaaS pricing is something you’ll certainly need to revisit a few times a year to make sure it reflects the value you’re providing.

Your pricing also affects the way that potential customers view your SaaS business. If you’re pricing too high for a similar service to a competitor who is charging less, that isn’t going to reflect very well on you. If you charge too low, it could be detrimental to the perceived value of your service.

In this post, we’ll cover everything you need to know about developing the right SaaS pricing for your business, including popular pricing models, effective strategies, templates to get you started, and even examples from successful SaaS companies.

SaaS Pricing Models

Now that you know the importance of an effective SaaS pricing model, which model should you go with?

This will depend on several factors such as the type of service you’re offering, B2C or B2B, your target audience, the average amount of users per sale, market positioning, and more. You’ll need to figure out which best fits the needs of your customers and your business, which is no easy challenge.

To get you started, here are some of the most popular pricing models used in the current SaaS landscape.

Flat Pricing Model

The flat pricing model is one of the simplest ways to sell your service. One price, one tier, one service. Complexity is removed to benefit you and the customer alike.

What are the advantages of a flat pricing model?

Simple for customers to understand
Predicting different metrics such as churn and revenue growth is far easier with only one plan
Cuts down the decision time for customers interested in subscribing to your service
Works well for businesses that have one single product or service and only one primary customer persona

A prime example of flat-rate pricing being used to great effect is Basecamp. Not only do they use the flat-rate pricing model, but they also incorporate it as part of their marketing strategy. Their unique selling point is all about simplicity, and since they’re selling one service at $99 a month, it doesn’t get much simpler than that.

They do, however, offer a 30-day free trial before the paid subscription starts. A common tactic used by flat-rate pricing users.

The flat-rate pricing model does come with its fair share of disadvantages. If customers perceive your service to be too expensive for what it provides, there isn’t any wiggle room. Your service may have some features that a large portion of your customers don’t need, and forcing them to pay for the full package could impact the value of your service in a negative way.. You’ve only got one shot to land the customer instead of the multiple shots you’d have when using a tiered pricing model.

Flat-rate pricing can also cripple your own revenue. With upselling being a commonly used tactic to boost revenue, having higher-tier plans can be very attractive. With only one plan to choose from, you eliminate the ability to upsell.

Flat-rate can be an effective SaaS pricing model in certain situations. Just make sure you understand what you’ll be missing out on if you only have one plan.

Per-User Pricing Model

Another simplistic SaaS pricing model, per-user pricing, is fairly self-explanatory. The price is dependent on how many people are using the product within the business. This is a far more common pricing model than the flat-rate model, but what advantages does it bring?

Simple to understand how much companies will pay for the service
Scalable, as companies grow and more individuals adopt the product, revenue will follow
Fantastic for B2B SaaS companies who are targeting growing companies

Slack has had great success using the per-user pricing model. However, they do combine per-user pricing with tiered pricing. Something to keep in mind moving forward.

While Slack has achieved success with this pricing model, there can be some glaring problems with it as well. Some of these disadvantages include:

It limits adoption. If companies know that they’re going to be penalized for having more people using your service, chances are they’ll try to keep their number of users as low as possible.
Limited adoption can lead to login abuse, meaning several different people all using the same login to keep costs down.
Lower adoption rates often lead to higher churn rates as well, since a few people using a service are far more likely to churn than an entire company.

Per-user is a far more popular SaaS pricing model, but that doesn’t mean it’s right for you. Take note of the advantages and disadvantages and make the decision for yourself. Don’t just blindly follow the trends.

Tiered Pricing Model

Possibly the most common model used by SaaS companies for their pricing, the tiered pricing model offers some of the best customizability of all the different SaaS pricing models.

At its core, the tiered pricing model is essentially offering multiple different versions, or “tiers”, of your service. These tiers offer more features at each price point. Usually starting with a base level service, each price point above the base service offers some extra features which would otherwise be locked.

The main upside to using tiers is the wider appeal your service can have to your target audience. If a potential customer isn’t interested in some of the features that your top tier service provides, they can simply subscribe to your base level service to suit their needs. Unlike with the flat-rate pricing model, there’s far more wiggle room and potential to sell to customers who may still be on the fence.

Another huge upside with the tiered pricing model is the potential for upselling. In the world of SaaS, upselling your service can become a significant chunk of your revenue. Upselling involves reaching out to users of your lower tier service and persuading them to upgrade their subscription level. It’s best to reach out to those who are already very pleased with your base service. Attempting to upsell to a customer who’s relationship with your company is lacking can cause far more damage.

SalesForce employs the tiered pricing model as part of their pricing strategy:

As you can see, their essentials package offers just that: only the essentials. Each tier builds on the previous one, adding new features as the price climbs.

When using the tiered pricing model, it’s important to make sure your tiers are easy to understand for your potential customers. Otherwise, you’ll leave them confused and unable to make a decision on whether or not to sign on with your service. Creating a well-structured features page similar to the one used by SalesForce would be a great start.

The tiered pricing model is easy to recommend due to the wide appeal and potential for revenue increases through upselling. Just make sure your features are laid out in a cohesive way so your customers aren’t left scratching their heads while staring at your features page.

Usage-Based Pricing Model

The usage-based pricing model is equivalent to the “pay-as-you-go” cell phone plan. You only pay for what you use.

How you track usage will depend on what type of SaaS you’re offering. There are two common methods of charging for usage of your service:

Charging for storage
Charging per action (messages sent, keywords tracked, emails delivered, etc.)

This model can be great for customers and SaaS businesses alike. For those who need your service, but won’t be using it all the time, they’ll only be billed for what they’ve used. And for those who use your service daily, far more revenue will be generated.

MailGun uses this SaaS pricing strategy with their flex service:

Starting with a 3-month limited free trial, customers are then billed based on how many emails are sent. Hard to say no to a deal like that. They’ve even used the tagline “Pay As You Grow”, which is a nice added touch and describes this plan perfectly.

Of course, the usage-based pricing model has a few disadvantages. First of all, it can be difficult to accurately predict your revenue. There isn’t any real way of knowing how much your customers are going to use your service from month to month.

Customers can fall into the same trap here as well. Many of them won’t be able to predict how much they’ll actually use your service. Meaning they’ll have no idea how much they’re going to spend on it.

Usage-based pricing can certainly benefit some SaaS companies while being a detriment to others. It’ll depend on the service you’re offering.

SaaS Pricing Strategies

Aside from choosing a SaaS pricing model that best suits your needs, there are also some strategies you can employ once you’ve nailed down the model you’ll be using. These strategies can help give you an edge over your competition. And in a market as competitive as SaaS, you’ll want any edge on your competition that you can get.

Cost Plus Pricing

This is an incredibly basic SaaS pricing strategy, but that’s part of the appeal. Cost plus pricing is often used as a starting point for new SaaS businesses.

All you’ll need to employ this strategy is to figure out your overall costs involved with maintaining your SaaS and coming up with a profit margin that you’re comfortable with. From there, you set your price. So if you want your profit margin to be 20%, you set your prices 20% higher than your costs. This can be used regardless of the pricing model in play.

While simplicity certainly plays an important role here, cost plus pricing ignores many different pricing factors, such as perceived value and competitor pricing. However, since prices shouldn’t be set and forgotten about, cost plus can be a great place to start and get the ball rolling.

Skimming

The skimming pricing strategy can be a great way to jump on initial revenue from a smaller target market before capturing a larger portion of the market. Skimming is the process of setting your SaaS prices higher than normal, before lowering them gradually over time and widening your appeal.

Skimming pricing operates on the premise that demand for your service will deteriorate over time. That means this strategy would be best employed when newer releases of your service are planned for the future. You can repeat the skimming strategy with each new release, again capturing higher revenue from a smaller demographic before opening the floodgates to the rest of your audience.

Free Trials

Img source — skiplino.com

It’s no secret that free trials are a significant part of many SaaS pricing strategies, and it’s easy to see why. They take away much of the risk from the customer and allow them to test your service, worry-free. This can be a great starting point for them to become paying customers.

When using free trials as part of your SaaS pricing strategy, there are a few key considerations you’ll need to keep in mind. You don’t want to offer your free trial for too long. Typically, customers will be quick to make up their minds about whether or not your service is right for them.

You can also consider limiting your free trial by usage. For example, if your service involves an online business chat of sorts, maybe limiting the free version to 1000 total messages before an upgrade is required would work. There are several possibilities here. Just make sure to limit your trials to get your customers to make a decision quicker and weed out the people that you know aren’t going to subscribe.

Penetration Pricing

If you’re looking to beat your competitors to your target market, then penetration pricing could be worth considering.

Penetration pricing is sort of the opposite of skimming pricing. You set your initial prices low in order to appeal to a wider market, and in turn, steal a large share of the market right from under your competitors.

Obviously, this means your pricing may be unsustainable. You’ll need to upsell your customers onto a higher value tier of your service to compensate for the initial lost revenue.

Penetration pricing can be a bit of a risk. Your profit margins will be very low to start. However, if you’re able to capture a larger part of the market and upsell them down the road, the end will certainly justify the means.

SaaS Pricing Page Template

Now that you’ve got a SaaS pricing model in mind and you’re familiar with some of the top strategies, it’s time to build your SaaS pricing page.

Similar to any SaaS landing page, you’ll have to answer a few key questions in order to properly put your SaaS pricing page together. Questions such as:

Who is your target audience?
What is your unique value proposition?
What are your different customer groups willing to pay?

Using that info, you can put together an effective SaaS pricing page based on the pricing model you’re using.

Here’s a simple template to help you get the ball rolling with the tiered pricing model:

Customer Demographic #1 (Freelancer)Customer Demographic #2 (Small Business)Customer Demographic #3 (Enterprise)

Tagline

Main Value Feature

In this template, the different demographics align with the size of the interested business. Perhaps the lowest tier would be best suited to a freelancer or sole proprietor, while the highest tier might be best for a large enterprise. Your taglines should reflect this and align each tiers unique value proposition with that specific demographic.

A flat pricing model template would be more simple and look something like this:

Headline

Tagline

Main Value Feature

Secondary Value Feature

Call to Action

While these are only templates and don’t need to be followed precisely, they’re great starting points to create an effective SaaS pricing page. Just keep in mind that without a defined target audience and UVP, you won’t get very far.

SaaS Pricing Summary

Figuring out your SaaS pricing strategy when you’re just starting out can seem like an insurmountable challenge. With several different models to choose from and new strategies developing year after year, it’s hard to know if you’ve chosen the right path. Since pricing is such a critical component of SaaS marketing and development, it can certainly be anxiety-inducing.

What you need to remember is that your prices aren’t set in stone forever. If your generated leads are turned off by your pricing, it’s time to review them and employ a new strategy or switch up your pricing model. A willingness to adapt is just as important as nailing down the right pricing model for your business.

Still Having Trouble With Your SaaS Pricing?

Sometimes, knowing the different pricing models and strategies at your disposal isn’t enough. If you’re still stressed about setting your prices, why not reach out to us? We’d love to help you out!

Originally published at https://www.helloroketto.com.