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SaaS Pricing Models: Everything You Need to Know

Setting the right price as a SaaS company enables you to stand out and win over your target audience.

The pricing strategy you choose to leverage substantially influences your ability to generate revenue and grow your business.

You can choose from many viable pricing strategies to pitch your solutions and attract the right audience. Still, in the end, you should select a SaaS pricing model that aligns with your company’s goals and helps you capture quality leads.

This article covers a few noteworthy  SaaS pricing models and the best pricing strategies for you to consider when evaluating your business. 

Let’s begin!

SaaS pricing models

Around 52% of SaaS companies don’t test their prices before setting them. It’s a critical mistake they make, which may end up having a significant impact on their profit margins.

Here are a few effective models in use today. Think carefully about each one in the context of your business so you can find the one that best aligns with your goals.

Flat pricing model

The SaaS companies preferring this pricing model are the ones that don’t want to overwhelm their customers with too many options.

Businesses often go overboard with their price plans, including as many as six or seven different plans for the same product. Offering options is a good thing, but too much variety may end up confusing your target audience.

The flat pricing model is the opposite of this. You just offer a single option at one price.

It’s a gimmick-free strategy that often serves as a viable option for new businesses.

However, even renowned SaaS companies leverage a flat pricing model to keep things simple for their customers.

For example, Basecamp allows you to leverage all its features and capabilities with no cap on users for $299 a month. They use a flat pricing model to make it easy for their customers to make a buying decision.

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Usage-based pricing model

Usage-based pricing model helps you attract more customers because it offers value for money. Here, your users only pay for their features or capabilities, not the entire package.

People often complain about the prices of certain solutions they don’t use to their full potential. For instance, paying an extra $50 a month for access to eight features when you only need one.

Here’s another example: Let’s say they’re using a cloud storage solution. They’d want to pay the price for the storage space they use, which can be way less than what the standard package offers.

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If you look at the price plans offered by Amazon Web Services, you’ll see the prices go up as the usage requirements increase.

It is a fitting pricing strategy to attract customers with varying requirements and preferences.

Tier-based pricing model

The tier-based pricing model is best suited for you when you want to offer options to your customers.

As a business grows, you start pitching your solutions to different audience segments. Each of the audience segments will have different needs, goals, and pain points.

For example, you may offer solutions from freelancers to conglomerates. So, you should come up with prices that meet your audience’s expectations.

Around 80% of customers prefer companies that cater to their preferences and offer experiences in accordance. The model mentioned above may be a viable option for you to consider.

MemberPress is a leading WordPress plugin that enables you to effortlessly transform a WordPress site into a membership platform. The company offers solutions for independent content creators and enterprises that may own multiple platforms. So, they leverage a tier-based pricing model to fulfill the needs of different audience segments they target.

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User-based pricing model

The user-based pricing model is quite popular in the SaaS industry. The solutions you offer may have multiple users. However, a single individual may be authorized to use them in some instances.

This is why the user-based pricing model has become popular and a preferred choice by some renowned solution providers.

Here, you charge different prices based on the number of users allowed to leverage the solutions you offer.

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For example, Netflix is a renowned company that leverages a user-based pricing model to attract a relevant audience with different preferences.

You can watch your favorite shows and download your preferred content on two devices if you have a standard plan.

On the other hand, the Premium plan enables you to access the content of your choice through four devices simultaneously and download it on six supported devices.

The plans also pack diverse perks, but the user element often stands out for the intended audience.

Feature-based pricing model

Not all users may leverage the solutions you offer to their full potential. Some may use them for basic operations, whereas others may ask for advanced-level capabilities.

It’s where a feature-based pricing model comes in handy. Here, you design price plans from simple to advanced users.

Your standard plan may offer the basic features at a nominal price. Users may have to pay a higher price if they wish to unlock advanced capabilities.

The price plans offered by OptinMonster serve as an excellent example here, as the capabilities go from simple to advanced as you move up the pricing tier.

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Freemium pricing model

SaaS companies often use the freemium pricing model to fuel early adoption when getting started. People are reluctant to try new solutions as they generally don’t trust new brands.

They’re more comfortable going for tried and tested solutions compared to purchasing new ones because there’s a risk of making a bad purchase.

Hence, SaaS companies started leveraging the freemium pricing model to tackle this challenge and convince people to try the solutions they offer.

Here, you offer your solutions with basic features or functionalities for free and offer premium plans if one wishes to unlock advanced capabilities.

Lead management software Beacon includes a lite version of their Saas directly on the pricing page so new visitors can easily try it before they buy it.

You can unlock all the standard features of the solutions with its free version. However, for more advanced capabilities, you may want to consider an upgrade.

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How to set an optimal price

Around 43% of SaaS companies revisit their prices more than once a year. As a growing business, you should consider different things when setting a price for the solutions you offer from time to time.

Several factors dictate SaaS pricing strategies, such as costs, customer needs, company goals, company size, competitive landscape, feature set, and more.

Based on these factors, you should consider different pricing models and come up with an optimal price point.

The ultimate goal of running a business is to generate revenue. So, it’s a no-brainer that you consider your operational costs when setting the price.

You should also know your customers and see how much they are comfortable paying for your solutions.

A price sensitivity analysis may provide useful insights for setting an optimal price.

The size of your company also dictates the pricing plans you offer. Whether you’re a new entrant in the industry or an established venture, it gives you an idea of the price you should charge.

Keeping an eye on your competitors also helps. You wouldn’t want to go overboard and charge an outrageously high price. Try to come up with market-competitive price plans. This way, you won’t throw yourself out of the race by making bad decisions.

The features or capabilities of your solutions give you an edge when setting the price. If you offer a unique set of features, you can cash in value proposition and charge a slightly higher price than other industry players.

To set an optimal price, you should consider all factors above and come up with an appropriate price range.

Conducting research to assess consumer behavior and creating different buyer personas per your audience’s needs or preferences is a viable option, facilitating the adoption of your solutions.

The best SaaS pricing strategies

Now that we’ve talked about different SaaS pricing models and how to set an optimal price, let’s discuss the best SaaS pricing strategies.

Free trial

Investing in SaaS solutions can be a tough decision to make. Not all SaaS products are budget-friendly.

So, people generally have second thoughts while purchasing their preferred solutions. Hence, offering a free trial may be the best action.

Here, users take SaaS solutions for a spin without having to pay for them. They are allowed to test the products for a certain number of days and see if they meet their requirements.

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Since there’s no risk of making a bad purchase, SaaS companies are able to generate more traction and convince the intended audience to try their solutions.

Read more: 28 SaaS Free Trial Best Practices to Supercharge Your Growth In 2024

High-low pricing

You must have come across SaaS solutions that are always on sale. The discount percentage may vary, but you seldom see the products sold at their actual price.

It’s called a high-low pricing tactic. In this case, SaaS companies promote their solutions at a premium or outrageously high price and apply heavy discounts.

It’s an excellent pricing strategy to attract the intended audience. People see the price offered as a bargain and immediately purchase before the offer ends.

Source

Odd-even pricing

You can leverage an odd-even pricing strategy to make your solutions more appealing. It’s generally associated with the last digits of the number representing the price of a particular product. 

For example, if a company uses $7.99 as a price point, they prefer odd pricing, whereas the one that uses $7.90 uses an even price.

Sometimes, your users get accustomed to a particular price point. A fluctuation between odd and even numbers may create a psychological impact and give you a slight boost in conversion rates.

Skimming

It’s a pricing strategy where you set your products’ prices high as you have just started and reduce them over time.

There may be different factors leading to this decision. SaaS companies may set the prices high at the start to cover their costs.

Another reason may be that the newly launched products are generally high in demand, but the hype dies down over time.

You may have seen this when purchasing digital copies of video games. A newly announced game trades at a way higher price than, but as the hype dies down, companies apply heavy discounts on them.

It’s an excellent pricing strategy to extend your product’s maturity stage and avoid the decline. 

Penetration pricing

SaaS businesses leverage penetration pricing to get a first-mover advantage in the competitive landscape.

As the name says, the pricing strategy enables you to stand out from the crowd by initially setting the price low to get more market share compared to other players in the industry.

The pricing strategy also fuels early adoption and helps you attract more users.

New entrants in the industry generally prefer it, as they need more people to see them if they hope to find success and eventually thrive. 

However, established enterprises also use this strategy to outmaneuver their competitors.

Captive pricing

Captive pricing is a strategy that ties the price of one product with another because the same company offers both.

It serves as an excellent strategy to generate revenue through cross-selling. Here, the price of the product that complements the original is higher than what the market would be comfortable paying.

The video game industry serves as an excellent example here, as the price for game controllers compatible with consoles is set way higher than it should be.

The players don’t have any other option but to pay the price or resort to third-party options, which may lead to a compromised experience.

Prestige pricing

This pricing strategy may not work well for the majority of SaaS companies. However, reputable brands can pull it off quite well.

With this strategy, you charge a premium price for the solutions you offer to cultivate a sense of luxury or exclusivity.

It may be a risky move, considering the intense competition. However, in some cases, it may serve as an effective way to set yourself apart from other players in the industry.

SaaS companies embracing this pricing strategy serve an audience segment that prefers value over a bargain.

Cost-based pricing

Cost-based pricing is a strategy where you set the prices as per the cost incurred to come up with solutions tailored to the needs or preferences of your target audience.

You consider development, marketing, and other operational expenses to come up with an optimal price for the solutions you offer.

So, the prices include the cost of creating a product plus the percentage of profit margin that you expect. Often, SaaS businesses resort to this approach when it’s hard to anchor prices based on value, especially in saturated markets. 

Value-based pricing

Sometimes, creating a solution may cost much less, but the value it offers to the intended audience is off the charts.

Even the simplest solutions solve the most critical problems acknowledged by their respective target audiences.

This strategy aims to capitalize on the value you offer and go for the suggested pricing strategy, as it’s a preferred choice by around 39% of SaaS companies.

Patience is the key to making things work if you choose value-based pricing, as it may hinder early adoption.

Nevertheless, if you wisely promote the capabilities of the solutions you offer, the strategy may work wonders for you.

Bundle pricing

Bundle pricing is an optimal pricing strategy when different products are under your brand umbrella. Plus, you want to simplify the sales process for your customers.

You allow your target audience to purchase your products separately or simply go for the bundle deal and save a significant amount.

Bundle pricing may also prove to be a useful tactic to boost the conversions of products that people generally don’t buy much.

Since the price you offer showcases value, the strategy may help you score more sales and increase your revenue.

It’s a wrap

In this article, we covered the SaaS pricing models and noteworthy pricing strategies. We also told you how you can set an optimal price and pitch your solutions to the right audience.

The recommendations here will hopefully help you decide what pricing model is right for you and your business.

If you’re still not sure, try exploring different options and choosing the one that best aligns with your goals.

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