It’s hard to find a SaaS company that doesn’t offer a subscription-based pricing model.
With a low monthly payment and the constant need to engage users to reduce churn, subscription-based pricing has unique challenges. Moreover, every SaaS company has a different core audience, which brings another set of variables to the table.
This universal guide will help you figure out what works and what doesn’t in the marketing world for subscription-based products.
What is subscription marketing?
The core idea behind subscription-based marketing is not just acquiring new customers but keeping them on the platform for as long as possible.
Depending on the product, this can lead to various strategies. For instance, companies that offer complex tools may want to focus on better onboarding processes and acquiring enterprise clients.
Whatever the case, the main goals of marketing for subscription-based businesses are to:
- Establish the product’s value.
- Establish a clear edge over the competition.
- Receive exposure to the maximum number of core audience members.
- Make the first step easy.
How does a SaaS subscription work exactly?
Subscriptions have displaced upfront payment as the primary pricing model in most B2B software companies. Such a model has advantages for both users and service providers.
As a user, you don’t have to pay the full price of the software upfront. A program that would set you back $1.000 may only cost $50 per month, and that’s much better for cash flow. With all the updates and bug fixes included in the package, it’s a great deal.
On top of that, users don’t have to set up the hosting, servers, and other infrastructure for the software, which can be pricey and may require adding specialized team members. All of that is handled by the SaaS provider.
As a service provider, monthly or annual payments mean a more stable cash flow. Retention can be five times cheaper than acquisition, so a subscription model is a profitable business model because customer lifetime value (LTV) can outperform charging a one-time fee.
7 Types of SaaS subscription models
Choosing a suitable pricing model can be crucial. And not every model works for every business. So you’ll have to decide what attracts the most clients and makes the most sense for your organization.
|Model||Pros||Cons||Products it works best with|
|Freemium||Attracts more users.|
Can work as a viral marketing engine.
|Require a lot more users to be profitable.|
Higher to support free users.
Can attract low-quality/unqualified leads.
|Have the potential to attract millions of users|
|Fixed monthly fee||Simple pricing model|
Fewer pre-sale questions around pricing and quicker sales cycles
|No room for upselling|
Potentially, lower CLTV
|Smaller, easy-to-use tools and plugins|
|Tiered fixed fee||Offers a low entry-level.|
Flexibility in terms of offerings — tiers can be based on features or usage metrics (e.g., “email subscribers”)
|Hard to accommodate for super users and enterprise clients.||Good for any SaaS tool|
|Pay-per-seat||Great upsell potential.|
Price grows with the business. I.e., they pay more as they get more value
|Harder to predict cash flow||Tools that focus on collaboration|
|Pay-as-you-go||Great upsell potential.|
Most flexible option
|Harder to predict cash flow||Tools that focus on volumes|
|Hybrid||Well-rounded solution||May be hard to set up the pricing||Good for any SaaS tool|
|Custom||Offers a custom solution to superusers and enterprise clients||Requires a high-touch sales process||Tools used by large businesses|
- Freemium can help a SaaS business attract hundreds of thousands of clients. This strategy includes a multi-tier system, with the first tier being free forever so that more people will sign up for it. But there’s a catch. As the Evernote CEO puts it, freemium is a numbers game as not every free user will update.
- Fixed fee pricing includes only one subscription tier with a fixed price. It works best for simple products that offer users access to all features for a relatively small price.
- Tiered fixed fee is the pricing model most SaaS companies start with. It offers two or more subscription tiers, with more expensive ones unlocking access to more features or larger volumes of usage.
- Pay-per-seat model is often paired with the tiered one. This model may have a reduced monthly fee, but the fee increases as you add more users to your account. It’s a great way to price products that assist in collaboration — HR management or editorial calendar software.
- Pay-as-you-go or a metered model is something more SaaS companies are switching to. Instead of paying a fixed fee, users only pay for what they use. For example, a social media marketing tool would hike up the price for more than ten posts per week and a keyword analysis tool for more than 2,000 keyword searches.
- Hybrid pricing is a combination of one or more pricing models. Many SaaS companies that have grown large enough to develop their product further may switch to this model and add a usage-based or pay-per-seat pricing over fixed fees.
- Custom pricing is often saved for large corporate clients. If the volumes offered by the standard tiers are not enough for a client, they can negotiate a plan of their own. This pricing model is often offered alongside regular tiered plans.
The main role of pricing in the marketing strategy is to reduce friction and objections for first-time users and allow opportunities for expansion as the customer uses more of the software. Subscription marketing is about upselling and lifetime value, so the more people that sign up for the first tier, the better.
If your organization offers a pay-per-usage model where users may start slow and pay more as their business grows, more people will try it. That said, this may produce a rather unpredictable cash flow.
SaaS subscription marketing channels
The marketing channels for promoting a subscription-based business are no different than the ones used to promote businesses with other payment models. The difference is in focus — you’ll want to emphasize slightly different channels. Let’s take a look at what you want to focus on.
- Email marketing is key for both client acquisition and retention. First, you want to grow a subscriber base and engage them with content that moves them down the funnel. Email marketing can be used with existing clients to nudge them towards a more advanced tier.
- Affiliate marketing is a powerful tool for subscription-based businesses, especially if the competition is high in your niche. The high LTV of a customer allows SaaS companies to offer a large percentage of initial sales to affiliates who promote their products. A campaign spanning hundreds of websites also increases brand visibility.
- Social media is best leveraged for subscription marketing for community building. Distributing content is also a good way of using this channel, but it’s great when you’re able to get passionate people together and create a community.
- Blogging and content marketing, in general, should serve as a sales funnel — get your foot in the door by solving your audience’s problems and move them closer to a sale by explaining your product.
- Video Promotion like YouTube ads can be a very effective tool that may not require that big of a budget. Unless you’re aiming for a very large audience, you can appeal to a small number of people who are already interested in your niche.
- Paid search can be powerful in highly competitive niches. Promote your business as an alternative to competitors or promote articles that have the potential to be shared.
- Influencer marketing, depending on the niche, may result in more subscriptions. Companies like Audible use it very effectively. If your company doesn’t have as wide a user base, you can still work with micro-influencers in your niche.
- Review sites are significant for a SaaS company that is just starting. Having a good look on G2 and Capterra can help you attract more customers who are ready to make a purchase.
Benefits of subscription marketing for SaaS
So why are most SaaS companies choosing subscription as their go-to pricing model? Because it allows them to get their foot in the door, both in terms of finances and marketing.
Many software tools started as clever ideas that could solve existing problems, but developing that idea into the founder’s final vision may take years. Offering a subscription model allows the company to start selling the product once it has the main features.
Users won’t be willing to pay hundreds of dollars for a basic product; a $10 monthly fee is much more manageable. That way, you create a small yet stable revenue stream for the startup company and access crucial feedback in the early stages of development. This helps build better products.
Subscription-based pricing also drives down the cost per acquisition. Since the price of making the first step in the sales funnel is lower than purchasing software outright, it’s much easier to convince people to buy.
The first customers staying with the platform have a higher chance of becoming brand advocates, which any business needs. It will also be easier to upsell or cross-sell to them as you build loyalty over time.
The most important benefit of marketing is that the customer does not have to pay a huge upfront cost. By breaking down the price into monthly payments and including updates in the deal, you’re leasing software to them instead of selling it.
How to drive SaaS sales with subscription marketing
As you can see, the subscription-based pricing model has quite a unique set of challenges. Let’s explore the techniques of subscription marketing for SaaS companies you should implement first.
The first purchase must be easy
If your organization is using a tiered fee system, then your main goal in client acquisition is to make the first step easier. Offering a freemium model or a free trial is one of the best ways.
However, freemium isn’t for everybody. Even though providing a free forever plan will increase brand visibility and brand loyalty, it’s impossible to convert everyone.
With most tiered payment plans, the idea is that the user will update to the next tier as their needs grow. But when you offer a forever plan with some basic features, most users’ needs will never grow.
Airtable does this, and their free plan includes creating unlimited databases of up to 1,200 records per base. Most people who sign up for the free plan use it for things like handy grocery lists and personal finance planning and never have to update them.
Airtable can afford this because its target audience is huge and can attract millions of active users. A SaaS company that offers website building software to restaurants can’t, so it’s best to stick to a free trial.
Email marketing will help in both subscription marketing strategies and sales. Focus on building a mailing list of people interested in your brand. You can ask people to subscribe to your blog’s content updates or get their contact information in return for gated content.
As you build your subscriber base, you can experiment with automated email sequences to move prospects further down the sales funnel.
Content is the main selling point of email subscriptions, a source of brand authority, and often the first point of contact. Since your blog strategy should be guided primarily by SEO and the demands of your target audience, you should generate ideas for the editorial calendar around keywords. Use a keyword research tool like the one offered by SE Ranking, and find keywords that your website can rank for and that deliver traffic.
A blog is essential for discovering a brand on Google, but it’s not the only form of content marketing you can do. Here are some other options:
- Case studies
- Video production
- Social posting
Work on acquiring reviews
In the initial stages of working on your SaaS growth strategy, reviews are critical. Good marketing and low prices aren’t enough for many users — they need social proof to make the final decision. It may be a deterrent if your brand only has a couple of reviews on websites like G2 or Capterra.
Thankfully, encouraging reviews with current clients isn’t that hard. Find out who is most pleased with the service with a net promoter score survey, and use email to ask them for a review. Provide clear instructions so the user knows exactly what you’d like them to do. The conversion rates on these email sequences may be on the low end, but you need every review you can get, so it’s worth it.
Build a brand
The most important and challenging subscription marketing tactic is brand building. You need to build a brand for your product that distinguishes it from the competition and shows its authority. Every piece of content you put out works towards this goal, so ensure it’s working with you, not against you.
Develop style guidelines to make sure every piece of content is in line with what you want your brand to be.
How to create a subscription marketing strategy for SaaS
No two companies are alike, even if they’re close competitors. You will have to make a SaaS marketing strategy that fits your product. Here’s where to start.
Figure out if a subscription is right for you
The very first thing in creating subscription marketing for SaaS products is understanding whether the pricing model is right for you. It will be for most web-based software products that follow the roadmap of starting with a core product and evolving it.
However, if you have a complete product or one that should be hosted on the user’s computer, you may want to consider a one-time payment. Further monetization can be added with support fees or updating to newer versions.
Setting goals is the most challenging part because you can’t predict how your marketing strategy will play out. You’ll need to set two types of goals: what you want to achieve and what has to be done to achieve it.
The first goal won’t change and can only be moved in time. The second may change rapidly depending on the results you get. You can use the SMART framework to make sure your goals are realistic.
To set a strategic business goal, put a revenue you want to hit in a year and assume a conversion rate. Let’s say your company needs $5 million in annual gross profit with a $50 per month subscription, and your assumed conversion rate is 5%. This means you need around 8,400 paying users and approximately 168,000 leads.
For the next part of your goals, you’ll have to create a marketing plan that will expose your business to 168,000 people in the span of a year. For all stages of your marketing plan, you need to have a set of revenue metrics to track to ensure the strategy is performing well.
Naturally, you have to be ready for all those plans to change if your business hits problems like a high churn rate or lower than the expected lifetime value of a customer.
Set up pricing
Pricing is the best selling point of subscription-based products — users don’t have to pay upfront and can pay a small amount each month. But you have to strike a balance with pricing so that it’s both reasonable for the user and profitable for you.
Start with exploring the market and focusing on the pricing of competitors. This doesn’t mean you should price your services lower to have an edge, though that may be a good starting strategy. A higher than average market price is reasonable if your product has more features or solves the problem better.
Planning a way to evolve the pricing model in the future is also a good idea. You can start with fixed pricing and make it more personalized as you develop more features.
Create automated onboarding
When working with many clients in an industry where customer churn can make or break a business, onboarding is crucial. It should be automated and provide all the information on the product it can.
Apart from creating automated email sequences, it’s worth creating a knowledge hub. Investing in a detailed wiki on how to use your products can significantly decrease the need for support.
Make billing simple
The golden standard for subscription-based products is automated billing. It saves a lot of time and effort for both users and product owners. Find a trustworthy automated billing system and plan to implement it at your company.
Work on customer churn
Customer churn eats up your revenue and growth. If you’re growing the client list by 10% each month and 10% of existing clients are leaving, you’re not growing. So whether the problem is dunning due to outdated payment data or the product losing to competition, you have to solve it.
There aren’t many ways to reduce customer churn, but it’s worth trying to implement some of them. You can:
- Work with feedback and improve the product.
- Decrease involuntary churn with automated dunning emails.
- Find users ready to churn and engage with them.
SaaS subscription automation
For subscription-based products to be successful, they have to be able to attract hundreds of thousands of users. This means doing all the tasks from onboarding to billing is not only wasteful but borderline impossible.
So SaaS products naturally lend themselves to automation. A growing number of businesses are working on introducing automation in their business.
Automating the bulk of marketing tasks also removes a lot of unnecessary work from your employees’ shoulders and provides plenty of other benefits.
In most cases, your business will grow effortlessly if you can nail email automation. You need two main things for it to work: a reliable automation tool and a framework for testing the effectiveness of your campaigns.
Establishing a reference framework may require experimentation — you need to know what metrics to track to measure the campaign’s effectiveness. Finding a great automation tool is a bit easier. Encharge offers a suite of marketing automation tools that cover not only email marketing but also sales workflows and billing automation. The platform integrates with all your apps easily, so automating your existing workflows will be effortless.
Once you have a robust automation tool, it’s only a question of experimentation. Create multiple automated workflows for common tasks like onboarding, upselling, or working with churn and test them. Stick with email sequences that produce the best results and improve on them.
An automated billing system that can replace manual invoicing is also a must-have. It may be expensive to set up and run, but the price is small compared to doing it manually.
There’s no one-size-fits-all strategy for marketing subscription-based software. Each product and company is different, and you must figure out what works best for you by experimenting and learning from your mistakes.
With this article, you have all the blocks necessary to build a robust marketing strategy for your SaaS product. All that’s left is to review these options and decide which ones work best for you