Software as a Service type of business is as popular as ever, and SaaS development services are in high demand. When building a SaaS product, a crucial aspect to consider is a pricing model—it will be a cornerstone of the software and the way users interact with it. It will impact your revenue and customer satisfaction, as well as general growth.
The pricing models available all have a couple of advantages. In this article, we will explore various SaaS payment options to help you make the best decision. But first, let’s cover our basics.
What is SaaS and How Does it Work?
SaaS stands for Software as a Service. It is a model where applications are hosted by vendors and made available online, rather than loading on individual computers or servers. This model allows businesses to offer services on a subscription basis. And this is a fast-growing industry too—about 47% of venture capital funding in 2023 went to companies with a SaaS business model.
SaaS solutions are cloud-based, so users can use these from any device with an internet connection. In some way, this means that enterprises now care less about their own IT infrastructure, and scalability becomes an easy thing to achieve.
All of it is because SaaS apps help run a variety of operations. It can range from customer relationship management and enterprise resource planning down to collaboration tools. All are made possible with services like SaaS development by pros like Digiteum.
Common Pricing Models for SaaS
Several payment options for SaaS are the most popular among businesses. The short list would include:
- subscription-based;
- freemium;
- usage-based;
- tiered;
- per user;
- flat price.
Here is an overview of each of them.
Subscription-Based Pricing
One of the most common models offered by SaaS development solutions is subscription-based pricing. Here, software users pay a monthly or annual subscription fee to renew their access. This model offers a predictable revenue stream, as well as predictable customer retention.
Prices can differ from business to business too. Some offer single plans, while others offer several ones with varied levels. An example: a basic plan covers core features, while a premium one offers something more on top.
Freemium Model
Another popular approach is a freemium model. It provides basic features for free while charging for advanced services. Fast user acquisition is one of the key benefits of this model.
It lets users have a taste of what the software can do before they have to commit to a paid plan. The difficulty is converting those free users into actual paying customers.
Usage-Based Pricing
Usage-based, or pay-as-you-go, pricing bills customers based on the services they actually used during some period. This model is very flexible and matches cost to usage. This makes it particularly enticing for users whose requirements could vary.
For example, a user could be billed for cloud-stored data based on the actual amount of said data. Then customers will be paying only for what they use in practice..
Tiered Pricing
Tiers basically include different plans with different price points that offer access to different features. The tiered pricing model is a flexible one that can be useful for a wide segment of customers, from small businesses to large enterprises.
Each higher tier has an increased service and value. For example, a basic tier could include core features; a mid-tier could include a few more features on top, and a premium one would provide VIP support.
Per-User Pricing
Per-user pricing is charging customers based on the number of users that have access to SaaS. It is one of the most straightforward models to understand, and costs can scale based on the size of the customer’s team.
This approach works great for collaboration tools and other software where teams can use them together. The downside is that as the number of users grows, the costs rise quite sharply too.
Flat-Rate Pricing
The flat-rate pricing model charges one price for every single feature available, used or not, for any number of users. It is simple and straightforward, which makes it easy to understand and use.
Customers would be certain what they are in for. It is an easy system that may not suit as many clients or work for everybody. It can also potentially undercharge or overcharge users, depending on how much value the customer gets from the software.
Factors to Consider when Choosing a Pricing Model
There are several aspects worth consideration when it comes to choosing a pricing model. SaaS is thought to be the most important tech in business success, but it needs to be implemented properly, even with the help of experts like Digiteum. The key points include:
- business size and potential growth;
- available budget and financial planning;
- user needs and client preferences;
- value proposition and the competition in the market.
The size of your business and the potential for future growth is an important factor. For example, freemium is great for a startup looking to gain users fast, and tiered models work well for established companies.
Budgeting is key here as well. Predictable revenues give you a clear idea of what to plan for, financially speaking. Pay-as-you-go models may be less predictable but suit better for the varying costs of running a business.
Knowing your users is essential. If they are customers who love flexibility, then a usage-based model would look great. On the other hand, a flat rate might work best for those who want a simple option.
Consider also your value proposition. For example, if the software solves a problem or provides a service that other applications are not offering, then you may charge a premium for this. If you are operating in a very competitive market, then a freemium or tiered model may be better for retaining users.
Final Thoughts
Select the right pricing model for your SaaS, and the business is already halfway on its path to becoming a success. That being said, each model definitely has its pros and cons.
Do your market research. Run a few tests and be prepared to change things. By knowing the different SaaS pricing models and just being meticulous in reviewing them, you will find the right fit for your business.
