The Most Important Software As A Service Pricing Models
by Arnab Dey Technology 08 February 2023
Software as a Service (SaaS) is a well-liked business model that enterprises employ to provide their software as a subscription-based service to their clients.
One of the key components of launching a SaaS company is to identify the cost of your service, taking into account its constant value to the client. In this material, we will examine the most widely used pricing schemes.
Why is it necessary to determine SaaS prices?
For a SaaS business, setting the appropriate cost of your services can establish the success of your company.
Here are a few reasons why it is important to calculate the correct price as it:
- determines the worth of your product. When you decide on pricing for your product, you show the market what you think it is worth;
- sets up your business for profit. Your price can determine whether your company can make a profit because the price you charge offsets the cost of providing the service;
- highlights your market. Deciding on the price can also help inform which market you require. As soon as you set it, think about who you want your consumers to be, and ensure you choose a pricing model that matches their desires and requirements.
8 various price models
There are eight types of pricing models for SaaS companies
1. Freemium
The freemium pricing model allows clients to use certain options of the program for free and charges for premium access to all features.
Allowing potential customers to use parts of another product encourages them to familiarize themselves with it so that it is more convenient for them to pay for premium access.
It can also build trust between your consumers and the program because they can use it and see that it works. The majority of these pricing models have several levels at various prices, from free to premium packages.
2. Flat rate
It is when your service has a single price, whatever the functions and settings of your clients. This is the simplest pricing structure. You may demand a fee for your services at preset intervals, and the price remains the same throughout the client’s lifecycle with the product. When it comes to consistently used services, clients may pay a monthly subscription charge at continuous intervals.
3. Based on usage
It is a model in which you charge according to the volume of services your clients use. This is also known as the “pay as you go” model. Some customers prefer this model as it is easy to understand and give them more control over their payments.
You can decide in which units you want to measure their usage and charge for each unit used. For instance, if your website provides storage space, you can charge for every gigabyte of storage used.
4. Pay per user
In this model, you charge your clients for every user they include in their subscriptions. This pricing model is more typical for B2B services than for services intended for individuals.
You can establish a cost for every login or active user they include in their subscription. Enterprises usually combine this pricing model with some other pricing model to identify how much each login costs. For instance, you can assign each entry a price according to the characteristics.
5. Pay per feature
A feature-based pricing model is a case when a company charges its customers for every feature they add to its services. This is a flexibly customizable pricing structure where customers can create a set of services they require and choose how many services they can afford.
For instance, suppose your company is a communication platform. In this scenario, you may impose various fees for any communication method that the client chooses, for example, emails, voice calls, and video calls.
6. Tiered pricing
A Tiered pricing structure is similar to the previous one since the features a customer chooses to employ determine the cost they pay. However, the multilevel pricing structure has predefined packages of functions that the company formulates and offers to the clients.
There are fewer settings for the consumer as businesses create at least two plans that contain certain options, and the clients can select which package best suits their necessities. Multilevel pricing is a popular pricing structure in organizations operating on the concept of “business-client” (B2C).
7. Cost-based model
This pricing model is based on the costs that your company incurs. Businesses estimate the expense of development, labor, and margins, and then bill the client based on this amount.
A great illustration of such a pricing model is when companies charge for web development or graphic design, and they set the price on labor and time, rather than on a predetermined pricing model. Companies that provide highly personalized services often use such a model.
8. Mixed
Some companies offer various services and serve various clients, so a mixed pricing model can better meet their needs. The flexibility of this model can assist in offering your services to a wider consumer market.
For instance, you can provide a Pay per Feature model, as well as a charge per user. These pricing structures work for large companies with a variety of products.
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