The best flexible pricing strategies for SaaS businesses
- •Find the right technology to support your subscription business
- •What is SaaS pricing?
- •SaaS pricing models: How to price SaaS products
- •Flat rate
- •Per user
- •Per feature
- •SaaS pricing model template
- •SaaS pricing strategy types
- •Choosing the right SaaS pricing strategy for your business
- •Manage your SaaS subscriptions with Airwallex
You’ve raised funds, built a solid software-as-a-service (SaaS) product and designed your business website. Then, you reach a sticking point: how to price your SaaS product.
Honestly, pricing for SaaS products is tricky. You likely have a great product, but choosing from SaaS pricing models and strategies can make or break your business.
And in a rapidly growing industry — worth USD176.62 billion as of 2022 — price is a major mover. According to one study, a 1% betterment in SaaS pricing leads to a 12.7% profit increase. Per the same study, focusing on pricing is twice as helpful as improving retention and four times as helpful as improving acquisition.
You’ve undoubtedly run across an array of SaaS pricing models, and choosing one alongside a SaaS pricing strategy can be challenging. Before you decide how to price your SaaS product, it’s smart to know the main models, strategies, and their pros and cons.
It’s a lot to digest. Fortunately, pricing for SaaS products is flexible. In fact, that flexibility is what makes choosing your model and strategy simpler.
Before we get into the details, remember two key goals when finding your ideal SaaS cost structure:
Giving customers a valuable product
Reaching the profit margin needed to help your business thrive
So, how do you go about pricing for SaaS products and presenting them to customers? Read on for a breakdown of the best pricing strategies for SaaS businesses.
Find the right technology to support your subscription business
First things first. Before you decide on the pricing model that’s right for your business, you need to put financial infrastructure in place that will allow you to collect recurring revenue simply and cost-effectively.
Here’s where Airwallex can help.
Plug our software into your online store to set up and manage multiple subscription plans easily. Our technology handles the complex subscription logic, so all you need to do is sit back and let your recurring revenue roll in.
What’s more, with our free Global Accounts, you can collect payments from your international customers in multiple currencies without paying unnecessary FX fees. Sign up for free to learn more.
What is SaaS pricing?
In sum, SaaS pricing involves charging customers a regular subscription fee to use your SaaS product, usually monthly or annually.
Finding the appropriate SaaS fees to charge depends on many factors, such as your revenue goals, customer personae and marketing strategy. Of course, you’re also finding what pricing model and strategies best attract, retain and incentivise customers.
Ultimately, you want customers to feel like they’re getting exactly what they pay for (and maybe more) — the cost-to-value ratio or benefit-cost ratio. When you find a pricing model and strategy that offers a sound cost-to-value ratio, you’ve probably hit your target.
However, the cost-to-value ratio can be difficult for SaaS businesses to determine because their production costs differ. As opposed to traditional product prices, which depend on materials and labour, SaaS prices depend more on skill, time and functionality.
Oddly enough, that’s also the beauty of SaaS pricing — situations change, and your prices can change alongside them. Plus, businesses often combine models and/or strategies.
SaaS pricing models: How to price SaaS products
Whether you’re aiming to attract a startup or an enterprise, pricing models are frameworks through which to present your product. Finding a pricing strategy for SaaS products helps you showcase your product’s value — and justify its fees.
While reviewing your options, keep a few goals in mind:
Offer the customer all you can (within reason) while looking towards long-term viability in your SaaS prices. The SaaS pricing models you use will affect your total revenue.
Work with as many key performance indicators (KPIs) as you can.
Note: SaaS pricing mostly involves customer lifetime value (LTV), customer acquisition cost (CAC), customer churn rate and monthly recurring revenue (MRR).
Don’t box yourself in — you can even tweak prices and models as needed, as practical and as your business grows.
Now, let’s look at the main SaaS pricing models and strategies and note how they can help or harm your business.
[Related: Venture capital vs crowdfunding: What’s the best call for your business?]
This model’s about as simple as SaaS pricing gets. You offer one price for one set of services in one package, usually billed monthly or annually. The subscription price is the same for anyone, from single customers to enterprises.
Pros and cons
As for pros, the flat-rate pricing model offers simplicity for you and for customers. They see exactly what you offer at an exact price, and they know precisely when they’ll pay. SaaS businesses can have the same simplicity and not worry about putting together complex packages.
As for cons, flat-rate pricing is rigid. Remember that need for flexibility? You won’t find it here.
You have little to no room to scale services, and customers can’t add features if they’d like to. This could lead to churn if they don’t find the functions they need in your product — or spot a better offer from another business.
With this inability to scale, the flat-rate route isn’t best for enterprise SaaS pricing. Startups and small-to-medium-sized businesses or enterprises (SMBs/SMEs) might benefit most. However, you’ll miss the opportunity to sell at more lucrative prices if enterprises want to adopt your product.
Flat rate SaaS pricing examples
Because flat-rate pricing is one-size-fits-all, few SaaS businesses use it.
However, project management software Basecamp still uses the flat-rate model successfully. By taking a streamlined approach to its business ethos, it’s made the sheer ease of use appealing.
Of course, Basecamp has handled its fees and strategy deftly. If you don’t have the same experience, consider exploring other SaaS pricing models.
Client management software HoneyBook and data connection SaaS Precog also use variants of the flat-rate model.
Also known as pay-as-you-go or consumption-based pricing, the usage-based pricing model charges customers per how much of a service they use.
Although infrastructure-related SaaS businesses primarily use this model, others have begun to find it useful because of its straightforward sliding rule. That is, if customers use more, they pay more — if they use less, they pay less.
Pros and cons
In terms of pros, this model just makes sense. It’s fair to charge per use, and customers generally see the logic in that. Therefore, the usage-based pricing model is broad in its appeal.
Usage-based pricing works well for startup, SMB and enterprise SaaS pricing. It’s a particularly sound B2B SaaS pricing model. Startups and SMBs definitely benefit — they have no massive SaaS fees to pay before they start using your product.
In terms of cons, it’s difficult to determine your regular revenue. Usage inevitably varies from customer to customer and from month to month, so scaling your business may be challenging with this model.
Customers also may be shocked when they get a hefty charge after a month of heavy usage. They may not realise they used as much of your service as they did — and then they may turn to another business that follows a more predictable, set pricing model.
Usage-based SaaS pricing examples
Many platform-centric SaaS businesses follow the usage-based pricing model.
For instance, Amazon uses the model for its Amazon Web Services. Customers see what they’ll pay per how much (or how many) services they use, and those customers range from individuals to enterprises.
You’ll also find the usage-based pricing model in cloud and database storage SaaS businesses, like Oracle, Snowflake and Twilio.
Of all SaaS pricing models, tiered pricing is the most common among businesses — and most popular among customers. That’s for good reasons.
Traditionally, businesses offer three packages: low-cost, medium-cost and high-cost. Some may offer additional customisable packages with top-level services. In other words, the business categorises SaaS features in tiers.
Accordingly, the number of functions or features rises with the price point. Businesses can also easily combine tiered pricing with other SaaS pricing models, which makes its use even more widespread. You’ll see many of the other models here paired with tiered pricing.
Pros and cons
As for advantages, tired pricing appeals to a wide range of customers. Some may want a few basic services in one package. Others find the middle option best because it features core services alongside premium services.
The highest tier is usually for enterprise SaaS pricing, which guarantees you more revenue for a set period. When you list services in defined packages, customers also may find it easy to decide which they need most.
As for disadvantages, the tiered pricing model can limit what you offer per subscription category. In turn, this can lead to lower customer satisfaction — and higher churn.
Customers may want one feature that you offer in only your highest tier, but they can’t afford it. Others may question the cost per tier if they’re unfamiliar with the services’ value. And if customers don’t find what they want for what they believe is a reasonable price, they’ll look elsewhere.
Regardless, tiered pricing is the smartest of the SaaS pricing models when done well.
Tiered SaaS pricing examples
Customer relationship management (CRM) SaaS HubSpot uses the tiered pricing model for its Marketing Hub. You’ll note three main tiers, and the SaaS pricing model template clearly lists what each offering includes.
In fact, the tiered pricing model is so abundant as a SaaS cost structure that it’s nearly the default. A few more examples include Obsidian, SalesHub (also from HubSpot) and Sprout Social.
Also known as user-count or user-based pricing, the per-user pricing model follows the same basic principle as the usage-based pricing model. You charge SaaS fees per the number of people using the service — the more users, the more revenue.
With this model, you generally include all your SaaS product features. For instance, you charge USD10 monthly per user for a full subscription.
Some businesses follow a per-active user model, where customers pay only for users who regularly access the service.
This is a common B2B SaaS pricing model because businesses have a definite headcount and price. They know what they’ll pay because they’ve registered a set number of users (or have a good idea of the number of active users).
If you’re looking for enterprise pricing models, per-user pricing is tricky. Enterprises may face heavy fees unless your SaaS prices are just right.
Pros and cons
As for pros, the per-user model tends to attract SMBs. This generally garners you greater and more predictable revenue. Plus, offering all your product features in one subscription lends both parties simplicity — the user count is the only variable.
As for cons, if a startup or SMB thinks it will grow rapidly, it may avoid per-user pricing. It knows its employee number will jump, so its SaaS fees will increase as well. The same goes for enterprises.
You’re also less likely to attract single customers with this model, although it’s available to them. In other words, if your business aims for B2C marketing, the per-user pricing model is probably not for you.
Another definite disadvantage is password or login sharing. Customers are savvy — if one employee has login credentials, they’re likely to cut costs by “borrowing” others’ credentials.
Per-user SaaS pricing examples
Project management tool Asana offers tiered per-user pricing. As we mentioned, businesses often pair SaaS pricing models — especially with tiered pricing.
For instance, business messaging app Slack uses a combination of per-active user and tiered pricing. Product strategy tool ProductPlan and CRM tool Zendesk follow per-user tiered pricing.
Also known as feature-based pricing, this pricing model is fairly self-explanatory. You charge customers per feature, often in tiered subscriptions. Using per-feature pricing is rather like ordering from a menu — why pay for food you don’t eat?
If your business offers a broad range of services, the per-feature model may be helpful. However, you’ll likely need to have the resources to work closely with customers. They may not know what some features are or what value those features provide.
This is not necessarily as important if you’re looking for enterprise SaaS pricing models. Enterprises usually have tech teams specialising in what the business needs. However, freelancers, startups and SMBs may need more guidance, so be prepared for questions.
Pros and cons
In terms of advantages, per-feature pricing lets customers select precisely what they want and control their spending. You’ll know what SaaS fees to charge each customer, and they can add (or drop) features as needed. That greater flexibility means greater customer satisfaction.
Per-feature pricing also fits most customers, from individuals to enterprises. As with all SaaS pricing models, ensure you weigh the costs and charge fairly per feature.
In terms of disadvantages, flexibility can be a double-edged sword. You might provide a highly valuable service, but customers with lower budgets may be unable to afford it. This may lead to churn as they turn to businesses with more affordable subscriptions including that service.
Cash flow and revenue forecasting can be unpredictable. You might secure enterprises that pay for hundreds of features, or you might attract a handful of single customers who want one feature. Or you could have a variety of customers who pay for a spectrum of features.
Per-feature SaaS pricing examples
Again, you’ll see per-feature pricing combined with other SaaS pricing models.
Accounting software QuickBooks uses tiered per-feature pricing, as does marketing automation tool ActiveCampaign. Design software Canva offers per-feature pricing alongside per-user pricing.
When you scan these businesses’ pricing pages, you’ll see why you might need a team to explain features and fees.
Also known as freemium, the free pricing model usually starts with a free trial. After a period (usually one or two weeks), the customer receives charges. Some businesses offer permanently free but limited services, and customers pay only when they’re ready to upgrade.
As a general rule, you’ll see a high initial adoption rate. As customers begin seeing dollar signs, dropoff invariably occurs.
This pricing model appeals to most customers. Freelancers, startups and SMBs benefit most — enterprises have more revenue and can afford pricier up-front SaaS fees.
Pros and cons
As for pros, the free pricing model gives your business an instant, straightforward way to attract customers. If you offer a truly valuable service, they’ll probably stick around. The free model is also an easy route to great word-of-mouth marketing — again, if your product is valuable.
The key is maintaining momentum by increasing customer satisfaction (and not gating too many features). Plus, countless SaaS businesses now offer free trials — customers often expect a trial before they subscribe.
As for cons, we’re sure you’ve guessed. Churn is inevitable, even if your service is fantastic and SaaS fees are nonexistent. Customers also may treat your service as a one-time fling, then move to the next free trial.
Filling a specific need may be the best way to avoid the “take-it-then-leave-it” effect.
Free SaaS pricing examples
We could offer hundreds of examples! Many of the SaaS businesses we’ve already listed either started with a free model or still offer the option.
Cloud service Dropbox offers a free trial, and customers quickly find its services valuable. It’s a wildly successful company partially because of its varied services. Social media management software Hootsuite has seen similar success with a 30-day free trial and reasonable prices.
[Related: How to hire for success when your an unknown startup]
SaaS pricing model template
Like other aspects of SaaS pricing, your pricing model template is flexible. However, a standard template clearly outlines the price, the billing period and the features you offer.
You’ll want to strike a balance on your pricing page: detailed yet concise. At a glance, the customer should get a basic understanding of your SaaS fees and features.
HubSpot offers two examples of a SaaS pricing model template — one for a single subscription and one for multiple subscriptions. You can work off these templates or check out its pricing page examples for more options.
Top tip: Skip frustrating fees and enjoy market-beating foreign exchange (FX) rates with an Airwallex Global Business Account.
SaaS pricing strategy types
The pricing strategy for SaaS businesses is as important as their pricing model.
Think of it as the tactic by which you present your product. Even when you have a profitable pricing model, how you offer customers a subscription affects how they perceive its value.
Your metrics, customer personae and pricing model influence which strategy works best for your business. You should also consider your competitors’ SaaS prices, but that’s only one factor — and not the most important.
Next, we’ll outline the most common SaaS pricing strategy types.
This pricing strategy cuts straight to the heart of the market — you offer subscriptions at low prices. This grabs attention and subscriptions quickly, and then you gradually raise SaaS fees. Therefore, your business “penetrates” the market in the short term.
It’s incredibly important to build customer relationships and provide real value when you use this primarily B2C SaaS pricing strategy.
Pros and cons
As for pros, penetration pricing is a good strategy if your business is new and mostly unknown. By offering your product at a lower-than-usual price, you can outrun competitors and snag customers early.
If you’re a more established business but subscriptions have lagged, penetration pricing can reinvigorate business for a time. However, you’ll want to ensure long-time customers know the lower prices are temporary so they don’t feel cheated.
As for cons, penetration pricing is not a wise long-term SaaS pricing strategy. It’s simply unsustainable. You’ll need to use it for only a set period, then find another long-term strategy to maintain your gains.
On the customer side, those who subscribed at a low price may abandon the service once you raise prices. And if you offer very low-priced subscriptions for too long, you could undermine your own product’s value.
Penetration SaaS pricing examples
Although not a SaaS business at first, Netflix is the go-to example of penetration pricing. In the late 2000s, it offered DVD rentals at a fraction of the price of titanic companies like Blockbuster. As a result, it gained glowing word of mouth and tons of subscriptions.
More recently, streaming and internet services often use penetration pricing. For instance, Disney+ first offered its streaming services at a low price, then raised rates. And its subscription numbers continue to climb as it adds in-demand entertainment (i.e. maintains value and customer relationships).
Companies like T-Mobile and Comcast/Xfinity are taking the same tack — a low entry cost, followed by small jumps in SaaS prices.
Also known as prestige pricing, this SaaS pricing strategy gives customers a sense of exclusivity and luxury. That is — if it costs more, it has to be a fantastic product, right? Even though that’s not necessarily the case, it’s a psychological tactic that can work.
This strategy works best for established SaaS businesses that cater to a few loyal but affluent customers.
Pros and cons
As for advantages, your only real benefit as a SaaS business is to offer an expensive product that few customers can afford. They may believe the product is valuable simply because it’s pricey. As a result, you earn committed customers who pay regularly and keep the service.
As for disadvantages, striking the chord between price and perceived value is truly tricky. If you slap a high price tag on a brand-new SaaS product, few customers will try it blindly. The gamble is risky, and you may need to ditch the strategy altogether.
In other words, SaaS startups and SMBs are usually better off exploring other pricing strategies. They’re unlikely to gain customers with premium pricing.
Enterprises may be more apt to try the product because they can afford the SaaS fees, but that’s by no means a guarantee. After all, enterprises also want to cut costs.
Premium SaaS pricing examples
The classic non-SaaS example is how Apple markets its products. Apple customers tend to be extremely loyal and willing to pay whopping prices for products that aren’t actually too superior. The brand name is the primary draw, but it’s nonetheless a big draw.
CRM tool Salesforce uses a variant of the premium SaaS pricing strategy. It offers a high-dollar tier with a suite of marketing tools. This creates the image of only highly successful businesses being able to afford that tier — and thus become more successful.
With captive pricing, you offer a core product at a low price. Then, you offer one or more significantly more expensive products that unlock the core product’s best features — the captive product. To get great value from the core product, customers need the captive product.
Successfully using the captive pricing strategy requires offering incredibly valuable products, both core and captive.
Pros and cons
As for pros, you may hook customers quickly with that low-cost product. You’ll probably have a high initial subscription rate. This guarantees you revenue — at least in the short term.
If customers genuinely need and like the core product, they’ll continue to buy the captive product and pay SaaS fees. Granted, you’re likely to hear some grumbling.
As for cons, captive pricing can be a gamble. Your subscription rate may plummet as customers discover how expensive the captive product is. They like the core product, but it doesn’t offer nearly all the features they want.
Plus, customers may feel cheated. Their idea was to get a valuable product at a reasonable price, but they have to pay high SaaS prices to access needed features. In turn, customer satisfaction may decrease, and churn occurs.
Captive SaaS pricing examples
A common non-SaaS comparison is a home printer. The printer itself is low-cost, but ink cartridges are expensive. And of course, you have to buy ink cartridges to use the printer.
Captive pricing is more common than you’d imagine as a SaaS pricing strategy. You’ll often see it alongside the free and usage-based SaaS pricing models.
Adobe’s products immediately come to mind. For instance, with Adobe Acrobat, you can work with PDFs for a reasonable price. If you want to do practically anything beyond that, you must upgrade or buy add-ons.
Other SaaS businesses using forms of captive pricing include financial services platform Square and tax filing software TurboTax.
Also known as cost-plus pricing, this pricing strategy is basic in concept. You determine your monthly or yearly costs, then add fees to earn your desired profit.
Cost-based pricing takes into account your CAC, cost of goods sold (COGS) and desired profit margin on a per-user, per-period basis.
Pros and cons
As for pros, calculating cost-based pricing is simple — given you can determine those KPIs. If so, you can work out a basic SaaS cost structure. Because of the strategy’s simplicity, cost-based pricing may be a good initial angle for SaaS startups.
As for cons, determining those KPIs can be a struggle. Relying solely on cost-based pricing also skirts competitor-based pricing (see below). And competitor-based pricing is a crucial pricing strategy — especially in such a high-volume market.
Additionally, cost-based pricing centres on the business, but a truly effective SaaS pricing strategy centres on the customer and how much they value your product.
SaaS pricing examples
It’s nearly impossible to find examples of SaaS businesses that still use the cost-based pricing strategy. Many startups likely began with (or at least tried) the strategy, then found a more profitable and predictable one.
In essence, cost-based pricing alone doesn’t jibe with SaaS pricing. Determining with absolute certainty how much it costs to make and market your product is iffy.
This SaaS pricing strategy is pretty self-explanatory. You look at similar businesses’ pricing pages, then base your SaaS prices around theirs. You could take a premium angle and price slightly higher, a penetration angle and price lower or price equally.
The key is getting a good idea of how businesses with offerings like yours charge customers. If you’re a startup or new SMB, competitor-based pricing is an easy benchmark by which to find your SaaS cost structure.
Pros and cons
As for advantages, using competitor-based pricing is standard and simple. You know what you’re up against, especially as a startup or SMB. You can use this strategy and adjust your SaaS fees and features to set your business apart.
Say you want to compete in your market niche, but you can’t afford to price your services the same as your major competitors. You might move one valuable feature to your most affordable tier, which gives you an advantage.
As for disadvantages, your SaaS business is unique. Copying a competitor’s SaaS prices — even if its features are practically identical — does nothing to set you apart. Plus, by merely mimicking a competitor’s pricing page, you may miss lucrative opportunities to earn additional revenue.
SaaS pricing examples
Streaming entertainment companies often use competitor-based pricing.
Check out the pricing pages for Hulu, Netflix and HBO Max. The structures are similar. You’ll see the same key elements: plans, prices and — most importantly — service-exclusive shows and channels.
The one feature that might sway customers is a show they really want to watch.
With the value-based pricing strategy, you take a sharp turn from numbers-centric strategies (e.g. competitor-based, cost-based).
Value-based pricing emphasises the value the customer gets from your SaaS product. In essence, you’re dealing with intangible factors — customers’ perception of your product.
To use this strategy, you must know your target audience, their wants and their willingness to spend. Fostering customer relationships is a crucial part of value-based pricing. Therefore, startups and SMBs must focus on and clearly communicate how much worth their SaaS product delivers.
Pros and cons
In terms of pros, value-based pricing is highly suitable as a SaaS pricing strategy when you have customer behaviour insights. It also cements customer relationships, which leads to higher customer satisfaction and retention.
You can also shift your services and SaaS cost structure according to changing customer buying behaviour. That flexibility goes a long way in building better products and justifying your prices.
In terms of cons, this is definitely a long-term SaaS pricing strategy. You most likely won’t see immediate financial gains.
If you’re a startup or new SMB, you may not know how your customers perceive your product’s value. You’ll need to invest effort into customer research, which takes time and money that you might not immediately have.
SaaS pricing examples
Analytics platform CrazyEgg knows the value of its product — particularly its heatmaps — and charges accordingly. Keyword research tool Semrush is a trusted SEO service, and its tiered prices match customers’ needs.
Adobe uses value-based pricing alongside a form of captive pricing. With powerful tools like Photoshop, InDesign and Dreamweaver, customers know they’ll get valuable services for their money.
[Related: The founder’s guide to running a great board meeting]
Choosing the right SaaS pricing strategy for your business
With so many options, we’re sure you’ve noticed how daunting choosing the right SaaS pricing strategy can be. To help you decide, here are a few SaaS pricing best practices:
Keep the customer’s needs in mind. They’re often willing to pay a fair price for a product when they’re satisfied with it.
Analyse your metrics, know your target customer, weigh your options — and trust your instincts.
Think, “What would I feel was a reasonable fee for this service?”
Remember that customers usually know if you try to get one over on them by overpricing or underpricing.
Remain flexible. SaaS prices aren't set in stone, so tweak your packages, strategies and models accordingly.
Be honest with customers and informed as a business.
Regularly assess the long-term sustainability, customer value and business value your SaaS cost structure provides.
If you consider customers’ preferences and your business’s needs, you’ll have an internal compass to guide decision-making. And choosing a SaaS pricing strategy will be a lot less perplexing.
[Related: Funnels vs flywheels: The secret to driving exponential growth]
Manage your SaaS subscriptions with Airwallex
Once you’ve chosen the pricing model that works for your business, you need to ensure you’re collecting revenue efficiently and cost-effectively. That’s where Airwallex comes in.
Airwallex provides financial infrastructure for fast-growing SaaS businesses. Our technology allows you to set up multiple subscription plans for your customers, and easily adjust your pricing strategy as your business grows.
Plus, with an Airwallex Global Account, you can collect customer payments in multiple currencies without being subject to unnecessary fees.
You’ll also enjoy the benefits of our Borderless Cards, low FX rates and super-fast transfers. So you can manage your money globally with ease.
Sign up for a free Airwallex account today to get started.
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