The best flexible pricing strategies for SaaS businesses

You’ve raised funds, built a solid software-as-a-service (SaaS) product, and designed your business's website. Then, you reach a sticking point: how to price your SaaS product.

Pricing for SaaS products can be tricky. You likely have a great product, but choosing from SaaS pricing models and strategies can make or break your business. 

In a rapidly growing industry, valued at $176.62 billion as of 2022, price is a significant driver. According to one study, a 1% improvement in SaaS pricing leads to a 12.7% increase in profit. According to the same study, focusing on pricing is twice as effective as improving retention and four times as effective as improving acquisition.

You’ve undoubtedly run across a range 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 approach pricing 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 deciding on the pricing model that’s right for your business, you need to establish a financial infrastructure that allows you to collect recurring revenue efficiently and cost-effectively.

Here’s where Airwallex can help. 

Integrate our software with your online store to easily set up and manage multiple subscription plans. 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.  

What is SaaS pricing?

In summary, SaaS pricing involves charging customers a regular subscription fee to use the SaaS product, typically on a monthly or annual basis. 

Determining the appropriate SaaS fees to charge depends on several factors, including your revenue goals, customer personas, and marketing strategy. Of course, you’re also finding what pricing model and strategies best attract, retain, and incentivize 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, determining the cost-to-value ratio can be challenging for SaaS businesses, as their production costs vary. Unlike traditional product prices, which depend on materials and labor, SaaS prices are more closely tied to 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 considering long-term viability in your SaaS pricing. 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 mainly 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?]

Flat-rate pricing

This model’s about as simple as SaaS pricing gets. You offer a single price for a comprehensive set of services in a single package, typically billed on a monthly or annual basis. The subscription price is the same for all customers, from individuals to enterprises.

Pros and cons of flat-rate pricing

As for the pros, the flat-rate pricing model offers simplicity for you and your customers. They see exactly what you offer at an exact price, and they know exactly when they’ll pay. SaaS businesses can achieve the same simplicity and not worry about assembling 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.

Due to this inability to scale, the flat-rate route isn’t the best option for enterprise SaaS pricing. Startups and small to medium-sized businesses or enterprises (SMBs/SMEs) are likely to benefit the 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 continues to use the flat-rate model successfully. By taking a streamlined approach to its business ethos, it has 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.

Usage-based pricing

Also known as pay-as-you-go or consumption-based pricing, the usage-based pricing model charges customers based on the amount of service they use. 

Although infrastructure-related SaaS businesses primarily use this model, others have begun to find it helpful due to its straightforward sliding scale. That is, if customers use more, they pay more – if they use less, they pay less.

Pros and cons of usage-based pricing

In terms of pros, this model makes sense. It’s fair to charge per use, and customers generally understand the logic behind it. Therefore, the usage-based pricing model is widely appealing.

Usage-based pricing works well for startups, SMB, and enterprise SaaS pricing. It’s a particularly sound B2B SaaS pricing model. Startups and SMBs 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, making scaling your business challenging with this model. 

Customers may also be shocked when they receive a hefty charge after a month of heavy usage. They may not realize 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.

Tiered pricing

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 customizable packages with top-level services. In other words, the business categorizes 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 of tiered pricing

As for advantages, tiered 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 typically reserved for enterprise SaaS pricing, which guarantees a higher revenue stream for a specified period. When you list services in defined packages, customers may also find it easy to decide which they need most.

As for disadvantages, the tiered pricing model can limit the offerings within each subscription category. In turn, this can lead to lower customer satisfaction – and higher churn. 

Customers may want a feature that you offer only in 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 most effective of the SaaS pricing models when executed 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.

Per-user pricing

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 $10 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 of per-user pricing

As for the pros, the per-user model tends to attract SMBs. This generally garners you greater and more predictable revenue. Additionally, offering all your product features in one subscription provides both parties with simplicity – the user count is the only variable.

As for cons, if a startup or small business thinks it will grow rapidly, it may opt for a per-user pricing model. It knows that its employee number will increase, so its SaaS fees will rise 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 significant disadvantage is the sharing of passwords or logins. 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 pricing based on the number of users. 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 a per-user tiered pricing model. 

Per-feature 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 be aware of the purpose or value of certain features.

This is not necessarily as important if you’re looking for enterprise SaaS pricing models. Enterprises typically have tech teams that specialize in meeting the business's needs. However, freelancers, startups, and SMBs may need more guidance, so be prepared for questions.

Pros and cons of per-feature pricing

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 the service in question.

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 pricing based on features, as does the 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.

Free

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 to see dollar signs, drop-off 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 of freemium pricing

As for the pros, the free pricing model provides your business with an instant and 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). Additionally, numerous SaaS businesses now offer free trials – customers often expect a trial period before they subscribe.

As for the cons, we’re sure you’ve guessed. Churn is inevitable, even if your service is fantastic and SaaS fees are nonexistent. Customers may also treat your service as a one-time fling, then move on 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, partly because of its diverse range of services. Social media management software Hootsuite has achieved similar success, offering a 30-day free trial and competitive pricing.

[Related: How to hire for success when you're 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, billing period, and features offered. 

You’ll want to strike a balance on your pricing page: detailed yet concise. At a glance, customers should gain 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 with these templates or visit their pricing page 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 persona, 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.

Penetration pricing

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 of penetration pricing

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 a 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 if prices are raised. 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 a similar approach – offering a low entry cost, followed by slight increases in SaaS prices.

Premium pricing

Also known as prestige pricing, this SaaS pricing strategy conveys a sense of exclusivity and luxury to customers. 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 is most effective for established SaaS businesses that cater to a small number of loyal, affluent customers.

Pros and cons of premium pricing

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 continue to use 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 a premium price for products that aren’t significantly superior. The brand name is the primary draw, but it remains a significant draw nonetheless.

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.

Captive pricing

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 of captive pricing

As for the pros, you can quickly hook customers 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 the high cost of the captive product. 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 the needed features. In turn, customer satisfaction may decrease, leading to churn.

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 need to purchase 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 that use forms of captive pricing include the financial services platform Square and tax filing software TurboTax.

Cost-based pricing

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 considers your CAC, cost of goods sold (COGS), and desired profit margin on a per-user, per-period basis. 

Pros and cons of cost-based pricing

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. Due to the strategy’s simplicity, cost-based pricing may be a suitable initial approach 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 centers on the business, but a truly effective SaaS pricing strategy centers on the customer and how much they value your product.

Cost-based 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.

Competitor-based pricing

This SaaS pricing strategy is pretty self-explanatory. You examine the pricing pages of similar businesses, then base your SaaS prices on theirs. You could take a premium angle and price slightly higher, a penetration angle and price lower, or price equally.

The key is to get a good idea of how businesses with similar offerings charge their 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 of competitor-based pricing

Regarding advantages, using competitor-based pricing is a standard and straightforward approach. You know what you’re up against, especially as a startup or SMB. You can use this strategy to adjust your SaaS fees and features, setting 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 consider moving one valuable feature to your most affordable tier, which gives you a competitive 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 simply mimicking a competitor’s pricing page, you may miss lucrative opportunities to earn additional revenue.

Competitor-based 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.

Value-based pricing

With the value-based pricing strategy, you take a sharp turn from numbers-centric strategies (e.g., competitor-based, cost-based). 

Value-based pricing stresses the value the customer gets from your SaaS product. You’re dealing with intangible factors – customers' perception of your product.

To effectively use this strategy, you must understand your target audience, their needs and desires, 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 value their SaaS product delivers.

Pros and cons of value-based pricing

In terms of pros, value-based pricing is highly suitable as a SaaS pricing strategy when you have insights into customer behavior. It also strengthens customer relationships, leading to increased customer satisfaction and retention. 

You can also shift your services and SaaS cost structure according to changing customer buying behavior. 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 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 requires time and money that you may not have immediately available.

Value-based 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 employs value-based pricing in conjunction with 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.

• Analyze 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 take advantage of 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 be 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.

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. 

Additionally, with an Airwallex Global Account, you can collect customer payments in multiple currencies without incurring unnecessary fees. 

You’ll also enjoy the benefits of our Corporate Cards, low FX rates, and super-fast transfers. So you can manage your money globally with ease. 

Sign up for an Airwallex account today to get started.