When it comes to SaaS pricing, there is no right or wrong answer and no magic formula for the perfect prices, plans or features.
We’re going to walk through some different examples of some familiar products and services and break down how and why these pricing strategies could work for your product or services.
Most articles you’ll read will tell you to analyse your competitor’s pricing.
Well, this may give you some insights it’s not the perfect answer, but doing this can also give you a competitive advantage if you get your pricing right, and that doesn’t always mean being cheaper.
Whether you’re just starting your SaaS product or you’re reconsidering your pricing model for an existing product, we’re gonna take a deep dive into the different pricing strategies you can use to try to come up with the ideal solution that works for your product and your customers.
While there’s nothing wrong with changing your pricing model, it’s not something you want to change often.
If you are changing your pricing model, there are also a lot of different things you should consider as to why you’re making the change and how that change will affect your existing:
- Customer LTV (customer lifetime value)
- Current MRR (monthly recurring revenue)
- Current ARR (annual recurring revenue)
Whether or not you grandfather existing users in if the prices are increasing or what to consider if you’re reducing the price for the current users on existing plans and how this affects your bottom dollar.
Lately, there’s been a lot of talk about consumption-based pricing, which is interesting as pricing is always a hot topic.
So let’s jump into it and start with the consumption base model since that’s the hot topic of 2022.
Consumption based pricing
Consumption-based pricing is pretty well known, with cloud providers offering IaaS (infrastructure as a service) and PaaS (Platform as a service)
Which could be the kick-off for the trend that we’ve seen for SaaS products.
While it’s not the perfect model, it’s definitely a model that can work because it can become cheaper for the end user to use your software if they are just starting out.
But depending on how it’s calculated, at the same time, it can make the user unsure of what their monthly bill may be, which can put people off because it’s not a fixed value per month.
In my eyes, a consumption-based model isn’t a per-user model even though you could classify a single user as being classed as a consumption, I would like to categorise this in a per-user or per-seat pricing strategy.
Other names for it might be pay-as-you-go billing meted billing or usage-based pricing it’s been a billing method around for years, but not so much for a SaaS product or service.
Just think of anything like your water, electricity and gas these are all consumption-based you only pay for what you use.
CONSUMPTION BASED MODEL
HubSpot pricing model
HubSpot Marketing Hub, HubSpot demonstrates a good example of different pricing strategies for different products and users.
I’m sure you’ve all heard of HubSpot before, but you might not be familiar with their different products that are essentially paid add-ons or core features.
You have HubSpot CRM, Marketing Hub, Sales Hub, Service Hub, CMS Hub and Operation Hub.
The HubSpot CRM is the core product. You then have different products that you can pay for offering additional features and add-ons, which all have different pricing points and different pricing strategies.
In this case, we’re only going to look at the HubSpot Marketing Hub.
Some may argue that this is not a consumption-based model example, but I think it’s a good example for a use case of a SaaS product with a hybrid approach.
As you can see in the screenshot, we can see good use of the consumption-based pricing model for a SaaS product.
There are three main product plans with a set monthly value, and then you pay for the consumption based on contacts.
- Starter: $45/m with 1000 contacts included.
- Professional: $800/m with 2000 contacts included.
- Enterprise: $3600/m with 10,000 contacts included.
As you move up the different tiers, the consumption price reduces but the actual core price increases.
For example, if you only needed the features on the Starter Plan:
- You would only ever need to commit to $45 per month for the Starter Plan core features (based on an annual commitment).
- This also includes the first 1000 marketing contacts in the monthly cost.
- You then only pay for the additional contacts in increments of 1000 for $45 per month, on top of the $45/m for the core feature set.
So if you only needed 1500 contact, for now, your monthly cost would be.
|Hubspot Marketing Core||1000||$49/month|
This leaves you with a spare 500 contact for growth till you reach over the 2000 contact user limit, then pay an additional $45/m for the next 1000 contacts.
This brings me to the next thing to consider is a volume discount based on a blended rate.
I’m not gonna go into full details about how a blended rate works as I have a full article on that already, which you can read here.
But as you can see, once you purchase over 3000 contacts, you move into the next tier with a discount rate of $4.50 per 1000 customers.
Then you can see after you reach over 5000+ contacts, you then pay only $36 a month per 1000.
A simple example of a blended rate: If you have 4,000 marketing contacts, the first 1,000 will be at no additional charge.
You’ll be charged $45/mo per 1,000 for the next 2,000 contacts and then $40.50/mo for the next 1,000 contacts, bringing your total to $145/mo.
So the discounted rate is not incorporated in the contacts in the lower tier or user volume bracket.
Per user pricing
The per-user pricing model is probably one of the most commonly used pricing models for SaaS products. In a lot of cases, it makes sense, however, depending on your product it may not always be the best model for both the product companies and the end user. Some end-users will take advantage of this with shared accounts and may never have the need to buy additional accounts if they don’t have to.
PER USER PRICING MODEL
Zendesk pricing model
Zendesk, being a help desk product, probably makes the most sense to go to a user-based model.
For most sass products, you will have different-priced plans that offer different features across each pricing point.
As we can see in the below pricing table on the screenshot, you purely pay per user you don’t pay a monthly price for the core features.
On a per-user-based pricing strategy, you need to consider the value between each feature on each tiered plan and how to move the users up or else you can catch yourself with users not feeling the need or seeing the value in upgrading to the next priced plan.
So you have to have restrictions in there to allow users to move or upgrade to higher-priced plans if they need the features.
This is a good way to separate a basic single-user business, like a small e-commerce store or startup, into a small product or support team to a large enterprise organisation.
Here you can see Zendesk have a good example of the different features to move up the pricing plan but still based only on a per-user model.
The Suite Team plan
You get everything that you need on a basic level to get started to offer support and keep your customers happy if you’re running a small shop e-commerce store.
The Suite Growth plan
You get customisable ticket layout light access for up to 50 uses, service level agreement management and multilanguage support and content.
Making that ideal for slightly larger teams that need to better manage their support system.
The Suite Professional
You can see they have the live agent activity dashboard, integrated community forum, private conversational threads, customisable and shareable dashboard, advanced voice capabilities, data location option, HIPPA compliant, and Event connectors for Amazon Web services.
Based on the professional suit features, these are features that are more suitable for an SMB & Enterprise company that would require those additional features and essentially more users.
Breaking it up into these three different price points and features makes it a lower barrier of entry for people just getting started and the flexibility for users to upgrade as a grow, then for yourself to make more money on the enterprise users, who typically require additional support and onboarded from your team, longer sales cycles and time to close compared to a self-service end-user.
Also known as the value ladder.
If you’re looking for a deep dive into user-based pricing strategies, you can read our article here.
Flat fee pricing
A flat price model isn’t that common among SaaS products, but there are definitely some out there. Basically, it’s a flat set fee for the same set of features that are typically billed monthly or yearly.
Now, this can work for some SaaS products, but it’s not a pricing strategy I would go down personally.
I would like to think it is more get towards something like a WordPress plug-in, Chrome Extension or a 3rd party integration product like an add-on for Shopify.
As I mentioned, it’s not a pricing strategy I would use for a sass product, but I think it’s worth going through an example to help you better understand and make the best decision for your product.
So we’re going to look at one of the most popular WordPress plug-ins called Elementor.
NOTE: Don’t get this example confused with the per-user example above. The difference between that example with Zendesk and this one is the Zendesk example has an increase in cost based on the features offered on each plan.
As you can see in the Elementor pricing screenshot below, the difference between the pricing plans is how many websites you can activate that plug-in on, but every plan comes with the core features of the product regardless of the pricing point.
The only exception is that there is VIP support on the higher Studio & Agency plans and some Elementor expert portfolio which I think, in most cases, people may not care about, and it’s not an incentive to upgrade your plan.
So essentially, if you had, say, five websites, you would pay $49 a month, but because that would cost the end-user approximately US$250 a year, you would automatically assume the end-user would upgrade to the Expert plan, which then allows them to install & activate up to 25 websites, but if they’re only using five, the other 20 site activations are of no value to them.
This is one example usage of a flat pricing model.
Another thing to consider is, in some cases, it is known that people will profit off selling the additional site activation and actually end up making more money than what you, the developer, could make from a LTV (Lifetime Value) perspective and not to mention the additional customer acquisition you lose.
This isn’t always a bad thing for referral growth, but in that case, you are better off considering a Freemium-based tier, this way, you own the customer, not someone else.