Arguably as important as your SaaS product offering itself is your pricing strategy. Choosing the right strategy is tricky, but it’s often made even more difficult by our reluctance to pay enough attention to pricing in the first place. We wait until the last minute, treat it as an ad-hoc decision, focus on other things such as new shiny features or, worse still, we fail to carry out any sort of price testing and research.
The result? Our SaaS product might not be as successful as we’d hoped.
While it’s a mistake to look at your competitors and adopt their pricing model, it’s helpful to check out other SaaS companies’ strategies to see what you can learn from them as you map out your own. In this article, we’re going to do exactly that. There are many different SaaS pricing models out there, and here are some of our top picks!
1. The Hyper-Specific Freebie Pricing
Case Study: ClearBit
Read any book on email marketing and it will tell you that the key to getting consumers to enter your sales funnel is by offering them a free gift. While this might work for email marketing, it won’t necessarily work for a SaaS company.
In fact, the freemium’s heyday seems to be over for SaaS companies, who are under increased pressure from investors to demonstrate longevity and sustainability with paying customers. For one thing, free gifts might not deliver convincing results quickly enough for the user to make the step up to a paid version.
Free users may also lie outside your target market, and they might never be converted into a paying customer; they’re just here for the 5GB of storage, for example. According to a survey carried out in 2015, 75% of SaaS companies said they didn’t acquire any new AVC by adopting a classic freemium model.
That being said, you can still adopt a freebie pricing model that works. Clearbit is an example of a SaaS startup that recognized the potential free products have to drive early adoption and growth. But rather than hand the keys over to the entire castle, ClearBit offers free products, such as their Logo API, that give away just one out of their 85 available data points.
When your free “gift” is hyper-specific and super tailored, it can help you to generate the right leads without wasting time on prospects who were never going to convert in the first place.
For example, you’ll want to go down a different route to LinkedIn, which offers a lot of free stuff to all of us — most of whom will never pay for the upgraded packages. Any free stuff you offer initially must be targeted specifically at your core demographic, while the add-on services need to provide the same audience with real value.
Hubstaff knows this. They even went as far as publishing an article about the mistake they committed, which was to give away too much good stuff for free. People were using their support resources for free, but few were actually buying anything.
2. Tiered Pricing
Case Study: Nightwatch
The tiered pricing model is arguably one of the most popular there is. Many companies use it, including Nightwatch, an SEO performance tool that offers a starter package of 100 keywords and 20 websites for $19 per month, before raising the price according to the amount of keywords, websites, and features a user needs.
For example, if an SEO professional needs to analyse and assess as many as 10,000 keywords and 2,000 websites, they will need to pay $699 per month for access. For this fee, Nightwatch also offers extra features, such as multiple users and API.
The tiered pricing structure means you don’t price out those who only need access to a small amount of data, and you also don’t lose those customers who might have upgraded to the bigger packages as their needs change or increase.
In many ways, the tiered pricing structure resembles the upsell and downsell offer in a typical sales funnel. The upsell (in this case, the premium package) is where you make most of your money, but the downsell (the much lower-priced offering) is where you grab customers who can’t afford the premium package, but are still willing to sign up.
And hey, once a customer who has signed up for the lowest priced offering in the tier has used up all their storage or keywords, there is every chance they’ll upgrade with you as their needs grow.
If you’ve got a software package that offers data, think how you can implement a tiered pricing structure. A lot of companies, including Hubspot, start off with a Basic package ($170 per month), move up to a Pro package ($600 per month), and end with an Enterprise package ($2,000 per month).
Remember that those who are new to an industry and strapped for cash might be inclined to order the Basic package. But as they get better and their business grows, they’ll likely upgrade with you, provided you offer excellent customer service and value.
3. Usage-Based Pricing
Case Study: Wistia
A lot of companies, Slack included, continue to use per-user SaaS pricing models. According to Monika Saha of Zuora, this pricing structure is redundant and should be overlooked in favor of alternatives, such as usage-based pricing.
Wistia is a SaaS company that has adopted the usage-based pricing model. New customers begin using their product at an affordable price, with them charging more over time as customers unlock more features or need more storage space. As their needs expand, the fee goes up.
Wistia, a video marketing platform, is home to customers who use the software many times over to engage their audiences and generate new ones with videos. If Wistia had adopted a per user pricing strategy, they would ultimately lose out.
Moreover, a per user pricing strategy also means that a small company who makes one or two videos a year is charged the same amount as a much larger company who uses the software to generate thousands of new leads.
By adopting a usage-based pricing strategy instead, Wistia is able to charge companies additional fees each time they need to store or use a certain amount of content.
As for your own company, if you adopt a usage-based pricing strategy, you could add higher tier packages that feature priority support, advanced integrations, and more.
Perhaps the biggest downside to this model is that it’s nigh-on impossible to predict revenue. Usage will vary each month, and this can be off-putting to some companies.
4. Super Cheap — But With Ads Pricing
Case Study: Wix
If you’ve built a website with Wix, you’ll have noticed that they offer a very affordable plan ($9.08 per month) with a catch — your website must include their ads in a sidebar.
For some customers, this is a working compromise that they’re happy to make. They get their own website for free, and who cares about a few ads anyway?
Wave Accounting has a similar pricing model. They don’t charge for their accounting software, but they run their own ads in the sidebar.
For your own SaaS company, this could be a pricing model that’s a win-win, as you get to make cash while your customers are able to crack on with their business.
Not sure what ads to display? You don’t even need to put up your own, but could instead display related products and make money via affiliate marketing.
Naturally, not all your customers will be happy with ads. As such, you could automatically enroll them in your free plan with ads when they first sign up, but make them aware of any premium plan options they can upgrade to in case they don’t want ads displayed.
5. Pay Per Active User Pricing
Case Study: Slack
As mentioned earlier, Slack has stuck with the per -user pricing strategy that some see as redundant.
However, there is a twist to theirs.
Slack is bought by companies who give their teams, large and small, access to the software. As such, as many as hundreds of people on any one team might sign up for it.
However, not all those users will remain active. A team might experience a significant drop-off in users, to the point where the company is paying more for a product than they should.
Slack, then, offers a per active user pricing model that refunds companies who end up with fewer users than they originally had.
If you offer a cloud-based collaboration software, the pay per active user could be a useful pricing model. It’s certainly attractive to companies who don’t want the hassle of having to replace inactive users. This, in turn, encourages more companies to adopt your product.
And heck, who doesn’t fall in love with a company a little bit more when we get a refund?
There is a slight drawback to adopting this model, however. While large companies won’t have a problem paying per user, smaller businesses with less funds might not think it’s worth the hassle.
6. Per Feature Pricing
Case Study: Evernote
Instead of making users your value metic, how about using features instead? A per feature model is similar to the tiered model, but puts the focus on features instead of data.
Take the organization app Evernote, for example. Their smallest offering is a Basic package that’s free to start with and offers features such as:
- Share and discuss notes
- Search for text inside images
- Clip web pages and images
If you pay $34.99 a year for their Plus package, you unlock more features.
If you want even more features, including the ability to annotate PDFs, you can upgrade to their Premium package for $69.99 a year.
If your software is more feature-rich than data-rich, adopting this model gives users a powerful incentive to upgrade when they need more functionality. However, it’s a risky model to adopt as some users might feel hoodwinked if they miss out on certain features despite paying a considerable sum each month.
The nature of the beast is such that you need to be flexible with your pricing structure. Experiment, learn, test, and keep researching.
The good news? It’s easy for any new SaaS company to be experimental with their pricing structures. Time is on your side.
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