SaaS products work with a number of fundamentals, and pricing is the top goal out of all. Every business model that operates on SaaS can’t work without pricing. The ultimate aim that every business wants to accomplish is to make money. So, there should be a certain way to price SaaS products.
Spending a considerable amount of time building SaaS products requires investment in terms of sorting out their accurate pricing. Developing a pricing strategy is one of the primary tasks, as it has a major impact on pricing metrics like conversion rates, LTV, and churn.
Importance of choosing the “right” Pricing Strategy
The cloud market is expanding and will continue to do so in the years to come. The SaaS business covers the majority of the cloud market. The job isn’t completed after just building the product in SaaS. Ideally, building the product is just the first step.
Most SaaS companies put all their energy into creating a SaaS product. Furthermore, they push the product to the market, thinking of immediate and instant results. However, certain factors should also be kept in mind.
- What is the worth of your product?
- Who is the ideal customer?
- Which pricing model will work out best for you?
SaaS businesses must have the answer to these questions before they conclude on the pricing model they are going to use. A great SaaS product aligns best with the right pricing model. Pricing is extremely important, not just for monetising but to keep the business intact. Thus, overlooking the critical aspect of the company might put your product to risk.
Let’s narrow down the lessons that are mandatory for pricing SaaS products.
6 Tips To Price SaaS Products
Most SaaS businesses start by following a pricing strategy that blends cost-based pricing with market-based pricing.
For long-term plans, these aren’t effective, and here are the tips that will gradually help evolve the pricing terms for your SaaS products.
1. Sales Model Affects the Pricing
SaaS pricing often restricts the sales model options that are available and listed for your products. For instance, it is necessary to have a high customer LTV for an expensive field sales force. If this isn’t implemented, you and your product will suffer from acquiring more customers down the line.
Lest to mention, the buyer persona determines the sales model greatly. Thus, it is crucial to understand the expected purchase process.
2. Offer the Best Services
SaaS products are typically subscription-based, which puts the chances of customers renewing the services at greater risk. This is why service and support for SaaS products are challenging to maintain compared to traditional software.
To avoid such a situation, SaaS products add upgrade and support features to their subscription fees.
3. Customers are barely concerned about the “cost.”
The cost has a primary role to play. However, pricing products intended to focus on the cost isn’t a great idea. Customers don’t think straight when it comes to pricing.
Most certainly, the cost of products being sold is a mandatory factor, but that has nothing to do with how your customers will value your product.
4. Free Trials Work Too
Sales conversion tends to grow rapidly when a limited free trial is offered on those. Depending on how simplified your activation model is, running a free trial for a limited duration can prove to build wonders.
Start with 15-3 day trials.
5. Pricing doesn’t abide by Economic Rules.
Customers buy products, and these products have little or no connection with the ROI. Speaking strictly about SaaS pricing, which is psychological in nature, it sees an irregular demand curve. So, it can be calculated that a product with a low price doesn’t necessarily mean it will have a bounty of customers.
To best understand this, the product’s qualitative measures can be considered.
6. Pricing must be validated.
It is fine to take time to consider the final pricing. In fact, it is better to zone out on the pricing model unless you have a different strategy that awaits.
With the help of this, you can get a chance to build your pricing model with the accurate proposition of your choice. To understand the process better, you can interview decision-makers about their methodologies of the purchasing process.
Type of SaaS Pricing Models
The pricing model is nothing but how the pricing of the product or service is decided. An effective pricing model helps determine your product’s most effective pricing solution. The different types of SaaS pricing models are:
1. Flat-rate Pricing Model
The flat-rate pricing model is the price allotted to the product or services at a pre-decided cost. It provides no features or pricing options for customers to pick from. The exact amount is charged monthly/annually regardless of how many users use your product.
2. Tiered Pricing Model
The real world sees the tiered pricing model based on the tier-based price strategy. A different version of the service is priced differently. Depending on the business’s or customers’ usage and requirements, they can pick the one that suits them the best.
3. User-based Pricing Model
Also called the “pay as you go” model, the user-based pricing model charges the customers based on their usage limitations.
There are many pricing models for SaaS, for instance, per active user pricing model, freemium pricing model, per feature pricing, etc., which are illustrated depending on how frequently a business uses or requires them.
For SaaS products that are available online, it is best to conduct tests on them to analyse their effectiveness, behaviour, and usage. In addition to testing the user interface, the pricing strategies should be revisited.
Gather efficient data points that leverage the SaaS pricing strategies to ensure your decision is effective. Set your process straightforward and simple to achieve the plan that you aim for your business.
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