Funding Resources for Startups
“Finance guilt” is an affliction that impacts many startup and corporate finance professionals. Most don’t even realize they have it….
From David Skok of Matrix Partners David Skok of forEntrepreneurs and Matrix Partners gave a fantastic presentation at SaaStr Annual 2017…
SaaS Pricing Best Practices
Also commonly referred to as “software as a service,” SaaS is a new approach to software delivery in the modern era. Even as recently as ten years ago, software was still purchased largely on a license-based model. If there was one particular program that your employees needed to use to do their jobs, you had to buy a unique license for each one of them. Likewise, you’d have to install a unique copy on every one of their work machines. If updates became available, you’d have to install them individually. If there was a new version, each machine would have to be upgraded one at a time – and so on and so forth.
SaaS, on the other hand, takes that same software and makes it entirely hardware independent by delivering everything that a user would need totally over the Internet. SaaS pricing trends still involve paying on a per user basis, but now those users can access that software from literally any computer on Earth with an active Internet connection. They don’t have to worry about patches, bug fixes and upgrades, because they always have the latest version of the software automatically. Obviously, it’s a far better distribution method for both software developers and enterprises alike – but it does present some challenges in terms of SaaS pricing best practices.
As stated, most B2B SaaS pricing models occur on a per user basis or are handled in terms of blocks of users. A company might pay X for up to 10 users, Y for up to 50 users, and Z for up to 100 users. Likewise, most SaaS enterprise pricing strategy models occur on a subscription basis – meaning that rather than buying something outright, clients pay per month for the software and for ongoing support and updates moving forward.
Of course, how to price your SaaS product in a way that attracts the maximum number of customers is obviously somewhat easier said than done. It’s not impossible to hit that magic number, however you need to keep a few key things in mind.
SaaS Pricing Model Template
As stated, the SaaS cost structure typically relies on not only a subscription model, but on a tiered model as well. The more users a client has, along with the level of service they expect, will naturally increase the amount of money they’ll be expected to pay per month.
This is why, when you go looking for an SaaS pricing model template, you need to find one that closely aligns with the type of SaaS product you’re offering. It doesn’t make sense to use software maintenance pricing models if you’re not planning on offering any type of ongoing support regardless of which tier your users invest in.
When building SaaS pricing models for your own company, there are a number of important things you’ll need to consider. For enterprise software pricing models in particular, you’ll want to think about things like:
- Does a cost-plus pricing model make sense for you? This is when you add up all of your costs, add in a few percentage points to make up whatever profit margin you’re comfortable with, and set your prices from there.
- Would a competitor-based pricing model be more appropriate? This is when you take a look at your closest competitors and see what they’re charging for similar solutions, and then either undercut them or charge similarly to the same audience.
- Is a value-based pricing model for services the most appropriate? This is when you offer packages and price points that very specifically meet the needs of their customers, getting them to pay only exactly what they’re comfortable with for your SaaS product and nothing more.
Keep in mind that no two SaaS organizations are created in quite the same way, which means that there is no “one size fits all” answer to selecting the right pricing model. Nobody knows your product better than you do – and nobody knows your customers better than you do, either. Don’t be afraid to just reach out to some of your top customers and ask what they’re willing to pay. You could also periodically adjust your SaaS pricing strategy until you finally hit that thin line.
Regardless of which strategy you land on, it can be helpful to include some type of SaaS pricing calculator on your website for your future clients to use. A software pricing calculator is an invaluable resource because sometimes, saying “you’ll pay $X per user per month” doesn’t really paint a complete picture in someone’s mind. They see “$10 per user per month” and then once discussions get serious and they realize their monthly bill is $1000 because they have 100 users, they start to get cold feet and they think you might be hiding something.
Instead, include an SaaS calculator for people to use so that they can clearly understand your SaaS pricing strategy and how it will impact them moving forward.
SaaS Pricing Examples
As you consider to examine your own SaaS pricing considerations, it may be helpful to let SaaS pricing examples guide some of the decisions you’re making. There are a lot of companies with unique pricing strategies out there and by understanding what choices other people are making and why, you can begin to get a better understanding of which ones will or will not work for your own unique situation.
Salesforce, for just one example, took the approach of creating SaaS pricing pages for each different persona they were targeting. The entry level “Group” tier, for example, gives you basic sales and marketing services for up to five users for $25 per user per month. Features include account and contact management, opportunity tracking, lead scoring, routing and assignment services and more.
The “Professional” tier, on the other hand, offers complete CRM for any size team for $65 per user per month. In addition to all of the features in the “Group” tier, you also get customizable dashboards, collaborative forecasting, mass email capabilities and more.
This continues all the way up to the “Unlimited” tier, which gives unlimited CRM power and support for $250 per user per month. In addition to everything in all of the other tiers users get unlimited customizations, custom apps, multiple sandboxes, you name it.
In other words, Salesforce separated their target audience into five different segments and then created a unique pricing structure to best fit each one. But not only that, there is also a great sense of escalation that allows people to move up from one tier to the next as their business continues to grow – thus making sure that Salesforce always has something to offer them, regardless of how big they get. It’s a really interesting example in how to not only base your prices on what your customers are willing to pay today, but to also take advantage of what they’ll likely be willing to pay in the future.
It’s equally important to note that all of those tiers have free trial versions that people can take advantage of to try out the SaaS service without paying anything at all.
How to Price Software
At this point, the discussion must turn to the age old battle of “software subscription model vs license style structures.” The software subscription model is everything that we’ve been talking about – users pay per user per month for access to the software plus a degree of services like maintenance and support on top of that, while the license model requires them to pay once for probably just access to the software.
The license model certainly has its benefits — chief among them that you’re getting a larger cash injection up front. How to price software licensing essentially boils down to “charge today what the software will be worth to someone over the lifetime of their experience with it.” Meaning, you charge as much as you can based on the perceived value that you’ll be delivering to someone over the year (or five) that they’ll be using the program.
Moving from perpetual to subscription modeling may mean getting less money from clients up front, but it will likely mean more revenue in the long run. Moving to subscription model pricing probably means offering yearly renewals, meaning that you get to keep customers locked in for at least one year increments. Plus, if you continue to hold up your end of the bargain and deliver the value that you’ve promised, they’ll likely keep renewing again and again. Because they don’t have to handle anything like upgrades or patches on the front end (because you’re doing it all on the back end), they’ll likely see less of a need to look for alternatives as well – thus building trust and increasing loyalty at the same time.
SaaS Pricing Research
According to the Price Intelligently SaaS pricing eBook appropriately titled “The Anatomy of SaaS Pricing Strategy,” people in SaaS are literally writing and thinking about customer acquisition seven times as often as they are about monetization. They’re spending so much time figuring out how they’re going to get people to subscribe to their SaaS product ONCE that they’re losing site of how they’re going to keep them coming back for more, month after month, year after year.
SaaS pricing research indicates that one of the biggest mistakes that a lot of companies make to that end involves discounting at the wrong time. A lot of SaaS companies use discounts to increase acquisition, assuming that they can raise prices later. But by discounting, you immediately hurt the value of that product as people think it is worth less than it is. At that point, when you do raise prices, they no longer feel like they’re getting their money’s worth.
In the end, it’s important to understand that B2B SaaS pricing in particular is probably not something you’ll “do once and forget about.” Software pricing models are great because they can and should evolve as your understanding of your customers does the same. Likewise, your product is probably going to change over time, too – and if you’re providing more value and you can communicate that fact, there’s no reason that you shouldn’t be able to adjust your prices to reflect it.
SaaS Pricing Models
If you operate in the B2B area, you might be wondering how to get the most out of your product or service. It is important to take a look at B2B SaaS pricing models so you can figure out the best SaaS pricing strategy to meet your needs. If you charge too much for your product, you may have a difficult time getting people to purchase it. On the other hand, if you charge too little for your product, you could leave money on the table. For this reason, you need to take a look at software pricing models to figure out which of the SaaS pricing models is right for you. So, what are four types of pricing strategies?
If you are just getting involved in the industry, you may want to start with penetration pricing. In this case, you will artificially set the price low in order to gain market share. Then, once you have enough people, you can raise the price to make more money.
You may also want to consider economy pricing. In this case, the costs of marketing and promoting are kept to a minimum. The goal is to keep the price low when there is a lot of product available. Then, as the product becomes more scarce, the price goes up.
If you have a significant competitive advantage, you may take advantage of price skimming. In this case, you will charge a higher price; however, this type of advantage is not sustainable. If you charge too much for the product, you invite more competition, meaning you will eventually have to lower your price if you want to stay ahead of your competitors.
If you want to charge a high price and keep it that way, you should take advantage of premium pricing. If you have a unique brand, you can charge a high price. IIf you can charge a high price without inviting more competition, you can get away with premium pricing. This is commonly seen with luxury items, such as first-class seats on airplanes.
These are just a few of the biggest enterprise software pricing models available. It may also be helpful to take a look at an introduction to pricing PDF, where you can learn more about figuring out the best pricing model to meet your needs.
Types of Pricing Models
If you are curious about the types of pricing models, you might also be curious about B2B SaaS pricing examples. There are plenty of SaaS pricing examples. The key to each is the subscription pricing model where their users pay a fee every month or every year to use their services. Some companies use a usage-based pricing model while others focus on users. In user-based pricing models, you charge your customers based on the number of users they add to their accounts. This is a pricing model that was developed to prevent someone from purchasing a service and then sharing the account with a bunch of other people who might not be paying for it.
You might also be curious about the Salesforce SaaS pricing model. There are numerous pricing tiers available, and each of them comes with a monthly fee. In essence, this company has blended the per-user pricing model and the subscription pricing model. All of their fees are monthly, but the fee is also charged based on the number of users. Because there are multiple tiers available, the customer still has the ability to tailor their pricing to meet their needs. All of the pricing is transparent, so customers never have to worry about being surprised by a bill. This is one of the ways that Salesforce can maximize its revenue while also keeping its customers happy.
There are plenty of subscription and per-user pricing examples out there, and it is important to think about the benefits and drawbacks of each pricing model example before deciding which one is best.
You need to think about the value of each account, how complicated the sales process is, and how easy it is for customers to help themselves. For example, if it is easy for customers to sign up, you may want to lower your prices to attract as many people as possible. You can also try a freemium model, where the product or service might be free, but there could be premium features for sale in the program.
On the other hand, if it is difficult to close on a sale, then you need to make more money on each account, which means you need to adjust your pricing model to reflect this. The value of your account and the complexity of the sales process go hand-in-hand.
SaaS Pricing Model Template
It can be a challenge to figure out which pricing model to follow. As you take a look at your SaaS cost structure, you should consider using a SaaS pricing model template for your business. When looking at a SaaS pricing template, you might want to start with a SaaS pricing template Excel, as this is a great way to take advantage of a pricing model template free.
Then, you need to take a closer look at some of the pricing models. For example, if you are relatively new to the market, do you want to take advantage of penetration testing? This could be one of the best ways to help you gain exposure to the market, but you also don’t want to leave money on the table.
Do you feel like your brand has a unique selling point? If so, you might want to take advantage of premium pricing; however, you need to be careful not to invite more competition into the field.
If you want to build customer loyalty, then you may want to take advantage of value-based pricing. That way, you can convince your customers to purchase your product or service, and they might invite some of their friends and family members to give your company a try as well.
There are a lot of best practices to follow when you try to find the right pricing template for your SaaS business; however, the most important thing you need to remember is that you must continually evaluate your pricing strategy. For example, penetration pricing might be good at first, but you are setting the price artificially low. You need to have enough money to cover your overhead expenses. You may even want to take a closer look at a few SaaS pricing models Gartner. That way, you can learn more about each individual pricing model, placing your company in the best position possible to be successful.
SaaS Pricing Calculator
If you are having a difficult time figuring out which pricing model will work best for your company, it may be helpful to take a look at a SaaS pricing calculator. A software price calculator can help you figure out what price might be good for your product based on a few metrics. The right pricing calculator app should help you ballpark a good price, but you still need to do your own research to figure out which pricing model is best for your needs.
There are some people who start with a pricing model Excel; however, you may want to use the HubSpot pricing calculator as well. This is a calculator that can help you determine the best pricing strategy for your business. There are numerous pricing models available, including hourly pricing, competition-based pricing, premium pricing, penetration pricing, skimming pricing, and even value-based pricing. You can also develop a model for project-based pricing for specific types of products and services.
You may want to try multiple pricing models, running a few simulations to see which ones will work best for your needs. You may even want to take a look at software pricing models Gartner, which can help you figure out the benefits and drawbacks of each option before you make a final decision.
SaaS Pricing Trends
If you want to figure out the best pricing model for your company, you may be interested in SaaS pricing trends. These trends are changing quickly, and SaaS industry trends 2020 are not the same as SaaS industry trends 2021. As many of the larger trends in this industry continue to take shape, the pricing trends will have to adjust to match them. The companies that place themselves in the best position possible to be successful are the ones that try to adapt their pricing models to match these changes as early as possible.
For example, your business might be used to a transactional model. What this means is that you charge users every time they make a transaction. This is the most basic type of pricing model. Your users buy something, they pay for it, and they move on with their day.
You might also be thinking about starting a subscription-based model. Instead of charging people for each transaction, people pay a weekly, monthly, or yearly fee to use that service. One of the advantages of this model is that people may end up paying more money even though they don’t necessarily use the product that often. This could help the company increase its profit margins.
Now, there are some companies that are making the transition to a usage model. In essence, this is between a transactional model and a subscription model. One of the biggest challenges of adopting this model is figuring out what usage metric to follow. The right pricing model should be value-based to attract customers, flexible for the customer to choose, scalable as the business grows, and predictable so that customers do not get blindsided by fees.