In the digital age, software is becoming an increasingly common commodity. However, pricing your SaaS product can seem like a difficult undertaking if you don’t know it. Fortunately, there are many strategies and models to choose from. In this article, I will discuss some SaaS product pricing models that you may want to price to be successful.
What is SaaS pricing?
Software-as-a-service, or “SaaS,” is a term for software delivered over the Internet as part of a subscription service. This definition of SaaS extends beyond traditional software sales and to any business model that provides products or services over an Internet connection on any type of recurring basis. Subscription software has evolved from the concept of self-service support and user licensing to a new recurring revenue and recurring service model.
Why is SaaS pricing important?
The pricing of your SaaS product is important because it is essential to your marketing strategy. For example, companies such as https://softwarepricing.com/ can help you improve your pricing strategy immediately due to their experience and level of research. This service offers progressive pricing strategies that affect how you interact with existing and potential customers and how they perceive you. Pricing informs buyers of the perceived value of your software, helping them decide whether to purchase it.
How to price a SaaS product
The pricing approach you choose largely depends on how well your software solves real customer problems and scales with the business model. The first step in pricing your SaaS product is to note the standard rates of competitors. Using these rates as a benchmark, determine the level of value your solution delivers to customers. After determining the values that differentiate you from your competitors, you can create a unique pricing model based on the value created for customers.
Cost-based pricing is one of the oldest SaaS pricing strategies. This might be a good choice if your pricing model is intrinsically tied to your cost structure (for example, if you charge the same price for each user, regardless of how many licenses you sell) or if your pricing depends on the purchase price of a given product.
Cost-based pricing is generally used by companies that provide products in their operational environments without any restrictions. The main advantage of cost-based SaaS pricing is the fact that it doesn’t require a lot of extra work for your team. You can usually adjust your software costs to accommodate any changes in volume or expenses without changing your pricing model.
Pricing based on competition
Competition-based pricing is a pricing strategy in which the price of your product is based on your competitors’ prices and ranges. Strategy means business due diligence to see how competitors form their prices due to many circumstances. Understanding competitor behavior gives you many advantages in future pricing strategies.
Penetration pricing involves setting a price lower than the usual price of your product to increase demand and increase sales volume. Penetration pricing is a good choice if you are targeting new markets with high price elasticity. It can also be used as a temporary measure to target specific market segments or if your product’s normal price is above the market average.
Value-based pricing is intended for situations where the price of your SaaS product depends on its total value to customers as perceived by them rather than its unit cost or production costs. Value-based pricing can be used in situations where the cost of your product is highly variable, even after making adjustments to your pricing model. Value-based pricing is appropriate for businesses where the value of using the software is greater than its price and where customers are willing to pay more for additional features or benefits.
SaaS pricing models
There are many ways to create a pricing model for your software.
Pay-as-you-go pricing typically involves charging customers based on their use of the software. It’s best used with SaaS products that aren’t explicitly targeted at a specific type of customer, such as Storage as a Service.
Pricing by number of users
Per-user pricing typically involves charging customers based on the number of users accessing your software. This is best used with SaaS products that fulfill specific business roles, such as HR software.
Tiered pricing typically involves charging customers based on the number of tiers they access (eg, entry-level, professional, and premium tiers). Tiered pricing is best used with SaaS products designed to meet the needs of multiple groups of buyers.
In flat rate pricing, you charge customers a fixed price for access to your software. This is best used with SaaS products that are not differentiated based on functionality.
There are many ways to create a pricing model for your software. Most importantly, you choose an industry-standard pricing model that gives you the flexibility to adapt to changes in your business environment and allows you to get the most out of your SaaS solution.