SaaS pricing models explained
SaaS pricing models present a labyrinth of levels and options. The sheer variety of criteria that vendors may apply to charge customers is vast, with a plethora of metrics and packages to consider.
This diversity is a something of a double-edged sword for the would-be SaaS customer. While it makes for a more flexible payment agreement, it can also create confusion. One vendor may charge based on volume; another on features; another on the number of users.
It can be difficult to know which option will best suit your need. So, we’ve put together a handy SaaS pricing guide for buyers. We hope it will help demystify the payment options available to you.
Freemium SaaS
Freemium SaaS packages boast free use of the software, but they also have limited usage or a lack of support. The idea of freemium SaaS is to encourage the sale of a premium solution with more functionality later down the line. Freemium SaaS pricing may also involve costs related to paying for support or for extra usage allowance.
Pros:
- No upfront cost makes it easy to try out the software and identify whether it holds value for your business.
- You gain the benefits of the SaaS in question, without incurring the costs.
Cons:
- Freemium SaaS solutions will have limited functionality and usage allowances. So, you may not gain access to all the features you need without upgrading.
- You may find yourself locked out of using the software until your usage allowance renews. This means they can be disruptive to your daily workload.
- Freemium or free SaaS models will also come with less or no support (without incurring a cost). If you encounter a problem, then, it can be difficult to get it resolved.
Usage-based SaaS pricing
Usage-based SaaS pricing is where your monthly bill is determined based on how much you use the service. The more you use the SaaS solution, the higher the bill. So, the price may be based on the number of certain actions completed or the amount of data used, for example.
There are a few variants of usage-based SaaS pricing. Where some are purely based on what you use, others will require a base subscription fee. You then incur extra charges either based on your total usage, or on any usage past a base allowance.
Pros:
- With this SaaS pricing model, the price you pay scales with you. You only pay for what you need and use.
- It’s adaptable to seasonal changes. If you have a slow month in terms of revenue, your use of the software may reflect this, meaning the price is adjusted accordingly.
Cons:
- It can be harder to predict the monthly cost of your SaaS solution. A month with more usage than normal can lead to a surprising bill.
- Most come with a base subscription charge, either with an allotted usage allowance or not. This can mean a higher comparative cost for low usage of the SaaS.
Flat rate SaaS pricing
Flat-rate is probably the simplest of the SaaS pricing models, but also quite rare. A provider offering a flat-rate SaaS pricing option is offering one product, with a single set of features, at a single monthly price.
Pros:
- Flat-rate pricing is easy to understand. You don’t have to worry about choosing the right setting or package to meet your needs. There’s only one option.
- With flat rate pricing, you always know exactly how much your SaaS will cost each month. So, you can plan your resources and expenditure accordingly.
Cons:
- Flat-rate pricing tends to be a higher cost than other options. This can be a high barrier for smaller businesses, or those not looking for a big, heavy-duty SaaS solution.
- There’s a lack of flexibility for flat-rate pricing model SaaS. You can’t tailor the price to your usage, needs or required feature set, which can lead to surplus features and high costs.
Per-user SaaS pricing
Also known as pay-per-seat, pay-per-user pricing models come in two forms: pay per user, and pay per active user. In these SaaS pricing models, the monthly price you pay for your SaaS solution is based on how many users can or are using the software.
Pay per user means you can only have the number of user accounts you pay for. Pay per active user allows as many user accounts as you like, but only the specified number of users can be active at any given time.
Pros:
- Pay-per-user models allow you to tune the price of your SaaS solution to suit your size. If you only need a handful of users, you only pay for that handful of users. Plus, as you grow you can add (active) users to your plan to suit you.
- This pricing model also makes it easy to spread the use of your SaaS solution across your enterprise. You can use your solution anywhere if you have paid for enough seats to cover the usage.
Cons:
- Both variants of the pay-per-user model may require some trial and error before you find the best balance of users to support your needs.
- You may find yourself paying for non-active seats during months or seasonal times where business is slow.
Pay per feature SaaS pricing
Pay per feature is a pricing model that uses features and functionality as the value metric to base price on. So, the higher the price, the more features you have available to use.
Pros:
- The right pay-per-feature solution allows you to only pay for the features you need. You avoid non-useful functionality, and shape the product around your own use case.
- It can save you money if you only want a few features.
Cons:
- It can prove frustrating to pay for a software program but be denied full use of all the features advertised.
- You could miss out on a key useful feature that you would get with other pricing models.
SaaS pricing models demystified
There’s a lot to consider when choosing a SaaS solution and vendor. We hope that this guide has made navigating and understanding the pricing models one less factor to worry about.
Useful links
A buyer’s guide to evaluating SaaS products
