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Updated: March 19, 2021
Here at Bitcot, we are always learning about new IT technologies and trends in order to provide the best Saas Business Pricing Strategy for our clients. After all, we believe that the right tool should be used for the job.
To keep up with the demands of a technological society, businesses need efficient software that will allow them to get up and running quickly at a low cost. A SaaS, (Software as a Service) platform is a type of software that is not installed on computers, instead, it is accessible via the internet, through a website, or app. Their accessibility, affordability, and competitive advantage make them the perfect choice for any type of business, from digital marketing to an engineering firm.
The increase in demand has resulted in new SaaS companies popping up left and right, so it’s important to distinguish your company not just with a good product, but with competitive pricing. Priced differently than traditional software, SaaS platforms use a subscription-based, or pay-as-you-go model.
Nailing your pricing strategy is key to your company’s success in a booming market. In this blog, we are breaking down everything you need to know about Saas Products Business Pricing Strategy: why it’s important, the most popular pricing strategies and models, and how you can start building your own today!
Many SaaS businesses have earned a positive rate of returns after making critical changes to their pricing policy. Nailing your pricing is important for four main reasons: gaining a competitive advantage, providing a true value for your customers, unlocking growth potential, and strengthening your SaaS unit economics.
A good pricing strategy gives your business a competitive advantage. If this past year has shown us anything, it’s that the future of company work is in the cloud. Our way of schooling, working, and communicating will never be the way we once remembered it, we have come to rely on online platforms to fulfill our human needs. This means that most businesses will be SaaS and the market will only get more competitive. You need to differentiate your business through your pricing to give you a competitive edge.
You get what you pay for right? The pricing of your SaaS platform should reflect the value it will provide customers. It can be difficult to find the right balance between balance and revenue. By overcharging, you may drive away current and prospective customers. But by undercharging, you can cripple your business growth.
Customers want to buy products they can easily justify. To find a price your customer is eager to pay, you need to price based on value instead of your business costs or competitors’ pricing models. Do the necessary market research to find out what problems your customers face and how your product offers the right solution.
You may think that more customers more growth, however, your growth is heavily dependent on your pricing. Even with thousands of customers, poor pricing can hinder your business’s growth. The 80/20 rule says that about 80% of company sales come from about 20% of its customers. So you need to focus on nailing your pricing strategy to reflect the value of your product to serve your loyal customers and squeeze out every ounce of possible improvement. This is what will bring your company major growth.
Your customer lifetime value and your customer acquisition cost together will determine the success of your platform. If you understand these important metrics, it will be much easier to find the right SaaS pricing strategy. Your pricing strategy should do two things to strengthen your business growth: lower customer acquisition cost and increase your customer lifetime value.
As a new SaaS business, it can be challenging to find the best pricing approach. Sometimes, it helps to explore different pricing strategies and models used by other businesses. To help you get the most from your SaaS product, let’s look at the five major SaaS pricing models, and explore the pros and cons of each.
This pricing model is based on usage of the platform, the more the service is used, the more it will cost and vise versa. This is most often used with infrastructure and platform-related software companies.
Another extremely popular SaaS pricing model is per-user pricing. Its simplicity makes it very attractive to SaaS companies. The model says: a single user pays a fixed monthly price; add another user and that price doubles; add a third user and the monthly cost triples.
Tiered pricing is one of the most common models used by companies because it allows them to offer multiple packages with different combinations of features to meet different customer needs. These packages are often geared towards a low, middle, and high price point.
Probably one of the simplest pricing models, companies that use flat-rate pricing offer a single product with a simple set of features at a single price.
This model separates out different pricing tiers according to the functionality available in each, with the higher-priced package associated with the most features.
This model is similar to the tiered pricing strategy, except the regularly paid packages are supplemented with a free, entry-level tier. That free tier is limited across certain dimensions to motivate users to upgrade for more features. One example of this strategy is Grammarly, as they offer a free, premium, and business subscription package at different price points to cater to different types of their potential customer.
There are two other pricing models that are also relatively popular among SaaS companies. These are: per active user pricing and freemium pricing.
Per active user: One variant of the per-user pricing model is active user pricing. It encourages customers to sign-up as many users as possible, with the peace of mind that only active users will actually be billed for. One example of this model is the communication platform: Slack. Their customers only get billed for the active users rather than all the users added.
Enterprise model: This final pricing model offers customers large-scale solutions, which means a major opportunity to monetize the delivery of greater value. The enterprise model offers variety to meet each organization’s needs, including everything from product assortment, single sign-on, audit logs, role-based access control, change management, product security, deployment options, team management, integration, analytics, and reporting. This is especially useful for large customers who feel the burden of a small issue multiplied throughout a huge, interconnected organization. As a SaaS business, selling to the enterprise market means your company needs to embrace product, company, and customer development opportunities in return for greater opportunity for future revenue growth.
Are you ready to price your SaaS platform for growth, profitability, and success? Here are some key things to take away: ALWAYS price based on value, weigh out the pros and cons of every model to find the right fit for your company, and know your customer!
Make sure that your pricing evolves with both your customer and your product. If you have any questions, feel free to contact us here.
If you are serious about your business and you are looking for a tech solution, we encourage you to look at our previous successes with our clients. After that, contact us, and let’s see how we can help you. Let us know how you use this in your own apps. Read our blog and be sure to keep in touch on Twitter and Facebook for updates, including announcements when we release additional educational resources.
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