In the digital age, software is becoming a more and more prevalent product. However, pricing your SaaS product may seem like a difficult undertaking if you’re not familiar with it. Luckily, there are many strategies and models to choose from. In this article, I will discuss some SaaS product pricing models you might want to price your software for success.
What Is SaaS Pricing?
Software-as-a-service, or “SaaS,” is a term to denote software that is delivered over the internet on a subscription service. This definition of SaaS extends beyond traditional software sales and into any business model that provides products or services over an internet connection on any type of recurring basis. Subscription-based software has evolved from the concept of self-service support and user license to a new model of recurring revenue and recurring service.
Why Is SaaS Pricing Important?
Pricing your SaaS product is important because it is essential to your marketing strategy. For example, companies such as https://softwarepricing.com/ can help to improve your pricing strategy immediately due to their experience and level of research. This service offers progressive pricing strategies that affect the way you interact with existing and potential customers and how they perceive you. Pricing informs buyers about the perceived value of your software, helping them decide to purchase it.
How To Price A SaaS Product
The pricing approach you choose is largely dependent on how well your software solves real customer problems and fits within the business model. The first step in pricing your SaaS product is noting competitors’ standard rates being charged. Using these rates as a reference, determine what level of value your solution provides to customers. After you’ve determined the values that differentiate you from your competition, you can create a unique pricing model based on the value created for customers.
Cost-based pricing is one of the oldest strategies for SaaS pricing. It can be a good choice if your pricing model is inherently tied to your cost structure (for example, if you charge the same price for each user, no matter 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 with no restrictions. The main advantage of cost-based SaaS pricing is the fact that it does not require much additional work for your team. You can usually make adjustments to your software costs to deal with any changes in volume or expenses without changing your pricing model.
Competition-based pricing is a pricing strategy in which the price of your product is based on the prices and ranges of your competitors. The strategy means business due diligence to see how competitors form their prices due to numerous circumstances. Understanding the competitors’ behavior gives you many advantages in future pricing strategies.
Penetration pricing involves setting a price that is lower than the usual price of your product to increase demand and drive sales volume. Penetration pricing is a good choice if you target new markets with high price elasticity. It can also be used as a temporary measure to target specific market segments or if the normal pricing of your product is higher than the market average.
Value-based pricing is intended for situations in which the price of your SaaS product depends on its total value to customers as perceived by them rather than on its unit cost or production costs. Value-based pricing can be used in situations in which the cost of your product is highly variable, even after you have made adjustments to your pricing model. Value-based pricing is appropriate for companies whose software usage value is greater than their 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.
Usage pricing generally involves charging customers based on their use of the software. This is best used with SaaS products not explicitly aimed at a specific type of customer, such as storage-as-a-service.
User-count pricing generally involves charging customers based on the number of users accessing your software. This is best used with SaaS products that serve specific business roles, such as HR software.
Tiered pricing generally involves charging customers based on the number of tiers they access (for example, entry-level, professional, and premium tiers). Tiered pricing is best used with SaaS products designed to meet the needs of more than one group 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 aren’t differentiated based on their features.
The Bottom Line
There are many ways to create a pricing model for your software. The most important thing is that you choose a pricing model that’s in line with market standards, gives you flexibility in adapting to changes in your business environment and enables you to realize the greatest possible value from your SaaS solution.