Suppose you are a savvy software buyer looking for ways to optimize your investments. You come across a SaaS product that has garnered great reviews, and your peers are talking about its user experience. You're excited to dive in and explore its potential.
Being more curious about your new find, you start doing more research on it. You arrive at the pricing and wonder, Which plan should I choose? Which plan will benefit us more?
Many SaaS buyers encounter the same dilemma at this stage, unsure which pricing plan to choose. Selecting the right pricing plan can be daunting; however, having sound knowledge of vendor pricing plans can make things easier.
It's time to demystify the various SaaS pricing models and learn which will suit you as a buyer. Let's unlock the true value of your SaaS investments and ensure you're making the most of the SaaS solutions you choose.
SaaS pricing: Why does it matter as a SaaS buyer?
Imagine you're going on a business journey, and SaaS pricing is like choosing the right vehicle for your trip. Just as choosing the wrong vehicle can impact your journey's success, choosing the wrong SaaS pricing plan can make or break your investment.
If you choose the right pricing plan, your team will make the most of it, increasing ROI. However, if you opt for a pricing plan without clearly understanding your requirements, you risk underutilizing the paid features, resulting in wasted SaaS spend.
Most organizations follow a similar process when selecting a SaaS application. They identify one with the necessary features, review the pricing, and determine if it is within their budget. If so, they purchase it.
Do not follow this practice.
Here’s what you can do:
1. Analyze the features and identify what you need the most.
2. Have a clear understanding of the licenses to be purchased.
3. Forecast how your team will use it to solve their pain points.
4. Negotiate with the vendors to customize the pricing or look for a different alternative.
And this is why B2B SaaS pricing models matter to buyers because if you don’t know the types of plans available, you won’t be able to negotiate effectively.
6 Common SaaS pricing models you’ll see in 2023
This is a straightforward pricing plan where you pay a fixed price for a product for a specific period. An interesting aspect of this pricing model is that the price will remain the same regardless of how much you use it.
The plan includes all features and cannot be customized. It is best suited for organizations with small teams and consistent usage.
- No complex calculations: It is simple to understand; no additional calculations are involved.
- Easy spend management: It is easier to allocate and manage budgets as the pricing remains constant.
- No lengthy contracts: Comes with a straightforward SaaS contract, making it easier to manage.
- Too rigid: Lack of diversity in offerings. You may find it too expensive with no flexible options provided.
- Poor ROI: You might end up paying for features you won’t even use, lowering the value of your investment.
- Low usage: Feature underutilization will lead to wasted spend.
If you can accurately predict your usage and have confidence in your team's utilization of all the available features, you can consider selecting this SaaS pricing model.
The most commonly chosen SaaS pricing model by buyers in recent times is usage-based pricing, where you only pay based on usage.
There is no fixed price here; this model follows a strategy called “pay as you go, meaning the more you use the product and its features, the higher your pay. A usage-based pricing model gives your team more flexibility and freedom to complete their strategic tasks.
Snowflake, Inc. is a great example you can refer to learn about usage-based pricing.
SaaS pricing model example 1:
- Customizable pricing: “Pay as you go” makes it easier for SaaS buyers and gives you more control over your spend.
- Scalable: The pricing plan will automatically cater to your needs as you grow. It’ll keep up with you.
- Flexible: It doesn’t restrict users from using the product; they can use it how they want to succeed.
- Budget allocation: The usage varies based on the requirements; forecasting the cost and allocating the budget can be complex.
- Unpredictable: Sometimes, the usage might increase due to requirements, pushing the cost beyond an allocated budget.
- Complexity: Unlike fixed-rate pricing, calculating usage-based pricing can be quite complex unless you have a SaaS management platform to effectively monitor the usage.
- Cost control: Without a centralized management system, the increased scope will spike costs beyond your control.
This SaaS pricing model is most suitable for agile and high-growth teams with unpredictable usage patterns and a usage management system to keep usage and spend in check.
This B2B SaaS pricing model refers to a plan with specific features often bundled together as tiers. As a SaaS buyer, you might have come across this model often. Canva is a suitable example.
SaaS pricing model example 2:
You can see there are various levels with different pricing. They have a free plan with specific features; you can upgrade your pricing plan to get more features.
This pricing plan allows you to select and pay for specific features or functionalities based on your requirements. Even CloudEagle’s pricing model follows the feature tiers.
As your requirements change, you can level up the pricing tiers, adding more features to the existing functionalities.
- Better control: You’ll only pay for what you need, giving better control over your spending and easy budget allocation.
- Cost optimization: You’re paying only for the feature you need, which prevents you from spending too much.
- Test drive: You can buy high-resource features in top packages and simple features in lower packages as part of a test drive.
- Scalability: You can upgrade or downgrade your pricing plans based on the requirements.
- Confusion: Sometimes offerings overlap between each feature tier, creating confusion.
- Lack of useful features: Some vendors will bundle top-notch features in higher packages, making them inaccessible for buyers looking for lower packages.
- Complex decision: With various tiers available, choosing the right one based on requirements can take some time and require planning and evaluation.
When Should You Choose per-feature pricing?
Per-feature pricing is one of the most versatile models for SaaS pricing. You can choose this if your product feature requirements are clear and you have a high potential for scaling up your business.
Per-user pricing is maturing as a popular SaaS pricing strategy these days. It allows buyers to pay for each user using the product; the price changes based on the number of users that need access to the product.
This pricing model is similar to the flat-pricing model. It charges a fixed price for the first user, and it keeps increasing as the number of users increases. So the model accounts for your number of users, and the price is determined accordingly.
This model is used by popular enterprise software such as Slack or enterprise gaming tools such as Trivia.
SaaS pricing model examples 3:
Slack is an internal communication tool used by organizations. Based on the size of their existing employees or projected size, they can purchase the seats needed.
- Simplicity: It is straightforward to use for buyers, as the cost is tied directly to the number of users.
- Scalability: With the easily scalable B2B SaaS pricing model, you can purchase more seats as your team expands.
- Cost control: You can easily allocate a budget for the application as your team grows and have better control over your spend.
- Budgeting: You’ll clearly know how your team expands, so allocating budgets will not be a hassle.
- Promotes unethical practices: Users might share their credentials.
- Increased spend: The spend increases as more users join your team.
- Adoption hassles: If the price per user is higher, it can discourage organizations from adopting the application.
When should you choose a Per-User Pricing Plan?
It is most suitable for an enterprise-wide use scenario with limited users.
It is similar to per-feature pricing but offers distinct tiers of features to SaaS buyers. The tiered pricing model allows enterprises to group a set of features into a package at a specific cost.
Users can upgrade their tiers based on their requirements. Hubspot offers this pricing model. Tiers can be defined to meet the needs of a particular user-group persona, such as beginners or professionals, etc.
SaaS pricing model example 4:
- Better scope: Tiered pricing serves a broader audience, be it potential individual clients, startups or small enterprises, or larger organizations.
- Streamlined upgrading: As upgrading is easy in this approach, as a buyer, you can experience CLV and customer honesty for a brand.
- Overlapping and loss of focus: Multiple offerings can overlap and sometimes overwhelm buyers. Also, sometimes your SaaS provider's focus may shift, and you may not get the required attention.
- Tricky Choice: As a buyer, you should clearly understand the required features. Selecting the right tier could be tricky sometimes.
When Should I Choose a Tiered Pricing Plan?
This option is most suitable for buyers with clarity about the required product features and a sufficient timeline to explore lower tiers and then shift to higher ones.
The freemium pricing model provides free access to the product with limited features. Remember, it is a gateway to enrolling customers like you for subscriptions or paid services.
Generally, basic or entry-level features are classified in the freemium tier, and users are motivated to pay for higher ones.
Free-trial models and freemium pricing models are often confusing. The latter avails a set of features free of charge indefinitely, whereas the free-trial model supports a specific duration.
- Better Adoption: Users prefer trying basic features without cost; if they love these features, they can convert. The freemium option attracts users to try platforms and convert.
- Better reach: The outreach of freemium tools is excellent, with free tool availability, simple contract management, enhanced buyer awareness, and no need for credit/debit card details to start.
There are no cons, except that you can continue using freemium features forever instead of paying for paid features. You might miss out on valuable paid features as the product offers freemium features.
Which SaaS pricing model should I choose?
Instead of pouring out our thoughts, we’ll leave it to the business leaders and what they think about which B2B SaaS pricing model you should choose.
We recently hosted an executive meeting with some business leaders, CFOs, and CIOs to discuss how organizations can optimize their SaaS spending in a volatile market.
Jinendra Jain, the Global head of Finance at Tiger Analytics, shared his insights during a conversation. His insights focused on the pricing models organizations should choose.
Here’s a quick rundown of his insights:
1. Better controlled plan
Always opt for a monthly plan rather than an annual plan. It’ll give you better control of your spend, and if your scope decreases, you can easily downgrade or cancel the subscription.
2. Do not pay upfront
Predicting growth and purchasing surplus licenses is not recommended; it’ll only do you more harm than good. Considering the economic downturn, working with what you have in the present is necessary.
Consider your team’s present requirements and what they want to use, and only negotiate with the vendors for those; do not overbuy.
So, when you compare the types of SaaS pricing models with Jinendra Jain’s tips, the two suitable pricing models you can choose are:
1. Usage-based pricing model (monthly)
2. Freemium (For obvious reasons)
Our SaaS buying experts often converse with our customers, and we ask our customers about their go-to SaaS pricing plans (excluding freemium). There were mixed opinions based on their requirements, so let us rank them:
1. Usage-based pricing
2. Per-feature pricing
3. Per-user pricing
So, what’s it going to be for you?
There you go. If you’re a SaaS buyer, you should know these B2B SaaS pricing models. Knowing these pricing strategies and their pros and cons will help you ace your negotiations.
If you want a straightforward plan, CloudEagle can help. Our expert negotiators can analyze your requirements and select a vendor with the right pricing plan. We can also negotiate on your behalf.
The choice is yours. This article helped you understand the intricacies behind each SaaS pricing model and why you should and shouldn't choose them.
But remember, the choice is ultimately yours, so select the right SaaS application with a pricing plan that you think will suit your needs better.
Book a demo if you want assistance with negotiations, accurate usage, and cost optimization insights.