Let’s assume you’ve calculated the perfect price for your product (and if you need help, check out this guide: How to Price Your SaaS Product). Now that you know what to charge, it’s time to figure out how to charge for your product.
Should you charge per feature? Should you charge per usage? Does your pricing model really matter?
If you’re left scratching your head, let’s settle this one question at a time: Your pricing model absolutely matters. It can mean the difference between attracting your ideal B2B customer and settling for those who don’t quite value your product. By employing the right pricing model, you can create a win-win solution for both you and your customers.
As for the other questions, we’ll take a closer look below at each of the popular pricing models to help you decide which one works best for your B2B SaaS.
Let’s get started.
An Overview of the Most Common Pricing Models
The pricing model that you choose will either attract or repel a prospective customer, so which model should you choose?
[tweetthis]The pricing model you choose will either attract or repel a prospect, so which should you choose?[/tweetthis]
Don’t you love that answer?
While I can’t give you a direct answer to that question, I can help you figure out which model makes the most sense for your business and your ideal customers.
Pricing Model #1: Charge a Flat Rate
The flat rate is simple. Offer one option at one price. Done.
The benefit of this pricing model is that it’s easy to sell. Because your prices are upfront with no surprise charges lurking in the corner, customers are immediately attracted to this model. They know exactly what they’re getting and it’s not complicated.
The drawback is that your price will either appeal to a prospective customer or it won’t. There is no room for customization in a flat rate pricing model. Customers won’t be able to pick and choose what works best for them. If a customer only needs a certain set of features, they may resent paying for other features that they deem unnecessary. This makes it more likely for some of your prospective customers to opt for a competitor who allows feature customization.
Pricing Model #2: Charge Per Feature
Give your customers the option to decide which features matter most to them.
The benefit of this pricing model is that your customers can pick and choose which features to pay for. This is a great option for SaaS that cater to multiple types of customer personas with varying needs. Instead of guessing at which features will benefit your customers, give them several choices, or tiers, and let them decide. This also leaves open the ability to offer upgrades to the customer as they require more features.
The drawback of this model is that you may not know which features your customers are willing to pay for. As a result, you may give away your most-wanted features for the lowest price or charge way too much for features that should be included in the basic plan.
Pricing Model #3: Charge Per User
Instead of charging per feature, charge a fixed rate for each user.
The benefit of this pricing model is in its simplicity. It’s easy for customers to understand how billing works and calculate their costs according.
The drawback of this model is that it can get expensive for businesses with multiple users. Some businesses may cheat the system by allowing multiple team members to use the same login. This, of course, will negatively impact your bottom line.
Pricing Model #4: Charge by Tier
Create different tiers to appeal to a wide range of customers. On each tier, you’ll offer a different package with a unique blend of features.
The benefit of this pricing model is that you can attract lots of customers. This is because you’ll offer multiple price points, from low to high. Upselling from one tier to the next is also easy because customers can see a distinct difference between the tiers.
The drawback of this model is that it can be difficult for customers to figure out which choice is right for them. This is especially true if you don’t do your homework and assign tiers to customer personas.
Pricing Model #5: Charge Per Usage
Charge customers based on how much they use — The more they use, the more they pay. While this is the go-to option for SaaS that offer storage services, it can be used for many types of services, such as social media postings or on-demand media.
The benefit of the pay as you go pricing model is that your customers only pay for what they use. They aren’t spending extra money on features or bandwidth that they may not use fully every month. Your customers will feel like they’re getting more value for their money.
The drawback of this model is its unpredictability. Because customers can pick and choose what they pay for and that amount can fluctuate each month, you’ll find it difficult to forecast your revenue. This can also affect your customers, too. While they may understand the flexible nature of pay as you go, it won’t soften the surprise if they’re presented with a bill that’s dramatically higher than what they’re used to paying.
Pricing Model #6: Use a Freemium Model
The freemium model gives away the basic product but makes money off of upgrades.
The benefit of this pricing model is obvious. You’ll attract a lot of interest in your product because it’s free and it poses little to no risk for the user.
The drawback for this model is also obvious. Free users don’t bring in any money. In fact, they’re costing you money because you’ll need to support these users while attempting to convert them into paying customers. What if the free user doesn’t convert into a paid one?
Another drawback to the freemium model is that free users often churn. This is because in freemium models, users don’t self-filter before signing up. There’s less friction so they’re eager to try your product. But in trying, they often discover that your product doesn’t meet their need. As a result, you’ll have a lot of prospects who aren’t good candidates for conversion.
Find the Perfect Pricing Structure With These Hacks
Now that we’ve looked at the most popular SaaS pricing models, let’s look at a few psychological hacks that will make your prices even more attractive. Reduce friction with these strategies.
Employ Price Anchoring
Prospects can balk at your prices because they undervalue a set of features. Remedy that by positioning your most expensive package next to a less expensive package. This persuasive tactic is known as price anchoring. By comparing to a higher priced option, you help the prospect see the value of a particular set of features.
Use Odd-Even Pricing
Instead of rounding your price to the nearest 10 or 100, end your price in an odd number (i.e. 1, 3, 5, 7, or 9). Buyers tend to believe that prices which end in an odd number are discounted or a good value.
This tactic is similar to charm pricing where you reduce the price by a penny or a dollar to suggest price savings. An example of charm pricing is charging $599 instead of $600. Even though the savings are negligible, the brain tends to focus on the left digit (the 5), making the price $500 when you’re actually paying closer to $600.
Most SaaS make the same mistake when choosing a pricing strategy — they don’t think it through. But by choosing a random pricing model, you could be alienating potential B2B customers. Use the above strategies to grow your B2B SaaS.
Before you go, don’t miss these related posts:
- Avoid These Common SaaS Billing Mistakes
- Your Guide to Reducing Cart Abandonment
- The SaaS Guide to Closing a Sale