SaaS businesses face many unique challenges, but price determination really isn’t one of them. While it’s true that pricing structures are different for SaaS subscription revenue models than for most other products and services, the same principles are at play.
In short, SaaS providers should be focused on value more than price—on solving their customers’ problems as quickly and completely as possible, with top-notch customer service to boot. Establish your value first and the price will follow.
Most SaaS businesses offer a multi-tiered pricing structure for charging their customers, and at first glance this might seem to counter the value-first mentality. Multiple pricing plans suggest multiple value levels for the service, and from the customer perspective it can look like pure price competition.
Especially when that price seems non-existent.
Understanding the reality behind what and how you charge your SaaS subscribers—and when you don’t charge them at all—makes it clear that value is front and center. Understanding the reality of your value and how to demonstrate it can help you take your subscription rates from a trickle to a torrent.
For many SaaS providers, value is best demonstrated by giving it away.
Free is Not the Same as Cheap
Cheap is a measure of price. If you think “free” is just the ultimate in “cheap,” think again.
I mean, yes, free is the lowest price around, but that’s not all it is, and that’s not the way to think of it when you offer a free subscription level for your SaaS business.
When it comes to a SaaS subscription, free is a risk-free way for your clients to experience your value.
Whether it’s a limited time free trial like Stunning’s own 15-day full-featured test run, a limited volume deal like the email list and sending caps imposed by MailChimp, or a limited functionality option like Pixlr’s free cloud-based Photoshop alternative, “free” isn’t a way to gain attention by giving away something of low value, it’s a way to let customers see just how valuable you are.
Making Free Pay for Your SaaS Business
The right kind of “free” for your SaaS business depends on the specifics of your platform and the value it creates for your users.
Pixlr offers broad functionality, and can limit or eliminate accessibility to some of its most advanced features while still clearly demonstrating its value.
Stunning could do the same, but all of our functions are so integrated and complementary that the demonstrated value would be markedly reduced without full access, which is why we offer a full-featured trial period instead.
For MailChimp, value would be similarly damaged without near-complete access, and value is also difficult for the company to demonstrate in a limited time—the manageability of their subscriber lists and analytics over time are a big part of the value they create. Putting caps on volume instead of features or time makes more sense for them.
Figure out which kind of “free” offers a glimpse at the full value for your SaaS offering, and you should see plenty of paid subscriber conversions.