4 Pricing Strategies SaaS Businesses Can Follow to Convert More Buyers

Managing SaaS subscription pricing is about covering operational costs and leveraging it as a strategic lever to accelerate business growth. A highly effective pricing strategy attracts more audiences and even retains them.

It is important to continuously evaluate, test, and refine your pricing models to ensure they align with your unique value proposition. A complex pricing structure can directly impact your SaaS subscription management, negatively affecting the customer lifecycle and your revenue.

Setting and communicating a SaaS subscription revenue model requires considering factors like competitor pricing, market benchmarks, industry standards, and seasonal variations.

With the evolution of SaaS pricing, you have plenty of choices to gauge, experiment with, and implement pricing strategies. This article explores four proven pricing strategies to attract and retain customers.

#1. Value-Based Pricing

This is a pivotal pricing strategy in the SaaS industry, which involves setting prices based on your product’s perceived value to customers. Here, the focus is on maximizing profits and customer value. You don’t need to assess your costs or competitors’ pricing, but consider the value users can derive from your solution.

According to OpenView’s 2023 Report on the State of SaaS Pricing, companies that adopt value-based pricing generally report higher annual contract values (ACVs).

Here’s what you can do to implement this pricing model successfully.

Highlight Your Unique Value Proposition

Demonstrate how your SaaS product outperforms alternatives by solving problems more effectively, quickly, or efficiently. Use case studies, ROI calculators, and testimonials to help prospects understand your product’s potential value.

Communicate Value Effectively

Focus on demonstrating your product’s real-world impact rather than merely listing features. Develop high-quality marketing and sales materials illustrating ways your product helps customers achieve business success.

Continue Experimenting and Changing Prices

Since value perception is subjective, continuously test various pricing points to determine the most favorable balance where customers perceive the price as reasonable for the value received. Regularly review and adjust your pricing, ideally every six months, to ensure your offerings remain competitive and profitable.

#2. Usage-Based Pricing

Also known as pay-as-you-go, this model charges customers based on the product or service usage.

It aligns costs with consumption, offering flexibility and scalability to users. Over 60% of companies have adopted this approach, suggesting popularity and profitability.

Here’s what you can do to implement a usage-based pricing model:

Identify the Usage Metric

Select a metric that reflects the amount of your product or service customers consume, such as hours worked, storage used, or number of API calls.

Here’s an example of Binary System’s usage-based pricing model that specifies the numbers that users can render for each feature.

This model ensures that pricing correlates directly with users’ product consumption.

Transparent Billing

Provide straightforward billing and detailed usage reports. This transparency lets customers understand their costs and monitor their usage patterns.

Set Usage Alerts

Implement alerts to inform customers as they approach their usage limits. This prevents unexpected high bills and allows customers to adjust their plans if necessary.

#3. Freemium Pricing

This model offers your product free of charge, charging for premium features or additional usage. It’s effective for attracting a large user base and converting a portion into paying customers.

Databox indicates that conversion rates from freemium to paid are between 6-10% for small companies and 3-5% for large ones. Companies like Canva, Zoom, MailChimp, etc., have leveraged freemium to build successful SaaS businesses.

Here’s what you can do to implement a freemium pricing strategy successfully.

Create a Clear Upgrade Path

Help users understand the benefits of upgrading to a paid plan. Actively promote and educate users about the additional features by demonstrating the value of upgrading.

Define the Free Offering

Clearly outline the features of your free plan. Ensure they are appealing enough to attract users but limited to encourage upgrades.

Limit Key Features

Selectively choose the features to include in a free plan. Focus on those that highlight your product’s value but are not overly generous. Also, reserve advanced features like enhanced analytics, integrations, or higher usage limits for paid plans.

#4. Per-User Pricing

Also known as a seat-based pricing model, this B2B SaaS pricing method charges based on the number of users in an account. It provides simple and predictable costs for users and businesses, as billings are directly linked to team size.

According to OpenView, which surveyed 2,200 SaaS companies, 41% of businesses use this pricing model.

Here’s what you must consider when implementing this method.

Tiered Pricing Per User

Create multiple pricing tiers to merge per-user and tiered pricing strategies. As seen below, each tier (Essentials, Professional, Enterprise) offers different access levels or features. The below example is taken from CloudZero.

For example, the price points should be defined so that users with administrative privileges or access to premium features could be charged more.

Monitor User Activity

Use tools like Teramind and ActivTrak to track user activity within your software. Look for patterns that suggest credential sharing through simultaneous logins from multiple locations or usage that exceeds the licensed user limit. These tools can help automate alerts and actions like requiring re-authentication or temporarily blocking access.

Volume Discounts

Offer volume discounts and reduce seat prices as team sizes increase to encourage larger team subscriptions. This will incentivize larger purchases and promote product adoption across the organization.

Wrapping Up

Nailing a highly sustainable and profitable SaaS pricing strategy is a dynamic process that requires considering key factors like target audience, value proposition, and business goals.

The outlined pricing strategies can be a solid starting point, but it’s all about continuously experimenting, iterating, and optimizing the chosen pricing models.

A perfect price isn’t just about maximizing revenue but finding the sweet spot where your customers perceive immense value and are eager to invest in your solution.

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