Pricing your Software as a Service (SaaS) product is one of the most crucial decisions you’ll make as a founder.
The right pricing model can significantly impact your company’s growth and sustainability. While many people are familiar with the basics, there are more ways to price SaaS than you might think.
This article will explore the top five pricing models, from the most common to the lesser-known. These insights are based on data collected from the State of Independent SaaS Survey, a comprehensive study conducted by MicroConf, a community of SaaS founders.
1. Monthly Subscription
The monthly subscription model is the most commonly used pricing structure among SaaS sales companies. According to the State of Independent SaaS report, nearly 47% of surveyed SaaS companies utilize this model.
The simplicity and predictability of monthly billing make it attractive for both companies and customers.
Users pay a monthly recurring fee, giving them continuous access to the software. This model also offers businesses a steady revenue stream, allowing for consistent cash flow and easier financial planning.
2. Annual Subscription
The annual subscription model is another popular pricing structure, with about 36% of SaaS companies opting for it. In this model, customers pay for a full year upfront, often receiving a discount compared to paying month-to-month.
Discounts can range from 12 months for 10 to 20% or even 15% off the total price. This approach benefits companies by providing a large influx of cash at the beginning of the subscription, which can be reinvested into growth initiatives.
For customers, it offers savings and simplifies their budgeting by reducing the frequency of payments.
3. Metered Pricing
Though less common, about 6.6% of SaaS companies use metering pricing. In this model, customers are charged based on their software usage.
For example, a company might charge users based on the number of transactions processed, the amount of data stored, or the number of users. Metered pricing is typically implemented in tiers, allowing companies to capture more value from high-usage customers.
While it offers flexibility, this model requires careful consideration of the value metrics to ensure that pricing aligns with customer value.
Also Read: What is Saas Churn & How Can It Be Reduced in Your Startup?
4. Pay-As-You-Go
Pay-as-you-go pricing is another less common model employed by around 4.5% of SaaS companies. This model allows customers to purchase credits or pay for services as they use them rather than committing to a recurring subscription.
One of the earliest examples of this approach was Mailchimp, which offered customers the option to buy credits instead of subscribing to a monthly plan.
While the per-credit cost might be higher than a subscription, this model appeals to customers who prefer to pay only for what they use or want to test the service before committing.
5. Revenue Share
The revenue share model is the least common among the five, used by approximately 2.3% of SaaS companies. In this model, the SaaS provider takes a percentage of the revenue generated by the customer through the platform.
This approach is commonly seen in platforms like Shopify, where users pay a monthly fee plus a small percentage of their sales revenue.
Another example is Stripe, which charges a percentage of each transaction processed through its payment gateway.
While not widely used, revenue share pricing can be highly effective for platforms facilitating significant financial transactions, as it aligns the provider’s success with its customers.
Also Read: 3 Smart Saas Metrics To Grow Your Saas Quickly
Conclusion
Choosing the right pricing model for your SaaS product is crucial for your business’s success. While the monthly and annual subscription models dominate the market, exploring alternative approaches like metered pricing, pay-as-you-go, and revenue share can offer unique advantages depending on your business model and customer base.
Understanding the various pricing strategies and their prevalence in the industry can help you make informed decisions that drive growth and customer satisfaction.