The Future of SaaS Pricing Strategy: Performance Pricing
The software industry has gone through many changes in the last 20 years, going from upfront payments to have software on a disk to monthly payments to use software as a service on the cloud.
Software as a Service (SaaS) has been great for small and medium sized businesses from all over the world, it's allowed software to become much cheaper to access and to stay constantly updated with the latest features and fixes.
The Current SaaS pricing Strategies
Per User/Seat: This is where they charge you $20 a month per user, a sales CRM like salesforce would charge this way as the bigger the sales team the more important the software is for you.
Feature Based: This is where you see a Lite/Standard/Pro plan where they disabled features to reduce the price for the cheaper plans. Printer companies used to do this as they would sell a cheaper consumer version of the exact same printer but they would have a hidden setting to halve its printing speed.
Metered/Utility: Here we charge like a utility company charges you for using electric, a good example is a cloud server. You will be charged an hourly fee for a cloud server and that fee depends on the size and performance of the server and maybe data charges.
Freemium/Add-on: This is where the software is free to use in its basic form but you would need to pay for add ons and plugins to be really useful. This allows people to easily try the software and only pay for what features they would like to use.
The New Alternative: Performance Pricing
As a founder of a hotel SaaS I have been fiddling, changing and stressing about my pricing options for months. What feature should I give on the lite plan? What features should I offer on the pro plan to make it worth it? How much to charge for each plan? Should I charge per room and offer all features?
I finally realised that the businesses using my software are all different, some may have 20 rooms but charge budget prices, some may have 6 rooms but charge premium prices and make more revenue than the bigger budget hotel.
Then I had the headache to price the software for each currency that my customers do business, Euros, Dollars, Pounds, Thai Baht.
Then it came to me!
One plan to rule them all, one plan to bind them
Sorry for the cheesy Lord of the Rings quote there guys, but I have changed our entire pricing strategy to one pricing plan that covers all sizes of hotels no matter how busy or pricey they are.
And doesn't matter what currency they are either!
It's simple... 1% of online booking revenue.
Were you expecting something complicated?
Our software is designed to run their business and increase sales and especially direct sales, so a performance model works brilliantly in that we succeed with the business and if they have a quiet period in off season they benefit from cheaper bills.
It's also so simple to explain to every country irrespective of their currency, no matter if they only have 4 rooms at $10 per night or 40 rooms at $100 per night.
The downsides of a performance model
Two issues that my mentor has pointed out:
1. Sales staff commission structures are hard to work out because you cant work out the customer value
2. Monthly revenue will fluctuate, high season will look strong then revenues will dip in off season and could go below running costs and cause cashflow problems.
Early feedback has been extremely positive by my early customers of the new changes, nobody minds a 1% performance fee of online bookings, just like they don't mind the 2% fee that banks charge to process the payments.
Not every software can take a % of revenue but it's worth looking into if you are having pricing page stresses.