SaaS Business Models and Pricing Strategies: A Comprehensive Guide for Startup Founders
There is a maxim that says: There are as many business models as there are entrepreneurs This is quite a reality but not all of them do not work or have the same route.
Each business model has its characteristics and not everyone knows how to enhance and take advantage of them.
In today's article, we are going to give relevance and voice to a relatively new business model but one that is growing progressively: business and Startup SaaS.
This is a very interesting business model whose nature allows for the development of a very flexible pricing and monetization strategy for the business with good performance results.
Let's start with the most basic!?
What Is Saas?
SaaS (Software as a service) business models are one of the most popular forms of Cloud Computing. They can be defined as a software distribution model in which a service provider hosts applications for clients and makes them available to these clients over the Internet.
As with other cloud services, companies typically pay for SaaS applications through a subscription fee, on a monthly or annual basis. This is in contrast to the traditional model of paying for software through a perpetual license, with an upfront cost and an optional ongoing support fee.
Software as a service provides great advantages for the user:
Lower Costs: SaaS resides in a shared or multi-tenant environment where hardware and software license costs are low compared to the traditional model.
Scalability and Integration: SaaS solutions are often located in scalable cloud environments that integrate with other SaaS solutions.
Easy Integration: SaaS applications stand out for an almost non-existent infrastructure, let's remember that they are cloud-based models.
But, there are not only advantages for users, SaaS business models are ideal for establishing very competitive pricing strategies, and increasing conversion options. Let's take a closer look at this aspect!
SaaS Pricing Strategy
Every SaaS company must design a suitable pricing strategy before releasing any product or service.
Setting the price for a product or group of products should not be a random act. In principle, a deep analysis should be made of concepts as important as the following:
Through these concepts, you will have a clearer and more realistic idea of the true value of your SaaS and will find it easier to think about price levels and packages. This data-gathering exercise should be done regularly, as pricing strategies need to be revised over time to meet market needs.
So, it is possible to find pricing models for SaaS that work well with optimized and high-performance pricing strategies.?
Saas Business Models
It is necessary to have a pricing model for your product. Why? Well, no matter how good and excellent your product or service is, no one will spend their money on it unless it has a reasonable price.
There are different price models; all of them provide certain advantages and disadvantages. The important thing is to experiment and try until you find the model that fits your product like a glove.
We show you the most used and effective models for SaaS businesses and startups:
Freemium
Freemium is a pricing model where users have limited access to features for free.
This means that users will be able to access other features when upgrading or uploading the subscription.
It is an attractive model for the user, the SaaS product is offered for free with limited features, which encourages users to buy paid plans to enjoy additional features.
It is a widely used model to create a tiered pricing method. It is ideal for users to begin to become familiar with the product. For startups, it is the best method to put their products on the market.
It is not the ideal model for just obtaining income, let's say that it is a first step to attracting customers, and from there, think about income. It is important to note that it is a model that suffers from a high rate of abandonment by users.
Flat Rate
The flat rate model is used when companies charge users a single, fixed fee regardless of how many people use the product.
With a flat rate strategy, a fixed set of features and functionality is offered for a fixed price. There is no additional charge for an exclusive feature or a superior add-on.
It is a very simple model for both companies and customers, so understanding prices is easy.
One of the great advantages of this pricing model is that you will have a single, clearly defined price offer, which facilitates marketing and supply tasks.
On the other hand, it is not an advisable model if you have different types of target customers with different needs.
Price By Features
This is most likely one of the best-known and most widely used models among SaaS companies.
The feature-based pricing model charges subscribers a dynamic rate depending on the functions and/or features being used.
The user will only pay for the functions that they need. The more the user wants, the more he will pay for it.
Using the feature-based pricing model, the SaaS company offers different price levels based on the features and functions available in each plan.
The most basic functions will be established at lower prices, and increasing the functionality will increase its price.
It is important to design the packages in such a way that they offer a good service, but that their higher level increases their benefits with guarantees. If the “basic plan” doesn't appeal, users are likely to switch and never upgrade to more advanced plans.
It is an effective model as long as there is the right balance between the functions and their prices.
Prices Per User
Another well-known pricing model used by SaaS companies In the per-user pricing strategy, the price varies based on the number of users or members using the product.
This pricing model is good if subscribers increase their usage over time. At first, they are lured in with low prices, and then revenue will increase as users are added.
One of the most significant issues with this pricing model is that the product must be and become "essential" to the user to increase the likelihood of increasing users.
Prices Per Active User
Active user pricing is a pricing model where subscribers are charged for each active user. What does this mean?
Prices per active user can be said to be a modality of the "prices per user" model, with the difference that the final amount charged to users is linked to the members who were active during that billing period.
It is necessary to take into account that regardless of the number of users "added" to the product or service, only those who are using the application will be charged.
It is a great solution if it is aimed at large companies, but it is very inconvenient for small companies whose customer niche is not large enough to get the best performance from this model.
Choosing the pricing model that best suits your SaaS business is critical to achieving the highest possible benefit. To come up with a good pricing strategy, you should also think about the features of your products or services, the market, and your ideal customer. Which pricing model best suits your SaaS business?
Ready to take your SaaS product to the next level? Let the 2BTech team of software developers and marketing professionals help you build, launch, and market your SaaS product to success. Contact us today for a free consultation about our SaaS software development and marketing services.