13 SaaS Pricing Models You Can Test to Optimize Growth and Monetization
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The golden age of SaaS is over. There’s no more cheap money with interest rates over 5% for who knows how long. Tough money means less VC money, growth at all costs, and thus more scrutiny toward marketing and a need to find cheaper solutions. Venture capital attention has shifted from SaaS to models using AI.
Most have been focused on acquisition in the last couple of years. CAC rose and is going higher. So they switched attention to retention. But there’s one more lever you can pull for growth. A lever we talk about the least—monetization.
Paddle analyzed 10,432 blog posts about growth. 7 out of 10 talk about acquisition. 2 talk about retention. But only 1 about monetization. Even though improving pricing by 1% leads to 12,7% more profits (according to a Price Intelligently study).
So, Speero decided to create a three-part series on testing your SaaS pricing models, their positioning, and messaging. This blog post is part one — the first 13 SaaS pricing models you can test to grow and get more revenue.
These first models typically don’t require a lot of further optimization or specific pricing research, unlike the ones that will come in the later part of this series. Now, let’s meet them.
Fixed pricing is one of the most straightforward pricing models—the price of your service remains the same over a particular period. You just charge monthly or yearly fees.
Fixed pricing is great for offering different versions of the product to various customers and providing predictable revenue. If your SaaS can target various customers and you are able to define various pricing tiers, test the fixed pricing model. HubSpot does this:
How to Implement Fixed Pricing
Not all customers are the same. To develop tiers:
- Run qualitative customer research (surveys, polls, sales/CS and customer interviews, chat logs) for insights into customer perceptions, pains, goals, and use cases.
- Develop SaaS buyer personas based on insights of their use cases, pains, goals, and perceptions.
- Create tiers based on those SaaS buyer personas. For instance, freelancers, SMBs, and enterprises.
You should also use your SaaS buyer persona language and terminology when naming pricing plans. Avoid internal jargon and complex buzzwords.
The pricing page content and visual presentation should reflect what you gleaned from your research. Optimize messaging further based on feedback or message testing tools like Wynter.
Competitive research can help as well, in order to determine average price points across the industry and ensure you’re not straying away too far.
Fixed Pricing (Dis)Advantages
The flat-rate model is predictable and simple for both you and your customers. You can precisely plan your revenue while your customers know what they need to pay.
On the other hand, your sales team can pitch more easily and don’t focus on negotiation as much. So flat-rate can be great for PLG models.
Ultimately, fixed pricing builds trust because it promotes transparency. Especially when you show prices on your site.
However, you may be less flexible in sales, won’t capitalize on increased demand, and have more trouble competing with companies offering dynamic pricing.
The de facto pricing most brands use. The average is 3,5 tiers.
You offer two or more fixed feature groups or packages, with each tier made to fit into the particular needs of specific SaaS buyer personas. For instance, beginner, pro, and enterprise.
You increase the price in tiers that provide more value. Slack offers tiered pricing:
How to Implement Tiered Pricing
To implement tiered pricing correctly you need to complete a couple of steps similar to the ones in fixed pricing:
- Qualitative research for customer pains, goals, perceptions, and use cases.
- Segment the customers into specific SaaS buyer personas based on this.
- Research which features provide the most value for each persona (more on that in the 2nd blog post, release soon)
- Gather customer perceptions of the competition—identify their perception of the competition and gaps you can fill.
- Align tiers based on use cases, perceptions, goals, and features customers value.
Again, employ the customer’s language and terminology you collected from research.
Test simple tiered pricing models first. For instance, beginner and pro, or beginner and call us. It’s easy to test adding new packages later. But removing them without disturbing existing customers, not as much.
Tiered Pricing (Dis)Advantages
The advantages of tiered pricing include:
- Optimizable—you can test different tiers and optimize each feature set and price point.
- Upselling—because you’re showing additional features in stronger tiers, you may encourage customers to upgrade.
- Scalable—as customer needs change, they can upgrade or downgrade. This can provide more customer retention and loyalty.
- Flexibility—you offer different price points for various feature sets. Customers can pick the one that suits their needs, letting you capture value from different segments.
The disadvantages of tiered pricing include:
- Choice Overload Bias—customers could get confused about which tier is right for them, especially if there are lots of them.
- Risk of heavy users—if top-tier customers often go beyond their allocated usage, you have no way to collect extra revenue and compensate.
Cost-plus pricing is one of the oldest pricing strategies in the book. It's simple to work out—you calculate how much it costs to produce your product, then add the desired profit margin.
Profit margin + production costs = price
You don’t need any customer or competitive research to implement cost-plus pricing, only product costs. Cost-plus pricing is often used in manufacturing and pricing groceries:
Cost-plus Pricing (Dis)Advantages
The main benefits of cost-plus pricing come from its simplicity:
- It’s simple to use, measure, and implement.
- It’s a predictable profit that covers production expenses.
- Customers understand price justification.
But cost-plus simplicity also brings its disadvantages:
- The price is set and forget (so don’t forget to iterate later).
- Isn’t connected to the value of the product, but rather, its costs.
- Hard to account for future costs like hiring more developers.
However, that doesn’t you can’t or shouldn’t try testing cost-plus pricing.
Perpetual license pricing is based on charging a fee only once for a perpetual license.
Essentially, customers buy the software instead of renting. Then you test charging additional subscription fees for maintenance, support, and updates. The best use cases involve:
- Selling to large or legacy brands that can’t bank on renewing subscriptions.
- The product is mature and doesn’t require more features or patching.
Bumble offers a lifetime subscription, alongside monthly and yearly subscriptions:
Perpetual Pricing (Dis)Advantages
Perpetual pricing provides clear costs to customers. Long-term users also find this type of pricing especially attractive and cost-effective.
However, perpetual pricing isn’t as flexible as subscription models like charging by user or usage, which may lead to lower customer acquisition. A possible solution for this is to test combining the perpetual pricing model with other models like freemium or usage-based pricing.
Adobe did this with Photoshop, turning a very costly perpetual license product into a subscription model, taking the app from the realm of established professionals to something amateurs and hobbies can pay for. This allowed them to get a bigger market share and reach more customers.
Here you offer customers the choice to select the features they want or need. You’ll need an eComm-style shopping UI so users can individually add features to their cart. Then charge based on the features they pick.
One of the best advantages of A La Carte pricing is that you can test it for customer research—you enable customers to take features they want and gain insights into what they actually value. Use this research later to optimize other pricing models like bundled, unbundled, and per-feature pricing.
This pricing model is best suited for products touching a broad target audience and use cases. Also, if you constantly ship new features and want to explore their value. Since a la carte is based on eComm-style UI it fits PLG models.
Its problem is that customers may have trouble comparing and deciding which features they need. A La Carte is also a bit complex in practice.
HubSpot uses this pricing model among others, allowing you to make bundles of their sales, marketing, and CRM tools.
Here you offer discounts on volume. Sounds counterintuitive for SaaS, but volume discount is a great pricing model to test in combination with other models. For instance, if you’re using usage-based or user-based pricing, you can combine them with volume discounts by offering discounts to power users or rewards for loyalty.
The obvious example is offering a discount on yearly memberships. LinkedIn offers yearly discounts for all its plans.
Volume Discounts (Dis)Advantages
Volume discounts in a yearly format may help you grow, improve cash flow, and boost customer retention.
The best part is that yearly volume discounts may lower customer churn. We all have our ups and downs with using products. Monthly subscribers churn during their downs. Even if they like again your product later, they have already left your system and may have tried the competition.
Don’t worry if your MMR goes down during volume discounts. This is because customers converting to yearly plans are… getting them at a discount. To mitigate this don’t make huge marketing promotions for yearly memberships, but do it progressively. You could also calculate your CAC payback period to determine how volume discounts fit into your revenue model.
Here you combine two or more services or features to sell them at a lower price, often lower than the sum of individual pieces. This way you motivate the customer to buy additional services, features, or products, often ones less in demand.
Google bundles its offer with G Suite. You can’t buy Google Documents or Google Sheets separately.
The best use case for bundling is when you have a group of features or services for offer, or if you want to raise the value of those with less demand. You can also bundle complementary features or products (like Amazon does).
There are four types of bundling:
- Pure bundling — you only offer buying the bundle or not buying at all. Easiest to achieve.
- Joint bundling — two or more offers as a single bundle. The products are available only through a single bundle. G Suites does this: you can’t buy G Mail or Sheets separately.
- Leader bundling — like in joint bundles, you offer two or more products in a single bundle. However, here only one product is more valuable and called the ‘leader’ product.
- Mixed bundling — the customers can buy the whole bundle or each feature separately for a bigger price. Microsoft Office has mixed bundles as well as individual purchases of Word or Excel.
The benefits of bundling include:
- Simpler purchase experience. The customer doesn’t need to cobble together different features.
- More sales. Bundling can increase your revenue and value to customers. Amazon does this with dynamic bundles based on complementary products.
- Sell lower-volume features. Bundling lets you move underperforming features by selling them with more popular ones. Just ensure the bundle offers more value because of bundling.
The disadvantages of bundling include:
- Customers may not need the bundled features. Create bundles with more value than separate features and base them on the actual needs of your ICP to offset this.
- Customers may want to buy separate features. Some people won’t like you bundling their choice for them. Make bundles valuable to offset this.
Factors to Consider in Bundled Pricing
Factor 1 — you need to discount. Especially true if competition is taking your customers or you have a low engagement from existing clients.
Although discounts may lower the perceived value of your service, bundling lets you mitigate this by combining discounted services together. This way you can capture more revenue for each separate buy and increase the product value for the customer.
But keep in mind that this works only if your bundle actually provides more value than separate purchases. Otherwise, you’ll just lose sales.
Factor 2 — your product offers necessary integrations. Lots of SaaS services today are developed on top of existing functionality to increase integration or value. If your product needs these kinds of connections to run adequately, you can bundle so the customers have an easy way to get all the functionality they need with one purchase.
Stripe offers this kind of integration.
Unbundling price refers to separating your features or products into different options and selling them separately. This works well if you can easily separate your features while your customers have homogeneous demands and preferences.
Dell unbundles certain products allowing you to pick different components of their laptops during purchase:
Unbundled Pricing (Dis)Advantages
Unbundling can help you acquire more consumer surplus, segment your customers, and increase price flexibility. You’ll also be able to customize your offer.
However, it’s not without its challenges. Your customers may get frustrated or confused, producing a backlash. Avoid misleading customers and be transparent about the new pricing structure to offset this.
How to Implement Bundled and Unbundled Pricing
The steps are somewhat similar to the ones in tiered and fixed pricing:
- Qualitatively research your customers for insights into their pains, goals, perceptions, and use cases.
- Research customer’s perception of the competition—identify gaps you can fill.
- Explore which features provide the most value for each persona (more on that in the 2nd blog post, release soon)
- Align bundles based on the research from previous steps.
In per-feature pricing, you create various pricing tiers based on the functions available in them. Packages with higher prices have more features/functionality. Miro offers per-feature pricing:
The strengths of feature pricing include:
- Easier upsell—unlocking extra functionality motivates upgrades to higher tiers.
- Delivery-heavy features compensation—you can compensate better for features requiring more development.
- Easier price adjusting—you can change prices more easily when introducing new features. Or set different pricing for high-demand features while keeping your base price competitive.
The flaws of feature pricing include:
- Hard to get right—how to tell which features users need? A bad balance discourages adoption, since vital features may end in high-priced tiers, or the bulk of your product value may end in your low-price package.
- Lower customer experience—some may not like they’re missing the functionality even though they’re paying. Per-feature pricing can also be expensive for brands needing multiple features.
- Slower buying process—customers may get confused about which features they truly need.
Per-feature pricing is a flexible model. But to implement it right, take time and clearly map out each feature set to a particular SaaS buyer persona and research which features your customers like (more on that in the 2nd blog post, release soon).
The freemium model is based on the idea that free stuff draws in new customers. You attract customers to try the basic version of your service for free and give them enough reasons (value) to stay.
Freemium is excellent if the basic version of your product can provide lots of value and is viral on its own. Also, if your product caters to a big market with lots of potential users. This way you can acquire market share by letting more people use your product with essential features while you upsell premium features in paid plans.
The typical way to implement freemium is to use it as a part of your tiered pricing strategy. You offer a free, entry-level tier and supplement it with paid packages. However, you’ll need to limit the entry-level tier across different dimensions to motivate users to upgrade:
- Feature-based: if you want feature Y or X, you need to upgrade.
- Use-case-based: use the free tier internally, but not to manage customers.
- Capacity-based: exceed the allowance, transfer to paid packages.
Evernote is a famous example of a brand that grew through freemium, with a basic plan that’s free but provides massive value. While those who become Evernote power users can buy Personal and Professional plans.
The advantages of freemium include:
- Bigger user base—the more people use the product, the more chance to convert some of the free users as they discover other features they need.
- Foot in the door—offer it for free and lots of them will try it. This way you market your product and overcome initial adoption, one of the biggest challenges for SaaS.
- Validate features/product—you can test different features on different SaaS buyer personas.
- Virality—companies like Dropbox and Evernote grew significantly because free users referred their products.
The disadvantages of freemium include:
- Resource drain—free users don’t give anything in return for their usage.
- Hard to establish value—some may use your free version forever.
- More churn—people are more likely to leave what they have for free.
Aka pay-as-you-go pricing, usage-based pricing is based on how much the customer uses the product. Instead of buying an expected need (seats or capacity), your customers pay only for what they actually consumed (used).
Usage-based pricing is typical for platform and infrastructure-related SaaS and other companies like Snowflake or Amazon Web Services, where they charge the customers based on their amount of API requests, gigabytes of used data, or processed transactions.
However, other SaaS (and even you) can find new ways to adapt this strategy—accounting SaaS that charges for a number of invoices or social media apps charging on number of scheduled posts.
Usage-based pricing works great for the PLG approach because it minimizes the barriers to initial adoption and provides automatic scaling.
To deliver great usage-based pricing and customer experience, you need to present accurate, transparent billing. Here, pricing is an element of your product experience. Since payment depends on usage, your customers will expect superb visibility of their usage and how it translates to billing.
So try to test presenting real-time information to your customers, including the running total of their bills. You can even play with presenting forecasts of how much their bill will be at the end of the month.
Usage-based Pricing (Dis)Advantages
Pros of usage-based pricing include:
- Better adoption—barriers to usage-based pricing are relatively low. Customers can easily try your product without committing too much.
- Easy upsell and scaling—you’ll grow revenue without investing in sales.
- Increased customer satisfaction—they clearly know what they’re getting.
- Considers ‘heavy users’—unlike with fixed price packages, you won’t experience ‘heavy users’ draining a disproportionate amount of your resources without compensation.
Cons of pay-as-you-go pricing include:
- Unpredictable revenue—you may attract users with volatile usage patterns, making it more difficult to manage and forecast your revenue.
- Growth is based on customers—your growth is (too much) tied to the growth of your customers, making scaling possible only if their companies grow.
User-based pricing is one of the most popular pricing methods. According to the Key.com 2020 annual SaaS survey, the vast majority of SaaS (41%) employ a per-user pricing model.
Its popularity lies in its simplicity—a fixed fee for one user, double for two users, and triple for three users. This way customers can easily understand the price while the company can forecast their revenue. Under this model, customers pay a fixed monthly or annual fee to access a predefined set of functionalities and features. Canva employs per-user pricing:
User-based Pricing (Dis)Advantages
User-based pricing strengths include:
- Simple—both for you and your customers.
- Predictable revenue—more users, more revenue. Easy to forecast.
- Rewarding adoption—more user adoption, more revenue.
User-based pricing flaws are:
- One seat for all—some users may cheat and share their passwords with others, making you lose revenue.
- Limited users—companies may try to save money by limiting the number of users on your SaaS.
- Difficult value comms—customers have a harder time seeing the real value of adding more users.
- Variable needs—some users may use the product a lot more, but get charged the same.
How to Implement User-based Pricing
User-based pricing can work. Especially if the user as a metric is intrinsically tied to your product, like with CRMs, communication tools, or customer service decks. However, you need to ensure customers understand the value they get from adding new users.
For instance, test highlighting the value of additional seats or why customers need more seats in messaging. Or how getting more seats helps customers with their pains, outcomes, or priorities.
User- and active-user pricing models are also great for the PLG approach because they minimize the barriers to initial adoption and provide automatic scaling.
The flexible brother of user-based pricing. Instead of applying a fee to a user, you apply it to only those actively using your product. Typically those who’ve logged in the last 30 days, but feel free to test longer or shorter periods.
Lots of SaaS, especially those vying for enterprise deals have yearly billing cycles. This means that new enterprise customers have to pay upfront for hundreds of employees. But there’s no guarantee that those employees will use the application.
Active-user-based pricing handles this problem directly, encouraging sign-up of as many users as possible, but billing only to those who actually use the software.
Active-user-based Pricing (Dis)Advantages
Strengths of active-user-based pricing include:
- Better and faster adoption—especially for enterprise-level companies since they don’t need company-wide roll-outs for adoption.
- Less wasted money—customers only pay for active users.
Flaws of active-user-based pricing include:
- Unfit for SMBs—this pricing method is great for enterprise orgs, but for brands with tight budgets and team size, per active user doesn’t motivate.
- Complex pricing—implementing this model needs complex pricing to fit various usage levels.
- Unsuited for annual prices—customers may think annual plans are wasteful if they don’t use your SaaS as much. To offset this test offering bigger discounts for annual plans.
We’ve met the first 13 SaaS pricing models. Some like cost-plus, perpetual, and a la carte pricing don’t require customer research and let you test them immediately. Other such as tiered, per-feature, and fixed pricing require customer and feature research before you can test them.
In the second part of the series, we’ll discuss more complex pricing models like dynamic, competitive, localized, and especially value-based pricing that are based on pricing sensitivity, feature, and other types of research.
The important part is that you don’t stop. Experiment with different pricing models, feature tiers/bundles, and messaging. Iterate based on feedback. All for the goal of finding the best long-term pricing model for your brand.
Need a partner for optimizing your SaaS pricing page? We’re here for you. We’ll provide a CRO-focused UX heuristic audit of your pricing page and models. You’ll get 8-12 quick-win ideas to test (or implement and learn) and Figma designs for top 3 concepts.f