The golden age of SaaS is over. With interest rates over 5% and likely to stay high, cheap money is no longer available. This means there’s less venture capital (VC) funding, and companies can’t focus on rapid growth at any cost. Instead, they face more exploration, especially in their marketing efforts, and need to find cheaper solutions. VC interest has now shifted from SaaS to AI-based models.

In recent years, most businesses have focused on gaining new customers. Customer Acquisition Cost (CAC) has increased and continues to rise. As a result, they’ve shifted their focus to  keeping existing customers. However, there’s another important strategy for growth that is often overlooked—monetization.

Improving pricing by just 1% can increase profits by 12.7%, according to a Price Intelligently study.

So, we decided to create this blog on top SaaS pricing models. Let’s dive in.

Fixed or Flat-rate Pricing

Fixed pricing is one of the simplest pricing models—the price of your service remains the same over a particular period. You charge a set monthly or yearly fee for your service. This model is great for offering different versions of your product to different customers and provides predictable revenue. If your SaaS can cater to different customer segments and you can create various pricing tiers, try using the fixed pricing model. HubSpot does this:

How to Implement Fixed Pricing

Not all customers are the same. To create pricing tiers:

1. Run qualitative customer research. Use surveys, polls, interviews, and chat logs to understand their needs, pain points, goals, and how they use your product.
2. Develop SaaS buyer personas. Name your pricing plans using words your customers understand. Avoid technical jargon and complicated terms.
3. Create tiers based on those SaaS buyer personas representing different types of customers like freelancers, small businesses (SMBs), and large enterprises.

Use SaaS buyer persona language and terminology  and terms that your customers understand when naming your pricing plans. Avoid technical jargon and complicated buzzwords. 

Make sure your pricing page clearly shows what you learned from your research, using content and visuals that connect with your customers. Improve your messaging based on feedback and tools like Wynter. In addition, leveraging reverse video search will help you ensure that your visual content is unique and not inadvertently duplicated, enhancing your brand’s authenticity.

Moreover, look at competitors to find the average pricing in your industry to ensure your prices are competitive.

Fixed Pricing Pros & Cons

The flat-rate model is easy and predictable for both you and your customers. You can plan your revenue accurately, and your customers know exactly what they’ll pay. 

This makes it easier for your sales team to sell, as they spend less time negotiating. Flat-rate pricing can be great for Product-Led Growth (PLG) models. 

It builds trust because it promotes transparency, especially if you show prices on your website. 

Besides, the downside is that you might be less flexible in sales, miss out on extra revenue during high demand, and find it harder to compete with dynamic pricing companies.

Tiered Pricing

In fact, most brands use a common pricing model with an average of 3 to 5 tiers. You offer two or more fixed feature packages, each designed to meet the needs of different SaaS buyer personas, like 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 follow a few steps, just like with fixed pricing:

1. Do qualitative research to understand customer pain points, goals, perceptions, and how they use your product.
2. Group customers into different buyer personas based on this information.
3. Identify which features are most valuable for each persona.
4. Find out what customers think about your competitors and identify any gaps you can fill.
5. Create pricing tiers based on customer use cases, perceptions, goals, and valued features. 

Additionally, use the language and terms your customers use from your research. 

Start with simple tiered pricing models, like “Beginner” and “Pro,” or “Beginner” and “Call Us.” It’s easier to add new packages later. Removing packages without upsetting existing customers is much harder.

Tiered Pricing Pros and Cons

Advantages:

1. Optimizable: You can test different tiers and adjust the features and prices to find the best combination.
2. Upselling: Showing more features in higher tiers can encourage customers to upgrade.
3. Scalable: Customers can easily upgrade or downgrade as their needs change, which helps retain them and build loyalty.
4. Flexibility: Offering various price points for different feature sets allows customers to choose what fits their needs, helping you capture value from different segments.

Disadvantages:

1. Choice Overload: Too many tiers can confuse customers, making it hard for them to decide.
2. Risk with Heavy Users: If top-tier customers use more than their allocated amount, you can’t charge extra to cover the additional costs.

Volume Discounts

Here, you provide price reductions based on the quantity purchased. This might seem odd for SaaS, but it can work well with other pricing models. 

For example, if you charge based on usage or the number of users, you can offer discounts to heavy users or loyal customers. 

A common epitome is giving discounts for yearly memberships. LinkedIn does this by offering discounts for all its annual plans.

Volume Discounts Advantages & Disadvantages

Advantages:

• Growth and Cash Flow: Yearly volume discounts can help your business grow and improve cash flow.
• Customer Retention: These discounts can reduce customer churn. Monthly subscribers may cancel during low usage periods, but yearly subscribers are more likely to stay even through ups and downs.

Disadvantages:

• Lower Monthly Recurring Revenue (MRR): Offering discounts on yearly plans will reduce your MRR because customers pay less per month.
• Managing the Impact: To manage this, avoid large marketing pushes for yearly memberships. Introduce them gradually. You can also calculate your Customer Acquisition Cost (CAC) payback period to see how these discounts fit into your revenue model.

Bundled Pricing

With bundled pricing, you combine two or more services or features and sell them for a lower price than if bought separately. This encourages customers to buy additional services or features, even those that are less popular. 

For example, Google bundles its services in G Suite, so you can’t buy Google Documents or Google Sheets on their own.

Bundling is useful when you have a group of features or services to offer or when you want to increase the value of less popular items by packaging them with more popular ones. You can also bundle complementary products like Amazon does.

There are four types of bundling:

1. Pure bundling – Customers can only buy the entire bundle or nothing at all. This is the simplest form.
2. Joint bundling – Two or more products are sold together in a single bundle, and they aren’t available separately. For example, G Suite bundles Gmail and Sheets together.
3. Leader bundling – Similar to joint bundling, but one product is more valuable and is called the ‘leader’ product.
4. Mixed bundling – Customers can buy the entire bundle or each item separately at a higher price. For instance, Microsoft Office offers both a bundle of applications and individual purchases of Word or Excel.

Bundling Pros & Conds

Benefits:

1. Simpler purchase experience: Customers don’t have to piece together different features themselves.
2. Increased sales: Bundling can boost your revenue and offer more value to customers. For example, Amazon creates bundles of complementary products.
3. Sell lower-volume features: Bundling helps you sell less popular features by pairing them with popular ones. Ensure the bundle offers more value.

Drawbacks:

1. Unwanted features: Customers might not need all the features in the bundle. To mitigate this, create bundles that offer more value than individual features and tailor them to your ideal customer profile (ICP).
2. Preference for separate purchases: Some customers prefer to choose features individually. Make sure your bundles are valuable enough to appeal to them.

Factors to Consider in Bundled Pricing

Factor 1: Need to Discount If competition is taking your customers or your existing clients aren’t very engaged, you might need to offer discounts. While discounts can lower the perceived value of your service, bundling can help offset this by combining discounted services. This way, you can capture more revenue and increase the product’s value for the customer. 

However, this only works if your bundle offers more value than buying the items separately. If not, you might lose sales.

Factor 2: Necessary Integrations Many SaaS services today are built to integrate with other functionalities to add value. If your product needs such connections to work well, bundling can help. This way, customers can get all the necessary functionalities with one purchase. 

For example, Stripe offers bundles that include essential integrations.

Unbundled Pricing

Unbundling price means selling your features or products separately instead of as a bundle. This is effective if you can easily separate your features and your customers have similar needs and preferences. 

For example, Dell lets you choose different components for their laptops when you make a purchase.

Unbundled Pricing (Dis)Advantages

Unbundling allows you to capture more consumer surplus by offering separate options, letting customers pay only for what they need. It also helps in segmenting your customer base, enabling you to target different groups more effectively. 

Additionally, unbundling provides greater price flexibility, allowing you to set prices more accurately and customize your offerings to better meet customer needs.

How to Implement Bundled and Unbundled Pricing

The steps for effective bundling are similar to those in tiered and fixed pricing:

1. Research Customers: Conduct qualitative research to understand your customers’ pains, goals, perceptions, and use cases.
2. Analyze Competition: Investigate how customers view your competitors and identify gaps you can fill. Use Google Ads competitor analysis to understand your competitors’ ad strategies and pricing models, which can provide valuable insights for positioning your own pricing structure.
3. Value Features: Determine which features are most valuable for each customer persona.
4. Align Bundles: Create bundles based on the insights gained from the previous steps.

Per-Feature Pricing

In per-feature pricing, different pricing tiers are created based on the functions included in each. Higher-priced packages offer more features and functionality. An example of this is Miro, which uses per-feature pricing.

Pros of Feature Pricing

Feature pricing offers several advantages. It makes upselling easier, as customers are motivated to upgrade to higher tiers to unlock additional features. 

This model also allows for better compensation for features that require more development effort. 

Additionally, it provides flexibility in pricing, enabling you to adjust prices when introducing new features or set higher prices for high-demand features while keeping the base price competitive.

Cons of Feature Pricing

However, feature pricing has its challenges. It can be difficult to balance, as determining which features users need is not always straightforward. 

A poor balance can discourage adoption if essential features are placed in high-priced tiers or too much value is offered in low-price packages. 

This model can also lead to lower customer satisfaction, as some customers might feel dissatisfied if they miss out on important features despite paying. 

Moreover, it can be costly for brands that need multiple features and may slow down the buying process as customers struggle to determine which features they truly need.

While feature pricing is a flexible model, successful implementation requires careful planning. Clearly map out each feature set for specific SaaS buyer personas and conduct thorough research to understand which features your customers prefer.

Conclusion

We’ve covered the top 6 SaaS pricing models. 

The key takeaway is to keep experimenting. Try out different pricing models, feature bundles, and messaging strategies. Continuously iterate based on feedback from customers. The goal is to discover the most effective long-term pricing strategy for your brand.