Pricing a product or service, across most industries and professions, is a difficult task if you’re first getting started. Unless the thing that your organization offers has a formulaic pricing structure, you may have to get creative with your pricing metric and either bolster your sense of financial self-worth, or get real and rethink your asking numbers from a place of humility.
Lucky for businesses that offer Software as a Service, pricing is pretty straightforward if you’re not afraid to do a little math from time to time. In this post, we’re going to show you how to take a good, hard look at your product, your industry standards, and your customer base to create realistic and supportive prices.
Outlook on SaaS pricing
SaaS companies have had to reinvent the wheel a little bit when it comes to pricing their product. In fact, most companies do so regularly, with 43 percent of SaaS organizations revisiting, rethinking, and redoing their product pricing strategy multiple times per year.
And SaaS organizations offer an average of 3.5 packages to meet the needs of a wide range of end users, meaning they may be adjusting pricing strategies individually for each.
While there are pricing precedents in place, there is no one hard-and-fast rule for putting a price tag on your SaaS product. 39 percent of SaaS organizations decide price according to product value, while 38 percent decide based on usage. Half tie their pricing strategy to their user base.
However you think through your pricing, however, successful SaaS companies will enjoy being a part of an industry with very high growth potential, and one which is projected to have a net worth of 60.36 billion dollars before the year 2023.
SaaS pricing 101
The perfect pricing strategy for SaaS product offerings has yet to be discovered. The number of variables an SaaS organization needs to consider in naming the value of their product almost always necessitates a multifaceted and ongoing approach to keep users satisfied and reduce customer churn.
But so far, a subscription-based model seems to be the simplest and most sustainable general methodology.
Subscription pricing offers users a built-in flexibility and longevity without the intimidating price tag of a one-time purchase. Of course the exact amount will differ depending on the specifics of each package offered.
Most companies clearly define the price against the array of features offered for a given user category (most commonly enterprise vs. small business vs. pro vs. single user) but you might also consider taking a more modular approach. It all depends on what you offer, and what your customers need. We’ll get more into the specifics of pricing decisions in the next section.
Why SaaS pricing is so important to a SaaS company
Having a competitive SaaS product in your specific industry is only half the battle. It also needs to have competitive pricing. However, having a lower price than competitors may not always be the right strategy.
Your product needs to remain profitable to your business, while also being affordable to your customer. But the price should not be so low as to lose credibility. A price in the SaaS business is as much a brand indicator as a sales fact.
So, ideally, your pricing will strike a balance between accessibility and a direct reflection of your product’s value. Now let’s talk about how to figure out what that is.
How to develop and implement a great SaaS pricing strategy
Here are a few industry standards as well as some experimental models you can use to help you build your SaaS pricing strategy.
Popular models
- Price per user: You can either set a range to determine price, or ask the user to define the number of users that will be accessing the products and determine the price accordingly. For example, you can set one price for the first 100 users, 500 users, 1000 users, etc. Or, you can set one price for the first 50 users with an additional fee for every 5 beyond the initial limit.
- Tiered pricing: This is the most common pricing model for SaaS organizations offering multiple packages. Tiers typically include Enterprise, Small Business, Pro and Single User and are priced based on projected engagement. Some SaaS businesses even offer a free version for infrequent or limited engagement by single users.
- Flat-rate: SaaS companies offering one package, or those with a singular user profile, may offer their products at one price point.
- Per feature: Modular SaaS types may offer a basic package with options to customize the service with additional features and functions. This makes your product more accessible to individual users who may need certain features offered in your business package but will not use all of them.
Development for your company
Still not sure how to price your product? Here’s how to figure it out.
- Listen to potential customers: The best way to figure out what your price should be is to ask the people who will be purchasing your product. Conduct surveys among your current customer base, or reach out to users browsing for products similar to yours. They will be able to tell you what your customer base is willing to pay, and therefore what your price tag should be.
- Listen to your own company: Take a multifaceted approach to researching your market potential and the ideal price tag you should set on your product. Experts within your company will be able to tell you: what is the minimum our SaaS should cost? How far beyond that can we go while remaining accessible? Where is our bottom line? Do we have the potential to become a market leader?
- Use data from competitors and past experiences: Look at your greatest competition and see how they do it. Now look at your company’s resources and see how you can do it better.
Intricately can help
Intricately is a cloud based data solution with the ability to give you unparalleled insight into your client’s spending habits, market strategies, and day-to-day business needs. With Intricately, you can not only reach your customers exactly where they are, but understand exactly what it is they need and design a product – and a pricing strategy – that will meet those needs exactly. Request a demo today to see what else Intricately can do for you.
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