B2B SaaS Pricing Models: Finding the Right Price Point
When pricing a B2B SaaS product, there are a few things to keep in mind. It’s important to find the right price point that will cover your costs and generate a profit, but not so high that it will scare away potential customers.
You also need to consider what type of SaaS pricing model will work best for your product. There are a few common models to choose from, and each has its own advantages and disadvantages.
9 Common Pricing Models for B2B SaaS
The pricing model for a B2B SaaS company is important to get right from the start. There are a few different pricing models that can be used:
1. Cost-based pricing
When it comes to B2B SaaS, pricing is often based on cost. This means that the price of a subscription is based on how much it costs the company to provide the service. For example, a company might charge $50 per month for a subscription because that’s what it costs to provide the service.
There are a few benefits of cost-based pricing:
- It’s an easy way to calculate your prices and make sure you’re making a profit on each subscription.
- It helps keep prices low for customers, since the company only charges what it costs to provide the service.
- It can help you stay competitive by keeping your prices in line with your competitors’.
- It can help you attract more customers by offering lower prices than your competitors.
- This can be a good option for businesses that offer a physical product or service, as it’s easy to calculate the cost of goods sold (COGS) and then add on a profit margin.
There are a few drawbacks to cost-based pricing as well.
- It can be difficult to estimate how much it will cost to provide a service in the future, which can lead to unpredictable prices. This can also lead to inaccurate pricing and lost profits.
- It can be difficult to compete against rivals who are using lower cost-based pricing structures.
- It can be challenging to raise prices once they have been set, even if costs go up. This can result in lost revenue over time.
Setting the pricing for a B2B SaaS product can be tricky, as you need to accurately calculate your costs and then find the right price point that will make your product profitable without pricing it out of the market.
There are a few things to keep in mind when using cost-based pricing for your B2B SaaS product. Remember that you’re not competing against other SaaS products in the same category – you’re competing against free alternatives.
If you’re competing against free alternatives, then you need to price your product at a level where it can make profits. You’ll want to price your product slightly higher than the competition, but not so much that customers won’t be interested in buying from you.
2. Value-based pricing
Value based pricing is a strategy B2B SaaS companies use to price their products or services based on the perceived value of those products or services to the customer. In other words, customers are charged based on what the company believes the product or service is worth to them, rather than on a cost-plus basis.
This type of pricing can be especially effective in industries where customers are willing to pay more for better quality or for added features and benefits. For example, SaaS companies often use value-based pricing because buyers of software are generally more interested in what they can do with the software than in how much it costs.
Value-based pricing strategy has several pros:
- It can help you charge what your product is worth. If you create a lot of value for your customers, you can justify charging more for your product.
- Simplify your pricing. With value-based pricing, you only have to worry about two prices: the price for low-value customers and the price for high-value customers. You don’t need to worry about creating different pricing tiers or discounts.
- It can help you attract high-value customers. By charging more for high-value products and services, you can attract customers who are looking for a premium experience.
While this model has a lot of benefits, there are also some cons to consider before deciding if it’s the right model for you. Here are a few of the most important ones:
- It can be difficult to determine how much value a customer gets from using your product.
- Customers may not be willing to pay based on how much value they get.
- It can be difficult to track and measure the amount of value customers are getting from your product.
To set the right pricing point with value-based pricing, you need to set your price based on the value your product provides to the customer. This can be done in a few different ways:
- Based on how much the customer would save by using your product instead of other solutions available on the market.
- By calculating how much time or money the customer will save by using your product.
- By estimating how much increased productivity or efficiency the customer will experience with your product.
Whichever calculation method you choose, make sure to research what similar products are selling for and price your product accordingly.
3. Usage-based pricing
A usage based pricing model charges customers based on their usage of a product or service. This type of pricing is often used for SaaS products, which can be scaled up or down based on customer needs.
There are many pros of usage-based pricing for SaaS products as follows:
- It can help to reduce churn. When people have to worry about their usage each month and whether they will go over the allotted amount, they are more likely to think twice before cancelling their subscription. This also helps to ensure that customers are getting value for their money.
- It encourages users to try out the product. Since they only have to pay for what they use, they are more likely to take advantage of all the features the product has to offer. This can help increase adoption and engagement rates.
- It can be a great way to generate more revenue. By charging customers based on their actual usage, you can bring in more money while still providing value for their money.
While usage-based pricing can be an attractive option for SaaS providers, it also has several potential cons.
- Customers may end up using more than they originally anticipated, driving up costs. It can be difficult to scale up or down as customer demand changes, which can be a major issue for small businesses.
- It can be hard to predict how much revenue a company will generate from usage-based pricing plans, making budgeting and forecasting more difficult.
- Customers may not like having to worry about how much they’re using the service and could end up feeling nickel and dimed for every extra interaction or function they use.
There are a few tips to keep in mind when setting the price point with a usage-based pricing model:
- Determine the average amount of use a customer will likely need to get value from the product. This will help you determine what tier to place users in.
- Consider offering discounts for higher usage levels, as this can encourage customers to use more of the product and get more value from it.
- Keep your tiers simple and easy to understand, as this will make it easier for customers to gauge how much they will need to pay.
- Consider offering a trial period for users to test out the product and figure out if it’s worth the price.
By choosing to go user-based, you are also likely looking at more of a subscription model, which is one that many companies in the tech industry are turning towards.
4. Feature-based pricing
Feature-based pricing is a way of setting prices for SaaS products. With this pricing model, customers are charged based on the features they use. This type of pricing can be more complex than other models, but it can also be more fair to customers.
With feature-based pricing, customers know exactly what they’re getting and what they’re paying for. This makes it easier to compare different products and services. It also helps ensure that customers are only paying for the features they need and want.
Here are the benefits of feature-based pricing for B2B SaaS:
- It can be a great way to encourage customers to upgrade their plans and get more value from your product.
- It also allows you to tailor your pricing to specific customer needs, making it more likely that they’ll find a plan that meets their requirements.
- It can help simplify your pricing structure and make it easier for customers to understand.
Note though that feature pricing can be a disadvantage for both the customer and the supplier.
- For customers, it can be hard to predict their costs and make accurate budget forecasts. This is because the price of a subscription can change depending on how much of the feature set is used.
- For suppliers, it can be difficult to manage and forecast revenue when prices can change so much based on customer demand. In addition, it can be hard to create a pricing model that accurately reflects the value of the product.
So which scenario is right for your product? If you have a relatively simple product, you can probably use fixed pricing. This will give you more control over your revenue and profit, less risk that you’re going to lose money and make it easier to forecast future costs.
5. Tiered pricing
The term “tiered pricing” is used to describe a pricing model in which customers are charged different prices for the same product or service, depending on their usage levels. For example, a SaaS company might offer three different pricing plans: a basic plan that includes the most essential features, a pro plan that includes all of the features of the basic plan plus some additional features, and an enterprise SaaS plan that includes all of the features of the pro plan plus even more features.
Tiered pricing is becoming increasingly popular among SaaS companies because it allows them to better tailor their products and services to meet the needs of different types of enterprise customers. It also enables them to charge more for those customers who need more than the basics.
Below are the pros of a tiered pricing model for SaaS:
- Increased profits and revenue. When you offer different pricing tiers, you can increase your profits and revenue. This is because customers who are willing to pay more for your service will do so, while those who are only willing to pay a lower price will still be able to access your service without any problems.
- More satisfied customers. Offering different pricing tiers also allows you to create more satisfied customers. This is because customers who feel like they are getting a good deal will be happy with what they have purchased, while those who feel like they are paying too much will be more likely to look for other options.
- Increased customer loyalty. Finally, offering different pricing tiers can also lead to increased customer loyalty. This is because customers will often feel like they are getting a good deal for their product or service, and this can lead to them wanting to buy more of what you offer in the future.
The potential benefits of tiered pricing for SaaS providers are clear: increased customer loyalty, more predictable revenue, and higher margins. However, there are several potential cons to consider as well.
- It can be difficult to set the right prices for each tier. If they are too high, customers may choose a competitor’s product; if they are too low, providers may not generate enough revenue to cover costs.
- It can be confusing for customers, who may not understand what they need to do to qualify for a lower price. This can lead to churn or missed opportunities for up to upgrade.
- It can create tension between sales and support teams, as the former may push customers towards premium plans in order to earn more commission while the latter may want to keep them on a lower-priced plan in order to keep costs down.
Offering different pricing tiers also allows you to create more satisfied customers. However when setting prices with tiered pricing, it’s important to make sure the features in each tier are comparable.
For example, if one tier offers more storage than another, the price for that tier should be higher. You also need to make sure the tiers are spaced out evenly so there’s no overlap between them.
6. Flat rate pricing
Flat rate pricing is a pricing model for B2B SaaS in which customers pay a fixed price for a subscription to the service. Under this pricing model, customers usually pay a lower price for a larger subscription, and are sometimes offered discounts for paying for multiple years of service up front.
There are several pros of using flat rate pricing for B2B SaaS as follows:
- It is simple and easy to understand for customers.
- It creates a sense of urgency for customers to buy, since the price is the same no matter when they purchase.
- It can help simplify your sales process by eliminating the need to quote different prices to different customers.
- It can help you compete with larger companies that may be able to offer lower prices due to their larger scale.
- It can be more cost effective for customers who use the service frequently.
There are also a few potential cons to using flat rate pricing for B2B SaaS:
- It can be difficult to set the right price point. If it’s too low, you may not make enough money to cover your costs; if it’s too high, you may lose customers.
- Some companies may feel like they’re getting a “bad deal” if they don’t use all of the features included in the plan.
- It can be more difficult to track progress and measure results with a flat rate pricing model.
The sweet spot for a flat-rate pricing model in B2B SaaS is when the price of the subscription is equivalent to 8-10 times the customer’s monthly usage. For example, if you have a product that costs $8 per month to use, then a good price point for it would be around $80 per month.
Charging too little can result in lost revenue, as customers might find your service too cheap to justify the investment. However, charging too much can also cause problems, as customers may be reluctant to sign up for a subscription that’s out of their budget.
7. Hybrid pricing
When it comes to pricing a SaaS product, there are a few different models that can be used. The most common are subscription, usage, and feature. A company might also use a hybrid of these models. For example, they might have a subscription model for the basic features of the product and then charge for extras on a usage basis.
This is often seen in SaaS products. The core features of the product might be available for a monthly or annual subscription, while additional features or usage above a certain limit might incur an additional charge. This allows companies to offer more flexibility in their pricing and better match it to the needs of their customers.
It can also be helpful for customers who only need access to certain features or only need to use the product for a limited time.
Hybrid pricing is a recent trend in the SaaS industry. It’s a model that offers both subscription and usage-based pricing options to customers.
Proponents of hybrid pricing say it has several advantages over other pricing models.
- It gives customers more flexibility in how they pay for the software. They can choose the option that best suits their needs and budget.
- It encourages customers to use the software more efficiently. This helps to keep costs down for both the customer and the vendor. Third, it makes it easier for customers to switch to a new vendor if they’re not satisfied with the product or service.
- Hybrid pricing is seen as a win-win for both customers and vendors. It provides more choices and flexibility, encourages efficiency, and makes switching vendors easier.
The hybrid pricing model for SaaS products is becoming increasingly popular. However, there are some drawbacks to the hybrid pricing model.
- It can be confusing for customers to understand how much they will be charged. Hybrid pricing models can involve a combination of monthly and annual fees, or different prices for different features. This can make it difficult for customers to know what they are getting and how much it will cost them in the long run.
- It can be less flexible than other pricing models. For example, if a customer wants to cancel their subscription, they may have to pay an early termination fee or lose access to certain features.
- It can be more expensive for customers who only want to use the product for a short period of time. This is because the customer will be paying for the same amount of time that they were subscribed to the product.
There are several factors you need to consider when setting your hybrid pricing model.
- You need to determine what features and benefits each subscription level will include.
- Then, you need to decide how much each subscription should cost.
- You also need to consider your target market and how much they are willing to pay for your product.
8. Freemium pricing
Freemium pricing is a business model where a company offers a limited amount of its products or services for free and then charges for additional features or services. Freemium pricing is most commonly used in SaaS businesses, where the software is offered for free to users but more features or storage space are available for purchase.
A freemium pricing model can have several pros for businesses as follows:
- It can help you attract more users to your product. When potential users can try out your product for free, they are more likely to give it a try. And, if they like what they see, they may be more likely to upgrade to a paid subscription.
- It can help you generate more revenue. Because users can upgrade to paid subscriptions at any time, you may see more people upgrading than you would with other pricing models. This can result in more revenue for your business.
- It can help you build a larger user base. Free users can help you build a larger user base than those who have to pay for subscriptions. This increased number of potential customers may help you grow faster than if you were using a subscription model.
Freemium pricing is a popular B2B SaaS pricing strategy. However, there are several potential downsides to this approach.
- It can be difficult to attract paying customers if the free tier is too generous.
- Free users may be less engaged or committed to the product than paid users.
- It can be challenging to strike the right balance between providing enough value for free users while also generating revenue from paid users.
Freemium pricing can be a great way to get users hooked on your product and convert them into paying customers. However, it’s important to set the price point right so that you’re not giving away too much for free or charging too much for premium features.
To determine the right price point, you’ll need to do some market research and understand what your competitors are charging. You’ll also need to calculate your costs and determine how much you need to make in order to break even and turn a profit.
Once you’ve determined your price point, it’s important to test it out with a small subset of your user base. Use analytics to track how many users upgrade to paid plans and what kind of impact the pricing change has on overall revenue.
9. Relationship-based pricing
The pricing of SaaS is often based on the relationship between the customer and the supplier. The closer the customer is to the supplier, the lower the price they are likely to receive. Conversely, customers that are further away from the supplier may pay more for the same product.
This pricing model is beneficial to both parties involved. Customers that are close to the supplier receive a lower price, which encourages them to maintain their business relationship with the supplier. Suppliers can also benefit from this pricing model by increasing sales to their existing customers and encouraging word-of-mouth marketing.
Although this pricing model can be beneficial for both parties, it can be difficult for customers that are not close to the supplier.
Here are some of the pros of using relationship-based pricing:
- It can help foster better relationships with customers.
- It can encourage customers to buy more products or services.
- It can help create loyalty among customers.
- It can make it easier to upsell products or services.
- It can help build trust with customers.
When it comes to pricing a product or service, many business owners think about the benefits of relationship-based pricing. After all, it seems like a logical way to price a product or service-based on the relationship between the buyer and seller. However, there are several disadvantages to using this type of pricing model that SaaS business owners should be aware of before implementing it.
- Relationship-based pricing can be more difficult to track and measure than other pricing models. This is because it can be based on a number of factors, including personal relationships, past transactions, and future potential. As a result, it can be more difficult to determine whether or not you are making a profit on each sale.
- Relationship-based pricing can limit your ability to negotiate lower prices with buyers. This is because you will not know how much your competitors are charging for the same products or services.
- Relationship-based pricing can also lead to a loss of profit if your relationship with the buyer breaks down.
Relationship-based pricing can be a great way to find the right price point. If you want to go this route, here are a few tips:
- Know your customer’s budget. It’s important to know what your customers are willing and able to pay. Don’t assume that they will pay more than they’re comfortable with just because your product is worth it.
- Research your competition. See how much other companies are charging for similar products. This will give you a good starting point for setting your own price.
- Offer discounts for longer contracts. This is a good way to attract buyers who are not yet sure if they want to commit. It will also reduce the risk that your customers will cancel their contracts before the end of their time frame, which means you’re stuck with paying for inventory you don’t need.
- Be flexible, but consistent. While you’re working on a new product, be willing to update your prices and terms. But once you have something that’s been out for a while, stick to it and make sure all of your marketing material reflects that.
Factors to Consider When Choosing the Right Pricing Model for B2B SaaS
When you are starting a B2B SaaS business, one of the first decisions you need to make is what pricing model to use. As shown above, there are a few different pricing models to choose from, and each has its own set of pros and cons.
Here are some factors to consider when choosing the right pricing model for your SaaS business:
Cost of Development
The cost of development can vary depending on the features and functionality that are included in the platform. It’s important to consider the cost of development when choosing a pricing model because it can impact how much revenue the company generates from sales of the platform.
It typically costs more to develop a feature-rich application than a simpler one. If you plan to charge based on the number of features or functionality included in your software, then you’ll need to account for these higher development costs.
Maintenance and updates
When it comes to pricing for B2B SaaS, companies have a few options: monthly subscription, yearly subscription, usage-based, and feature-based. But which of them is the best option?
The answer depends on a variety of factors, including the company’s budget, the features and capabilities of the software, the number of users or customers, and how often the software will be updated.
Monthly subscriptions are popular among B2B SaaS companies because they offer predictability and stability for both the company and the customer. Yearly subscriptions are also popular because they offer a discount over monthly subscriptions.
However, usage-based pricing can be more advantageous for companies that have a large customer base with varying needs. And feature-based pricing can be helpful for companies that plan to release new features frequently.
Customer acquisition costs
The customer acquisition cost (CAC) is the total cost of acquiring a new customer, and it’s something you need to be aware of before selecting your pricing model. Because if your CAC is too high, you simply may not be able to make a profit even if you charge high prices.
Customer lifetime value
The customer lifetime value (CLV) takes into account how much revenue a customer is expected to generate over the course of their relationship with the company. This metric can be used to determine whether it’s more beneficial for the business to offer a subscription or a one-time purchase.
For example, if a SaaS business expects a customer to generate $1,000 in revenue over the course of their relationship with the company, it would be more beneficial for the business to offer a subscription rather than a one-time purchase.
How much do your competitors charge for their products? What features do they offer? Are they more or less expensive than you?
All of these factors can help you determine what price you should charge for your own SaaS product. If you’re too expensive, you may lose customers to your competitors. But if you’re too cheap, you may not be making enough money to cover your costs.
There are a variety of pricing models to choose from when pricing a B2B SaaS product. It is important to find the right price point that will generate enough revenue while still being affordable for customers.
The right pricing point for a SaaS product depends on a number of factors. These include the features and benefits of the product, the target market, the competition, the perceived value of the product, and many more. The best way to determine the right price is to test different prices and see what works best for your product and your customers.
For example, you might want to start with a basic product and then add more features, such as reports or interfaces. This way you can test different pricing points without having to put out a full-fledged version of your product with all the bells and whistles at once. Salesforce offers a good example of this kind of pricing strategy. Salesforce started out by offering a basic CRM system at one price, then they added more features and functionality at additional prices.
By using the tips in this article, you can create a SaaS pricing model that meets their needs and helps them succeed. If you need more tips on growing your B2B SaaS business, don’t forget to check our blog.