Last editedMar 20222 min read
Software as a Service (SaaS) remains a growth market. Around 80% of global businesses use at least one SaaS application, and SaaS spending is expected to increase by 118% in 2022. If you’re a hungry tech startup eager to make its mark on the world, SaaS is the perfect market to make a big impression on the B2B landscape.
You’ve already responded to a perceived pain point in your target market, and tailored your product to meet a need that your competitors are failing to address. But after all that time spent developing it, you’re not sure how to price your SaaS product.
We’re here to guide you through the process of how to price SaaS software.
How to Price SaaS: Why it matters
When entering the SaaS market, startups must walk a fine line when it comes to their pricing. They need to ensure that their prices are competitive in order to reduce churn and prevent your customers from taking an interest in your competitors’ offerings. At the same time, however, pricing your offering too low will have a lasting impact on your nascent company’s profit margins.
There’s a sweet spot to be found between giving your product a competitive advantage in the market, and delivering value for money to users.
Where to start: Approaches to SaaS pricing
In a moment, we’ll explore the various SaaS pricing models that you can employ. But before you decide which pricing model to use, you should establish a baseline for how to price SaaS professional services. This can be tricky for newcomers to the market who find it difficult to assign a monetary value to their product.
There are a number of ways in which you can approach your SaaS pricing:
competitor-based – price your offering in line with similar offerings in the market. You may want to undercut competitors on pricing. Just beware of the impact on your margins
cost-based – establish the cost of providing the service and build a reasonable profit margin onto that
value-based – use extensive market research to price your offering based on the value it generates for users
promo-based – offerings are lowered to a special promotional price to generate interest
SaaS pricing models explained
Once you’ve established a ballpark figure for the value of your product, you should choose a pricing model for your customers. This will determine the prices that different customers will pay, depending on which features they want to access or how much they want to use your product. The best one for your company will depend on the nature of your product and its target audience.
Common SaaS pricing models include:
Tiered pricing structures offer different levels of pricing, with each tier aimed at meeting the needs of a different type of user. This enables you to appeal to a broader range of buyer personas.
In a flat-rate pricing model, every user pays the same price. Making it easy for prospective customers to budget.
The freemium business model provides users with a free version of your product that they can use with no obligation to upgrade. However, users can pay more for extra features, users and capabilities.
Here customers can scale their provision based on how many users (or how many active users) have access to the account. This enables businesses of all shapes and sizes to use your product at an acceptable price point.
Here, customers can scale their provision depending on which features they want to access. Different pricing tiers are offered depending on different levels of capability.
We can help
If you’re interested in finding out more about how to price SaaS products and build value for your customers, get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments.