SaaS Subscription ModelsAmr Saafan
SaaS apps must have good onboarding experiences and a variety of self-service features, but payment and subscription models are critical for developing a sustainable development trajectory. Let’s get acquainted with the best SaaS payment and subscription models available for your application today.
Before you begin, you need develop a fundamental approach. To begin, your pricing strategy should strive to find a balance between the value you provide and the revenue you seek. Second, the approach should take your expansion goals into account. Last but not least, you should be able to respond to market trends and geopolitical developments such as the Ukraine war.
Top 5 SaaS Billing and Subscription Models
Without further ado, let’s get started and look at the top billing and subscription models used by SaaS businesses today.
1. Flat-Rate Pricing
Flat-rate pricing is the most direct and straightforward way to provide your SaaS solution to the public. You are essentially providing all features and options for a single price, with paying options available monthly or annually. However, more and more SaaS companies (like Netflix) are abandoning this charging model since it is simply better suited for retail, online publishing, or comparable products.
This practice is still prevalent in SaaS. Basecamp, a business management software vendor, embraced the flat-rate pricing model from the start and has maintained a steady influx of customers without making any strategic changes.
Pros: Simple to Understand, Easier for Sales and Marketing Teams
Cons: Less Growth Potential, Hard to Segment Customers, Average Retention
2. Usage-Based Pricing
Usage-based pricing models are quickly becoming the usual option for SaaS organisations with a diverse customer base. For example, if you have both B2B and B2C consumers, the features that are employed will be very different. Customers can use and pay only for the features they use with usage-based subscription models, which is simply not possible with flat-rate pricing.
This is a consumption-based pricing model in which customers are charged per use. Consider the company Twilio. This SMS service provider changes its customers solely based on the number of text or picture messages they send.
Pros: Extremely Scalable, Improved Retention Performance
Cons: Long-Term Predictability, Can Confuse New Customers
3. Tiered Pricing
Because of the flexibility they provide, tiered pricing structures are also being used by modern SaaS organisations today. Customers can level up after learning more about the product and its benefits using these pricing and subscription alternatives. These models are also simpler to understand, with businesses frequently offering three to four options to reduce confusion and purchase confusion.
HubSpot, which has become one of the world’s leading CMS platforms over the last decade, is the best example of this billing and subscription model. Each tier has its own set of business and operational advantages.
Pros: Empowers Customers, Great for Upselling, Better Conversion Rates
Cons: Too Many Tiers Can Elevate Confusion, Top-Tier Abuse is Possible
4. Feature-Based Pricing
Feature-based pricing models are a subset of the aforementioned tiered models, but the emphasis is solely on product features and access to them. This pricing and subscription approach keeps clients from overcommitting and abandoning their subscriptions. Instead, they can become acquainted with the product and, once the “aha moment” is reached, upgrade to higher tiers (or bring in other users).
Canva, a design and graphics company, is an excellent example of a successful feature-based pricing plan. Small B2B customers or freelancers can start with the free model before upgrading to Pro or choosing the large Enterprise option.
Pros: User Friendly, PLG-Centric, Instant Product Value Demonstration
Cons: Requires Accurate Planning, Aggressive Feature Lock-Outs Can Backfire
5. Per-Seat Pricing
There is also the per-seat price model, sometimes known as per user charging. This B2B-centric method, as the name implies, involves billing customers depending on the number of end-users who will utilize the product. The lower the price per user, the more users there are. It’s worth noting that per-seat pricing structures are mostly used by enterprise-level enterprises.
The best example of this billing and subscription model is Microsoft. Today, all Microsoft 365 solutions use this pricing model, which works very well because B2B customers can implement them quickly and easily.
Pros: Easy to Predict Revenue, No Feature Segmentation, Smooth Implementation
Cons: Customers Often Cheat (Login Abuse), High Churn Rates