SaaS Pricing Models: Which One is Best for Your US Business?

In the SaaS (Software as a Subscription) business model, one of the first decisions you’ll have to make is which subscription pricing model best suits your business.

The right pricing strategy should reflect the value of your service. It must align with the market and customer expectations. In this blog post, you’ll learn more about the different SaaS pricing models, their pros and cons, and how to pick the best option for your business.

Overview of SaaS Pricing Models

There are various SaaS pricing models, each of which caters to different customer needs. They allow you to structure your business in a slightly different way.

Flat-Rate

One of the most simple SaaS pricing models is flat-rate pricing. This pricing model is, as it sounds: customers pay for the service you offer with a fixed fee.

In this model, you would bundle together a stack of features. You give customers the option to pay either on a monthly basis, or on a yearly basis–typically with a discount.

This pricing model doesn’t scale with user activity or usage volume like other pricing models. This means customers pay the same regardless of how much they use your services.

Example: Scentbird is a fragrance delivery service that ships new designer scents to you every month, and charges a fixed monthly fee.

Usage-Based

The usage-based SaaS pricing model, often described as pay-as-you-go, allows users to pay based on how much they use the service. As a result, the fees can vary from user to user, and can be based on metrics including:

• Data consumption
• Number of transactions
• API requests

Example: Amazon Web Services (AWS) charges users based on the specific features and resources they use.

Tiered

Tiered pricing is a flexible pricing model whereby users can choose from various pricing tiers. These are based on the number and type of features they’re looking for. Typically, tiered plans are marketed as being best for different groups. These differ from individuals, teams, or enterprise-level organizations.

With multiple pricing tiers, you combine some of the simplicity of flat-rate pricing with the flexibility of usage-based models.

Example: Dropbox lets you pick a pricing plan based on how much data you need. It breaks SaaS plans up into different categories, including “Basic”, “Business”, and “Enterprise”.

Per-user

Some SaaS businesses offer per-user pricing, meaning businesses can use the services on a sliding scale; paying more or less based on how many employees have access to the services.

Example: Google Workspace charges users per user, per month, so companies can add as many or as few users as they need on a single plan.

Freemium

The freemium pricing model offers users a limited version of the software that they can use for free. The idea is that if they get enough use from it, they’ll pay to upgrade to the superior version.

This model has proved very effective in certain spaces, where the SaaS business will offer a stripped-down version of the software. Usually, it will include ads or fewer features, so that the premium version feels like a natural next step. This is a straightforward upsell to your customer base.

Example: Spotify allows anyone to create an account and start listening to music. However, users will have to listen to ads unless they choose to upgrade to the premium, ad-free version by paying a subscription fee.

Pros and Cons of Different SaaS Pricing Models

Here’s a brief overview of some of the pros and cons of the different SaaS pricing models:

Pricing Model	Pros	Cons
Flat-rate	Predictable recurring revenue as every user pays the same. Easy for your customers to understand	Lacks flexibility as you can’t segment your customer base as much as with other models Might lose out on the potential value of high-usage clients as they pay the same as low-usage clients
Usage-based	Scalable pricing means you can attract a broad range of customers from startups to enterprises It’s seen as a fair pricing model as it reflects the value each customer receives	Revenue can be more difficult to forecast Customers might be deterred by the variable cost from month to month
Tiered	You can set up packages that work for different customer segments Offers upselling opportunities as customers grow in their businesses	For some, tiered pricing models can be overwhelming Managing various tiers requires more operational effort behind the scenes
Per-user	Encourages wider usage for larger companies Easy for customers to understand and budget for	Can discourage team growth as more users = higher cost Some customers might share accounts to minimize the expense
Freemium	Low barrier to entry means it’s easier to get people to sign up You can penetrate the market with a large user base you can convert into paying users	Acquiring a customer is just the first step, converting them requires extra resources Supporting a large base of free users incurs costs without revenue

Choosing the Right Model for Your Business

Selecting the right pricing model for your SaaS business relies on various factors, such as:

• Your long-term business goals
• Your product’s value proposition
• Your target customers

Ideal Customers

To make the best decision for your business, it’s important to first establish who your primary customers are. You can group customers into demographics, such as age and profession, and psychographics, like values and interests. If you primarily serve business owners, you can also categorize them by the type of business they run. This depends on whether they're sole proprietors, small teams, or large enterprises.

Once you know who you’ll be serving, that can help you adapt your pricing model to make sense for your ideal customers. With an idea of who this ideal customer is, you can do the research to find out how they typically consume services like yours. You can also learn how much they value flexibility versus simplicity.

Business Objectives

Then, you should turn your attention to your business objections. Consider what your long-term revenue goals are, and how you can hit them with the pricing model you choose.

The pricing model you choose will be different if your goal is rapid user acquisition as opposed to maximizing your revenue per user for the duration of their lifecycle. It also depends on the services you offer, as some services scale better with one pricing model over another.

Your Competition

Plus, it’s important to see what your competitors are doing, as this will give you insight into what’s currently working.

If there are a lot of SaaS businesses offering project management services with a freemium model to appeal to freelancers, and that’s what you offer, then a freemium model could be a good option. It’s what many of your ideal customers would expect. This makes it easier to attract and convert them.

Pricing Strategy

You can also use different pricing strategies when you launch your SaaS to help you position the business in the market and appeal to different types of customers.

For example, you can introduce your SaaS to the market using a penetration pricing strategy. This means you would offer the service at a reduced rate to get fast adoption rates and build momentum. This allows you to get a head start and attract a large user base early on. Like this, you can focus all of your energy on converting users then focus on upselling and cross-selling.

Adapting SaaS Pricing Models to Market Trends

Before settling on a pricing model for your SaaS, consider the current market trends. Think about average CAC (customer acquisition cost) for businesses in your industry, what customers are generally willing to spend on a SaaS, and the average customer lifespan for SaaS businesses similar to yours.

Experimentation and Optimization

Experimentation is one of the best ways to land on the right pricing model for your SaaS business. This way, you can test the waters with real customers before fully committing.

For example, you could A/B test two different pricing structures on different user segments to find out which yields better results. Once you’ve honed in on the pricing model you feel best suits your long-term business objectives and customers, you can test different layouts for your pricing page to see which converts at a higher rate.

You can also consider bundling features in different packages to see how to offer customers the most value while maximizing your revenue.

Monitoring Competitor Strategies

Competitor pricing can help inform your own pricing, but doesn’t have to be the deciding factor.

When researching your competitors, pay attention to their pricing pages and customer reviews. Consider how much they charge, which pricing model they use, and whether or not their customers feel as if they are getting good value for money.

While going through customer reviews for your competitors, you could also see if there are any gaps in their messaging or other features that customers would like to see. This can help you identify opportunities to stand out. Use these insights to inform how you position your brand when you go to market.

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	Editor & Business Expert:
	Panna is an expert in US business finance, covering topics from invoicing to international expansion. She creates guides and reviews to help businesses save time and make informed decisions. You can read more useful business articles on her author profile.

	Author:
	Sam is a UK-based copywriter with 4+ years of experience writing for SaaS and eCommerce brands. He creates comparison guides, informative blog posts, and covers other finance-based topics.