A comprehensive guide to SaaS pricing models

Flat rate model

In this model, there is only a single plan which offers all the features and benefits for a single price. It is one of the simplest models available.

Up-front pricing

Potential customers know the price they're going to pay.

Ensures transparency

By laying out all the pricing factors, customers are sure of what they are getting into.

Easy to predict revenue

No matter the customer's circumstances, you know how much money you are going to make.

Lack of choices

With just one plan, customers might be left wanting more choices.

All or nothing

Some customers might not want the whole package you’re offering.

Example

Zoho Connect offers a flat rate pricing model for external network users, that includes all features for a single price as illustrated below:

Tiered model

In a tiered pricing model you provide different price points for your product or service. This is one of the most widely used pricing models among SaaS businesses.

Wider reach

With multiple pricing plans, you can drastically increase your potential audience.

Higher revenue

Appealing to a wider audience means more revenue.

More choices

For a potential customer, there are multiple options to choose from while evaluating your offering.

Extra value

When customers pick a plan themselves, they feel they are getting more value for the money.

One too many

If you provide too many options, potential customers might not be able to zero in on one. According to a survey, the average number of pricing plans stands at 3.5.

Problem of plenty

The urge to have the right price points might lead you to try attracting a crowd you can’t handle.

Example

Zoho Inventory uses the tiered pricing model, with different pricing plans each tailored to meet the specific needs of the right type of business.

Freemium model

The freemium model provides a chunk of your software's features for free for an unlimited period. It's usually accompanied by more feature-rich paid plans.

Easy entry

Having a freemium model ensures customers have an entry-level choice.

Drives leads

You will have a readily available set of leads to convert into paying customers.

Risk-free testing

Freemium users can serve as testers of your software and the risk involved is minimal as they don't directly contribute to revenue.

Help realize potential

Since customers can get your offering for free, they will recommend it to others if they like it and help you go viral.

ROI is zilch

Since you are providing the software for free, there is no possibility of acquiring direct returns on your investments.

Possibility of churn

Freemium users might develop the throwaway mentality, i.e., they might use it for a while and then move on.

Might backfire

By offering a freemium plan, you might run the risk of users becoming reluctant to pay for it.

Example

Zoho Payroll offers a freemium plan that offers basic features for free, users can upgrade to the paid plan to unlock more features.

Usage based model

The usage based pricing model is where customers pay for whatever they use and not a flat rate. It essentially means that if customers use more, they pay more.

No flat rate

Customers pay for what they use and not a flat rate, even if they haven't used your product much.

No risk of heavy usage

With a usage-based plan, you do away with the risk of a customer using the product extensively but paying only a flat rate and thereby save .

Volatile revenue

With an irregular flow of revenue, it might be difficult to predict what you are going to get.

Hard to project costs

Due to varied usage, it might be hard for you to predict the costs involved in providing the service.

Might lead to discomfort

Some users might not really care about their usage and might be comfortable with paying a flat rate.

Example

Zoho Campaigns has a usage based pricing plan where you can pay by email credits. Purchase credits based on the number of emails that you want to send.

User based model

In a user based pricing model, customers are charged based on the number of users that use your SaaS offering.

Fits all

User based model fits the spectrum of customers, from startups to enterprises.

Scalable

Businesses that have the potential to scale over a period are more likely to choose this model.

More revenue

As a company scales higher, so will the revenue coming from them for your service.

Predictable revenue

As you will know the number of users using your product, it is easier to predict revenue.

Might lead to cheating

With a per-user pricing, there are chances that users might share their credentials to avoid paying for more people.

Stunted growth

If users adopt malpractices as mentioned, your revenue might take a hit.

Example

Zoho Orchestly offers a user based pricing model where companies are charged a fixed rate every month for each user.

Feature based model

In this model, you offer different price points based on the features or functionalities you offer. You offer a basic set of features for a price, add some more functionalities for a higher price, and so on.

More clarity

Customers know up front what they are getting.

Want to upgrade

With added features with each pricing plan, users are more likely to upgrade as they scale and use your product more.

Offers proportion

You can even out the resource allocation by providing the high profile features in your higher plans.

Wrong balance

With your price point hinging on features, you will have to strike the perfect balance between each plan.

Lead to dissatisfaction

Sometimes customers might feel dissatisfied with the features on offer for the price quoted.

Example

Zoho Books offers a feature based pricing model. The plans are differentiated by the functionalities they provide, with higher priced plans providing additional features.

SaaS pricing models: Everything a business needs to know

Flat rate model

Up-front pricing

Ensures transparency

Easy to predict revenue

Lack of choices

All or nothing

Example

Tiered model

Wider reach

Higher revenue

More choices

Extra value

One too many

Problem of plenty

Example

Freemium model

Easy entry

Drives leads

Risk-free testing

Help realize potential

ROI is zilch

Possibility of churn

Might backfire

Example

Usage based model

No flat rate

No risk of heavy usage

Volatile revenue

Hard to project costs

Might lead to discomfort

Example

User based model

Fits all

Scalable

More revenue

Predictable revenue

Might lead to cheating

Stunted growth

Example

Feature based model

More clarity

Want to upgrade

Offers proportion

Wrong balance

Lead to dissatisfaction

Example

Now that we've seen all the SaaS pricing models, wouldn't it be great if you could manage all of these using one billing software?

Features at a glance:

Create and manage your SaaS pricing model with Zoho Subscriptions.

Sridhar Vembu

CEO, Zoho Corporation

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