Let’s face it – Every SaaS company is different, yet many make the same mistake that puts them at risk, and that is – Not understanding the pricing. Several companies work really hard to create a great product for the customers. Yet, most SaaS companies don’t know the right worth to offer. Undoubtedly, the correct pricing not only has a significant impact on customers but also affects the bottom line. So, how to decide the SaaS pricing?
Pricing is one of the most efficient profit levers of a SaaS company. It needs to be monitored regularly to make sure you are landing, retaining, and expanding your customer base effectively. Moreover, it also enables you to know how people make their buying decisions.
Factors to Consider when Tackling your Price Research
There are several factors to consider when tackling the SaaS pricing, such as :
-How much you can charge to Stay Profitable
-The best Pricing model for your business
-Pricing Packages that promote expansion and upsell opportunities
-How to test the pricing?
-What are customers willing to pay?
How Much to Charge to Stay Profitable
Every business, small or big, wants to earn a profit, and SaaS companies are no exception. So, to decide the right pricing for your product, the first thing you need to consider is to understand how much you need to earn to stay profitable. To get the correct digits, you need to calculate two things:
- The total cost to acquire each customer, i.e., Customer Per Acquisition (CPA)
- Total value each customer is likely to contribute over the long term in your business, i.e., Customer Lifetime Value.
Although for any startup, profitability might not be a concern, most companies even find themselves running out of cash. Even the Customer Lifetime Value fluctuates based on the pricing you choose.
The Best Pricing Model for Your Business
If your pricing model is subscription-based, then you can go with a flat monthly rate. Although for SaaS businesses, pricing is more complicated. Therefore, these companies need to decide their pricing strategy that aligns with how the customers are using the software.
Some of the standard pricing model options are:
-Freemium – Offering a basic version for free and then encouraging users to upgrade to the paid version is a smart move. ‘Freemium’ is quite useful when it comes to boosting traffic. It makes upsell opportunities attractive and also increases adoption.
-Multi-frequency – In this option, a business bill customers for various subscriptions at different periods.
-Usage-based – In a few cases, customers prefer to pay depending on the services used. For instance, how phone companies charge for providing data.
-Minimum/Maximum – The pricing model creates a price that affects what customers pay the minimum and what they pay the maximum.
-Hybrid – This pricing program is a combination of more than a single pricing structure.
Pricing Packages that Promote Expansion and Upsells Opportunities
Basically, SaaS businesses thrive through the growth and upgrades of existing customers known as “Expansion MRR.’ The overall cost of this type of growth is less than the price of getting new customers. To boost internal growth and upsells, companies can use particular strategies. They can offer more ‘Expansion MRR’ by creating pricing ranges that incentivize upgrades. This type of pricing is also known as “Value-based” and “Feature-based.”
It requires sufficient research on the requirements of the customers on each stage of the growth and when they need to upgrade as well. Once you understand these two aspects, you can improve your services to meet their needs, ensuring that you are providing them value at every step in their growth.
What are Customers Willing to Pay?
Asking potential customers how much they are willing to pay is not simple. So, it is better to observe and then collect information about real experiences. Moreover, to get an idea for how much they would pay, you can ask them a few questions like:
-The total amount they spent last time
-If they research products
-Products you consider
-Who makes the software-related decisions in a company?
When you get answers to these questions, it might make sense how much you need to charge for your SaaS product. Most SaaS companies need to develop custom pricing for small to big clients, depending on their ability to pay.
How to Test your Pricing?
Pricing is not one size fits all. It should be an ever-evolving practice that impacts the performance of your business on a regular note. If you don’t test it regularly, the pricing won’t stay consistent. The best pricing changes with the needs of the customers, changing marketplace landscape, and increased value of software. It is the reason before launching new pricing; you should have the right tools like Chargezoom to analyze its success.
This billing platform is a cloud-based middleware that automates payments, invoicing, and reconciliation. Moreover, it makes recurring billing software easy for your comprehensive accounting packages. You can create an account and try it FREE for 30 days.