Get Your SaaS Pricing Right

No other factor than the pricing impact the SaaS revenue, still, pricing is the most compromising element in the subscription industry. Startups often fail to set their right pricing and end up losing the investment, mostly, due to overpricing.

The subscription model is not a business to make money overnight. Instead, it is significantly based on gradual earning overtime for a longer period and through the strong customer base.

In B2B and B2C subscription-based business, pricing is the primary driver for revenue and business growth.

In addition to evaluating the competitors pricing, the pricing for a SaaS also requires you to address these concerns:

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The problem that your product is solving
Your target audience
Your targeted market segment
Your demographic focus
Your USP—Unique selling point

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Considering all the elements mentioned above requires the businesses to take product managers, marketing and sales teams, finance managers, risk analysts, and all the stakeholders on board. This is the thoughtful approach that can help a SaaS to price their product that can not survive but thrive in the market.

This article overviews the SaaS underpricing and overpricing and demonstrates how overpricing can disrupt revenue growth and how it can be avoided by optimizing the subscription pricing by intelligently structuring the pricing and planning the charges for the SaaS subscribers.

Also Read: The Price Is Right—A 2021 Basic Guide Of SaaS Usage-Based Pricing Model, Advantages, Challenges, & Solution

SaaS Pricing

SaaS pricing encompasses the following most considerable components of the pricing:

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The Pricing Goals—it determines how you want to be perceived in the market.
The Pricing Model—this refers to the price structuring to charge a customer.
The Pricing Strategies—these are the practices to evaluate the optimized pricing by considering several factors like pricing position, market, competition, etc.
The Psychological Pricing Tactics—these are used to fine-tune the pricing.

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The Common Mistakes of the SaaS pricing

Pricing, in general, is a difficult process but for SaaS, it is even more cumbersome. As a digital commodity, SaaS has no physical shape, property, or existence, and in addition, it also changes, constantly with the changing market conditions.

SaaS pricing is a highly fluctuating dynamic and this is why often SaaS pricing does not go right and ends up either with overpricing or underpricing. As a result of some of the following common mistakes, SaaS pricing disrupts revenue growth either by overvaluing the SaaS or undermining it:

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Over-complicated Pricing Structure
Fixed and Rigid Pricing
Straight and Flat Pricing
Hidden or No Pricing Information
One or Limited Pricing Options
Too Many Pricing Options
Inapt Price Evaluation for End-Customer
Blind-Following the Competition

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Underpricing vs. Overpricing

Understanding the inapt pricing evaluation seems no rocket science, but in reality, it is.

Underpricing is the practice of listing the SaaS or any other subscription-based product’s subscription pricing at a price below its real value in the market. On the other hand, overpricing is its opposite. It is the higher estimation of the value of the product than it actually is in the market.

The SaaS subscription market across the vertical is highly saturated and over-competitive. This is why overpricing can have more detrimental effects by alienating valued customers.

SaaS can narrow down its target market with the heavy markup and profit margins in the name of improved quality. However, most consumers are unwilling to pay such a high price for a few extra perks.

It is not a suitable pricing strategy in the subscription-based digital environment of the market where the product neither is a physical commodity nor is owned by the consumer.

Underpricing may help SaaS to garner more customers with reduced profit margins but overpricing usually does not work for any type of cloud-based platform or application.

Risks of SaaS Overpricing

Setting and designing the SaaS pricing demands to drive the pricing strategy based on the research, constantly changing evaluation of the value of the product, and the competitor’s pricing strategy else it can lead to a myriad of disadvantages such as:

Even, in the uncompetitive market, SaaS is prone to suffer revenue loss and churn due to overpricing as users remain in search of cheap and better options and as soon as they find an alternative, they won’t take minutes to switch.

Overpricing reduces the response to any marketing done for the SaaS and will not produce results.

Overpricing is the defeat by choice in a competitive environment.

Overpricing corrupts the image of the Saas vendor and leads to an end to the trust and credibility of the customer in the cloud-based services market.

Also Read: Subscription Pricing Consultants—Learn How to Set and Fine-Tune Subscription Pricing For Improved Recurring Revenue with SubscriptionFlow

The SaaS Pricing Solutions in SubscriptionFlow

SubscriptionFlow is a subscription management software equipped with all the necessary tools and features to manage different subscription jobs and provide better AI-enabled subscription pricing solutions.

Price Optimization

Price optimization is the practice of using data from customers and the market to find the most effective price point for your product or service that will maximize sales or profitability.

SubscriptionFlow AI-fueled modules find out the optimal price point for your SaaS product so that as a SaaS vendor, you can best meet your revenue objectives and increase your profit margins, customer growth, or a blend.

Using this information from SubscriptionFlow about your leads, subscribers, and market assists to optimize the pricing for the SaaS:

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Customer Survey Data
Demographic Data
Sales History Data
Operating costs
Customer Acquisition and Retention Rate
Subscription Lifetime Value and Churn Data
Marketing Overage

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Designing and Structuring the Pricing

SaaS and other subscription-based companies can design and optimize pricing strategies, select different pricing models, and charge their customers in different ways for their subscriptions.

One-time charges, flat fee, tiered-pricing, per-user pricing, or other forms of per-unit pricing— all of these pricing models, one way or another, are the filtered or customized forms of following two broad categories of billing models:

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Flat Rate Billing Model—Static rate for a product or service for single pricing.
Usage-Based Billing Model—Dynamic rates based on usage, features, users, time, etc.

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And, SubscriptionFlow offers it all!

In addition, SubscriptionFlow also allows the client to price their clients intelligently while sectioning it logically.

Create a plan against a product and customize the pricing for the plan by selecting any of the charge options from one-time or recurring charges/period. You can structure the pricing in plans with these three different solutions for subscription pricing management:

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One-time Fee—It can be used as flat-fee pricing for those customers who are required to be billed for one-time-only, or it could be set as the charges that are required to be paid by the customers for once, only. Examples include setup fees, installation charges, equipment charges, services charges, or more.
Recurring Charges/Period—It can be used to charge customers on a recurring basis for a specific length of the term.
Usage-Based Charges—it is the billing based on the consumption or usage of features, units, or volume. It requires to select a unit of measurement and calculate on the basis of the consumption of the units.

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SubscriptionFlow offers four different options for pricing models for flexible billing.

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Flat-Fee Pricing
Per-Unit Pricing
Volume Pricing
Tiered Pricing

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Setting up a Flat-Fee Pricing

Flat-Fee pricing is a static and fixed pricing model. Flat-fee can be used as a one-time fee or it can also be our recurring charges that can easily be set up in the SubscriptionFlow from here.

Setting up Per Unit Pricing

Per-unit or per-use pricing is also known as usage-Based or metered pricing.

This is the dynamic and variable pricing structure for recurring billing that charges customers differently on every interval based on the consumption of the subscription services. It can be defined as a pricing structure that requires customers to pay only for what services, features, or products they have consumed in a recurring billing cycle.

It is a growing trend of billing across the industries. Setting up the dynamic pricing for billing, particularly, allows SaaS to expand the net of possibilities of earning more from across the businesses while maintaining the factor of a reliable billing in clients as per their needs and budget.

Based on the consumption or usage, it can fluctuate in either direction—backward or forward. In comparison, the flat-billing models eliminate the increased profit margins for the SaaS providers in case a startup or an enterprise, both, are paying the same fixed subscription charges however the gap in their usage is remarkably widened.

Types of Usage-Based Pricing

Usage can be incorporated into the subscription pricing in several different ways and by creating and customizing different units of measurement. Some of the widely used metered pricing types are:

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Consumption-Based Pricing
Features-Based Pricing
Users Based Pricing
Users Based Overage Pricing
Flat Subscription plus Overage Charges
Flat Subscription plus Exclusive Features Usage Pricing
Time-Based Consumption Pricing

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In the SubscriptionFlow, clients can find multiple subscription pricing solutions for the metered billing in the form of UOM—Unit of Measurement.

Setting up Per Volume Pricing

Volume pricing can be said another type of metered or consumption-based pricing. To set volume-based pricing, simply create a product and a plan against it. Select the recurring or usage charges, choose volume pricing as a charge model, and set the list price.

Setting up the Tiered Pricing

It is a type of SaaS pricing to charge customers in different tiers. It can also be set as a flat-fee or as recurring charges for a particular period. To set tiered pricing, simply create a product and a plan against it. Select the type of billing, choose tiered pricing as a charge model, and set the list price.

Optimizing the Price with Coupons, Vouchers, and Add-ons

Coupons develop exclusive bonds of trust and convenience with the customers. The coupons created in the SubscriptionFlow can easily be implemented at the hosted payment pages (HPPs) as well.

Select the HPP and click on the ‘Apply Coupon’ option to implement the coupon at the checkout. This is the psychological trick to influence a customer with the discount while maintaining the profit margin with the price optimization feature.

Find more subscription price optimization solutions along with dozens of the subscription management features and tools for your SaaS and other cloud services recurring billing processing and management in the SubscriptionFlow. Request a guided demo with our experts, Now!