Companies spend countless hours improving their product, tweaking their positioning, and acquiring new customers. Yet most subscription companies spend precious little time thinking about their pricing.
Data from 512 companies shows that monetization has nearly 2x the impact of acquisition efforts, and a massive 4x the improvement from time spent acquiring more customers.
Fixed pricing stays simple: a single product, a fixed set of features, and a fixed price per month.
Flat-rate pricing is easier to communicate and easier to sell. Adding valuable features? Raise your rate. Additional products? The fixed price goes on top of your base fixed rate.
But while flat-rate subscription pricing might be easy for potential customers to understand, it often means leaving money on the table. Keeping prices low means missing out on additional revenue from larger companies; and vice-versa, smaller companies might be priced out of higher-cost tools.
Allows companies to offer multiple packages with different features and product combinations available at different price points. The number of packages can vary, but most subscription companies offer two or three pricing tiers.
Beyond two or three options, however, things start to go downhill—offering too many choices leads to indecision and lower sales. It's easy to try appealing to many customer types with varying budgets by adding more and more tiers, leading to a lack of decision and lost sales.
Per-user pricing is the go-to model for the majority of subscription companies. Pricing scales evenly along with the number of users — the more users, the more you can charge.
Charging for each new user does have downsides, though. It doesn't reflect the true value your product provides — more seats don't necessarily make the product more valuable for users. Charging per seat can also lead to users sharing logins across teams, cutting into your potential revenue.
Usage-based pricing is somewhat less common among SaaS businesses— it's mainly used by telecommunications companies and IT services.
It makes it easier for small companies to get started with your product while avoiding the high upfront fees charged by some subscription companies. On the other end of the scale, it also accounts for additional costs incurred by heavy users, charging them fairly based on the extra time and resources they're consuming.
Charging based on usage does, however, make it much harder to predict revenue, since billing can vary dramatically each month.
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