9 pricing models to grow your SaaS business

What is a pricing model?

A pricing model decides how you charge customers for your software. This is different from your pricing strategy, which decides what you charge.

An example of a pricing model is tiered pricing, which offers different subscription options at different prices. Another one is flat rate pricing, where you charge all users the same fee regardless of their usage.

It's important to choose a pricing model that's profitable, attractive to customers, and practical. To help you figure it out, we cover 9 pricing models below.

Competitive pricing strategies can come in many forms, a business can choose to always be the cheapest of their competitors or always offer the average price of the highest and lowest priced competitors

A competitive pricing strategy is a price-setting that is based on your competitors’ prices. This pricing method focuses solely on the prices of your competitors that are public, but it does not take into account how much customers value the product or production costs.

A strong competitive pricing model is based on thorough market research. When you know how the prices of your top competitors in your market and how those prices might meet customer expectations, you have a basis for determining the rates of the prices of your own products or services. Competitive pricing strategies can come in many forms, a business can choose to always be the cheapest of their competitors or always offer the average price of the highest and lowest priced competitors - they all count as competitive pricing strategies.

The best pricing model for your business

In a second, we'll cover 9 popular pricing models. But as you go over the list, how do you evaluate the models and choose the right one for your business and product? Here are a few things to think about.

Your costs. How much does it cost to run your core service? How about extra features, extra bandwidth, extra licenses? Your pricing model needs to compensate you fairly for whatever you're providing.

Competitive landscape. What are your competitors doing? What's the industry-standard pricing model? You can choose to do what users are used to - or get an edge by doing something different. For example, offering flat fees with unlimited bandwidth can be a massive advantage.

Your product. What's your product like? If it's B2C software meant for mass adoption, a freemium model makes sense. If it's meant for teams, user-based pricing makes sense. Look for models that fit your product.

Your customers' needs. What kind of pricing model would feel fair to your customers? How can you maximize your own profit margin while driving down costs for them? The better your answer, the easier it is to sell your product.

Common pricing models for SaaS


Usage-based pricing model

Also known as pay-as-you-go, this pricing model charges customers based on how much they use. The more your customer uses your software, the more they pay. This is ideal for software with variable usage levels.

This model is often seen in SaaS businesses like hosting and content delivery networks. Users pay monthly for a certain amount of bandwidth or storage space; the more they use, the more they pay.

The usage-based pricing model for SaaS can help businesses stay competitive while appealing to a wider range of users. However, this model can be difficult to manage from a technical and administrative perspective.

It may also be harder to market, as buyers may be hesitant to purchase if they are unsure of the value they'll receive. Amazon Web Services (AWS) is an example of a company that successfully uses the usage-based pricing model.

Pros of usage-based pricing for SaaS

  • Customers can customize plans based on what they need
  • Users know exactly what they’re paying for
  • A transparent pricing model
  • A good option for companies with low capital and revenue
  • Allows customers to 'try before you buy' – ideal if you have upsell opportunities

Cons of usage-based pricing for SaaS

  • Cannot predict usage levels or forecast revenue accurately; your business only grows if your customers do
  • Can devalue the product if customers use many features but pay a minimal amount
  • Customer dissatisfaction if users do not realize their usage until it's time to pay

Flat rate pricing model

Flat rate is the simplest of all pricing SaaS models. You offer your product with a specified amount of features and for a set price. This means all your customers pay the same rate for your product regardless of usage, features, and other variables.

Prospects can easily understand what they're getting and how much they pay. This pricing model works best for SaaS businesses with a single product offering and a steady customer base.

One example of this model comes from IXACT Contact, who offer a free trial and a flat rate fee.

Pros of flat rate SaaS pricing

  • Easy to market as you can target broad audiences with one pricing tier
  • A transparent pricing structure customers can easily understand
  • Allows for better forecasting for both you and your clients (with recurring billing)
  • Is the best pricing model for new businesses with one main offering.

Cons of flat rate pricing

  • Not customizable to different customer needs
  • Limited choice may make customers choose another vendor with more options
  • Hard to scale as there are no upsell opportunities
  • Can hamstring profits by limiting revenue per customer

Tiered pricing model

Tiered pricing is a model that charges customers different prices depending on the features or services they require.

This model lets customers choose from different tiers that have varying levels of features and add-ons. It allows customers to choose the level of service they need at the price they are willing to pay.

Customers can choose tiers that work for them and move up or down tiers anytime, making this a flexible pricing model. As customers use more of your product, they can adjust their subscription to fit their needs.

Clio, a law firm SaaS, offers a tiered model with three distinct plans.



Pros of tiered pricing models SaaS

  • Lets customers buy from you at different price points
  • Provides opportunities for increased revenue via tier upgrades
  • Allows you to market to different customer personas
  • Feels fair; customers know they’re paying for what they need
  • Gives customers more choice and flexibility

Cons of tiered pricing models SaaS

  • May be confusing and overwhelming, leading to abandoned carts
  • Requires strong market research to make sure tier offerings are attractive
  • Takes time to correctly set up, both price-wise and feature-wise
  • Makes it harder to forecast as customers can move freely between tiers

Custom bundle pricing model

Custom bundles consist of features and add-ons with individual pricing. This model is similar to tiered pricing, but the tiers are custom-made for each user.

Custom bundle pricing has a lot of advantages. It lets users get personalized pricing plans that make sense for them, which is appealing. But in the past, this only made sense for large accounts on the sales side; creating custom bundles for small clients was just too expensive.

The good news is that today, with Salesbricks, you can quickly create custom quotes for mid-sized and even small clients. That’s because we make it easy to create interactive quotes in seconds… Customers can fine-tune these quotes to create custom bundles, which makes sales easier without stressing your team.

An example of a SaaS business offering custom bundles is Semrush. Semrush provides a range of set tiers, with a custom plan option for their business customers.



Pros of custom bundle SaaS pricing models

  • Salespeople and prospects can create offers that make sense for them, leading to more sales
  • Prospects can choose what they need without paying for anything else
  • More appealing to potential customers as they can bundle features to meet their budget
  • Feels personalized, which adds appeal to your product

Cons of custom bundle SaaS pricing models

  • Can make life difficult for your salespeople (unless you’re using Salesbricks)
  • Can be confusing and difficult to manage
  • Can make revenue recognition and analytics difficult (again, if you’re not using Salesbricks).

Freemium pricing model

The freemium model is when you offer prospects a free version of your product with limited features. If they want to upgrade later, they can opt into a paid product version. This is a clever way to gain trust, build a customer base and eventually increase revenue.

Many SaaS companies run suggestive upgrade prompts alongside the free version. Once your customer has tried your product and sees it is a good fit for their business, the likelihood of upgrading increases.

Grammarly is a strong example of this SaaS pricing model. They offer a free version with the option to upgrade and gain more advanced features.



Pros of freemium pricing

  • People can use the free version without paying, which increases your user base
  • Low customer acquisition cost (CAC) due to minimal friction to sign up
  • Offers a try-before-you-buy opportunity, which makes selling easier
  • You can use ads as an additional way to create revenue alongside the free version

Cons of the freemium pricing model for SaaS

  • Can be complex to offer
  • The free version can devalue your paid plans in the customers’ eyes
  • Free users may use more resources than intended, impacting your margins
  • It can be costly to support a large number of free users
  • Effort is required to move users from the free version to the paid one

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User-based pricing model

This pricing model has two main flavors: charge per user or per active user. When charging per user, your customer pays a fee every time they add a new user to their account. With active user pricing, you charge your customers based on the number of users actually use the product.

User-based pricing is an excellent option to keep track of usage and create pricing plans that your customers will find valuable.

Slack offers an active user-based pricing model, charging customers for each user using the messaging service each month.

Pros of user-based pricing model SaaS

  • Easy for your prospects to understand; transparent
  • Feels fair; simple to understand
  • Customers only pay for what is needed
  • Offers flexibility as user count can easily be amended



Cons of user-based pricing

  • Some people may cheat and share accounts
  • Large teams may feel like they’re being charged unfairly
  • Can make billing hard (unless you’re using Salesbricks!)

Hybrid pricing model

The hybrid pricing model is an amalgamation of various SaaS pricing models. For example, you may charge a flat fee and usage-based fees based on bandwidth used.

Hybrid pricing can give you the best of multiple pricing models. For example, a flat fee can guarantee a certain level of revenue each month while user-based pricing increases your upside.

The downside to hybrid pricing is that it can be difficult to execute well. You need to know your market, know your product, and understand your customers to get it right.

Dropbox is an excellent example of a SaaS business using the hybrid pricing model. They offer a freemium product for everyday consumers and then tiered upgrade options, which are calculated on a per-user basis.

Pros of the hybrid pricing model

  • Highly flexible and customizable
  • Can create many upsell opportunities
  • Is easy for customers to understand and feels fair



Cons for hybrid pricing models for software

  • It can be difficult to communicate various pricing options and their value to prospects
  • Customers may become dissatisfied if paying for features they don't need
  • May confuse customers and stop sales
  • Is complex to build and market successfully

Performance-based pricing model

With performance-based pricing, you charge based on results delivered. For example, let’s say your software is a marketing automation that uses A.I. to deliver leads. You may choose to charge based on total lead count, i.e. on performance and results. Another example: your software is an image compressor for CMS platforms. You might only charge if a compressed file is at least 50% smaller than the original version.

Performance-based pricing is rare, but it can be practical for results-oriented SaaS companies. This is attractive to customers because it means they only pay for what they get. If you can make this pricing model profitable for your business, it can be a massive value-add.

It’s important to remember performance-based pricing can be part of a hybrid model. For example, you might charge a base fee and then extra performance-based costs.

Pros of performance-based pricing model

  • Eliminates risk. Users only pay for real results
  • Makes it easy to sign up, as there’s no cost in joining
  • Feels fair



Cons of performance-based pricing model

  • Isn’t practical for most software businesses
  • Measuring results in a meaningful way can be difficult
  • Makes it difficult to predict future revenue as there is no base fee

Feature-based pricing model

This SaaS pricing model is ideal for businesses that want to offer tiers, bundles, or custom product versions based on features. Prospects can pay for the needed features and upgrade as their business grows.

One example of feature-based pricing actually comes from our own brand: Salesbricks. PRO Plan users get extra features, such as multi-currency pricing and access to approval workflows.

Feature-based pricing makes sense when features are more important than usage, team member count, etc. For example, a company like Hubspot has dozens of features spread around different functions.

By creating offers and pricing them based on these features, they are able to create specialized, appealing products people want. They are also able to offer multiple pricing tiers based on feature sets. This lets them market to more audiences successfully.

Pros of feature-based pricing model

  • You can sell at a low price and then upsell based on new needs.
  • Gives appropriate pricing to all customer types and segments.
  • Customers will appreciate a tailored product that fits their needs.



Cons of feature-based pricing SaaS models

  • Challenging to build and manage.
  • May confuse prospects and cause them not to purchase.
  • Customers may feel angry about limited features.

Updating the pricing model for your SaaS businesses

It is rare for any business to remain static, especially in B2B SaaS. As customer needs change over time, you have to update your pricing models too. You can do this by:

  • Changing pricing plans accordingly
  • Introducing new and updated features
  • Testing for effectiveness and customer satisfaction
  • Monitoring customer behavior over time
  • Utilizing social media insights
  • Completing competitor analysis
  • Understanding your churn rate
  • Monitoring customer and technological trends

Picking a suitable SaaS pricing model, and being willing to make adjustments when necessary, will ensure the success of your business. With the right strategy in place, you can create a pricing model that aligns with your business goals and offers the best value for your customers.

Let’s wrap up…

  • There are 9 main pricing models to choose from in SaaS. User-based, custom, hybrid, feature-based, freemium, tiered, flat rate, usage-based, and inverse pricing.
  • Pricing models need to make you money, keep clients happy, and increase your appeal in the marketplace
  • The pricing model you use can (and likely will) change over time. Make a choice now, but be prepared to change your mind later

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