A successful SaaS platform requires a few things, according to Business News, including a strong database, a customer acquisition approach, and using the right pricing strategies.
A robust database allows your application to run seamlessly, while the right customer acquisition approach provides more opportunities to create a successful platform that encourages customer use. Finally, a pricing strategy is how you’ll profit from your efforts while providing value to your audience.
Indeed, the pricing strategy is one of the most essential components of SaaS platforms. It is composed of two things: strategies and models.
A pricing strategy refers to the structure that permits you to build repeatable sales processes and generate revenue. Meanwhile, a pricing model helps you balance serving your customers and receiving compensation for your service.
Keep reading to find out the top subscription pricing strategies and subscription-based pricing models that will best suit your SaaS platform for success:
Top subscription pricing strategies for SaaS Platforms
Here are the top subscription pricing strategies for SaaS platforms:
- Penetration pricing
- Promotional pricing
- Value-based pricing
- User-based pricing
1. Penetration pricing
This subscription pricing strategy refers to offering extremely low prices when launching your platform for the first time. This gives you a newcomer advantage over your competitors and attracts customers.
Low prices are often unsustainable, so you may want to increase them as your platform grows. One company that used penetration pricing is the streaming platform Netflix, which offered very cheap subscriptions when it launched.
As time passed and their market share grew, they raised these prices accordingly. One disadvantage of this strategy is losing price-sensitive customers when you increase your prices.
2. Promotional pricing
Also known as ‘price skimming,’ this subscription pricing strategy is the opposite of penetration pricing. Using this pricing strategy, you’ll set a high price at the beginning of your launch and gradually lower it as time goes on and demand decreases.
This appeals to a range of customers as the price changes. Early customers pay higher for first-access perks, while price-conscious customers pay lower for late access.
Cloud-based software company Salesforce used this strategy in its formative years. The high initial price appealed to enterprise-level customers and allowed Salesforce to rapidly boost its revenue.
3. Value-based pricing
This subscription pricing strategy considers customers’ perceived value and willingness to pay for your platform.
Given this, customers first consult you before deciding on whether to avail of your services. This allows you to charge higher prices as the perceived value of your offerings increases.
Sales and marketing software company Drift uses value-based pricing. Each of their plans is tailored to specific customer needs, letting them choose from a wide range of options.
4. User-based pricing
User-based pricing relates the cost of your service according to how much it is used. In short, customers who use your platform more are charged more, as well.
The professional messaging platform Slack uses user-based pricing. It charges companies based on the number of employees that use its platform. They have free accounts as well as individual, business, and enterprise subscriptions.
Top subscription-based pricing models for SaaS Platforms
Here are the top subscription-based pricing models for SaaS platforms:
- Flat subscription
- Tiered pricing
This is one of the most popular subscription-based pricing models.
Freemium appeals to a large customer base because everyone can use the platform for free. They only need to pay if they wish to access additional or premium features.
Music streaming service Spotify is a great example. Everyone can listen to music on their platform, but users must pay to remove advertisements and use offline playback. This model lowers the entry barrier, allowing customers to try the product before committing to a subscription.
One disadvantage of this model is that some users may settle for the free version. This is why Spotify compensates through advertising — and you can do the same.
2. Flat subscription
This subscription-based pricing model is relatively simple: there is one price for your platform forever. Flat subscriptions thus simplify the sales process because there aren’t any features or plans to choose from.
E-book and audiobook subscription service Scribd has a flat subscription model, offering $11.99 monthly subscriptions to access their extensive libraries and receive personalized recommendations.
However, this model provides no opportunities for future upselling. Customers with increased usage cannot be charged more, so there is no added revenue. Plus, it may be challenging to set a price that is not too low for your services but not too high that customers won’t want to avail of it.
Although flat subscriptions don’t surprise customers with hidden fees, so they offer a unique appeal other pricing models don’t have.
3. Tiered pricing
Tiered pricing offers various plans at a fixed monthly price. These usually differ on the features, usage, or number of users they offer.
This subscription-based pricing model increases customer acquisition since users can pay for a plan that best suits their needs.
Tiered pricing also allows you to upsell your services over time. Website optimization tool Crazyegg uses this model. They provide five tiers: basic, standard, plus, pro, and enterprise. The basic level starts at $24 per month and offers baseline features, as the name suggests.
The enterprise level will depend on the client’s needs. It enables the company to negotiate the pricing and strengthen business relationships by catering to its clients more closely.
Your SaaS platform’s subscription pricing strategies and models will define your success. Deeply analyze your company, target audience, and services to choose the best strategy and model from these top options.
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Rebecca Morgan is a freelance writer with a knack for technology and social media articles. She also writes about business and human resources at times. When she’s not in front of her computer, you can find her doing pilates or playing with her cats.