2 min read

SaaS pricing to SaaS offers

In SaaS, charging a subscription to access the product is the de-facto default option. If you don't know any better, you charge a monthly fee and you roll with it.

Charging a subscription is only one of the pricing models you can offer, though.
And, pricing is just one part of a good offer.

Instead of thinking "how do I price my SaaS?", we should ask ourselves first and foremost "how do I craft a good offer for my target market?"

If you want to dive more into creating a great offer, I recommend reading Alex Hormozi's material, which I've been devouring lately.

In this article, I'll limit myself to give you some alternative pricing models and offers I've been experimenting with in my own SaaS products:

  • Lump sum
    Make the customers pay a high setup fee and then ether give them more value or discount their monthly subscription as they go (or do both).

    This model works because of a few principles:

    1. The more the customer stay subscribed, the less the customer is costing us. This is based on the fact that keeping a customer is always more convenient that acquiring a new one.

    As an example, in month 1 the customer will cost you more because you'll have to pay for the acquisition costs, maybe you'll have to pay for more resources because they open more tickets. Whereas, in month 10 you'll have already repaid the acquisition costs and they'll be more familiar with the platform.
    2. Customers are also typically less excited and perceiving less value from the product as months go by. This means they are also more likely to churn in month 10 than month 1.

    That's why the more the stay with us, the more we want to reward them.
  • Consumption
    Lately, I've been thinking of SaaS as a service that can reach net negative churn. The fact that the word software is in there, just means I'll have no replication costs as well.

    Consumption is a great pricing model for achieving net negative churn, because it brings expansion revenue by nature. Here, instead of charging a flat fee per month, you are charging a (usually low) fee per unit of whatever you sell, or per seat.

    Especially if your product has enough stickiness, the more the customer grows their business, the more they'll need your product, them more their account with you will grow, too.
  • Pure performance-based
    Here, you don't charge anything upfront, or monthly. You just charge your users when they use your product and get the ultimate outcome they signed up for.

    An example of this, would be a lead generation software that just charges a fee when their customers close a lead.

    The cons of this model is that you have to get your tracking down to perfect, otherwise you'll risk leaving money on the table.

Of course, you can mix and match these. One hybrid model that I like a lot is lump sum + performance based: you make the customer pay a one-time (usually high) fee to access the software for free lifetime and then make the customer pay when they actually get value from the software.

One thing to notice is that the order I presented the different models was not random: switching from monthly subs to lump sum, to consumption to performance-based, we make the customer risk less and less and only pay when they drive value from our product. We also become more and more partners of our customers. Their success is our success in that we will literally be able to charge them more the more they get value from the product.