James Ambrose
September 23, 2018
How to Choose a SaaS Pricing Strategy
You don’t have to tell any SaaS executive that a good pricing strategy is important to the success of their business, but the more difficult issue is how to choose that strategy from the wide range of available strategies out there. Does it make more sense to offer a free trial or start charging right off the bat? Does it make more sense to charge a flat rate or should you break up prices into levels?
Pricing your product or service can be very tricky and, to make things even more complicated, you need to get your strategy just right or your business will fail. If you do not get the right strategy, then you risk getting the wrong reputation with your current and potential customers. They might either consider you a scam because you are too cheap or they might consider you a rip off because you are too expensive.
Choosing between a Free Plan and a Free Trial
You might think it’s a good idea to have a free plan so that your customers can see the benefits of using your service and become convinced to hop onto the paid plans. However, conversion rates with free plans are known to be pretty low. Sometimes, they can be as low as 2%.
On the other hand, a free trial might make much more sense, especially if you’re a SaaS business that is just starting out. It can help you to generate qualified leads which you can then focus on and convert into paying customers at a good conversion rate. Conversion rates from free trials are known to be in excess of 50%.
Use Strategic Discounts
Once you have your visitors using your free trial, you need to be able to convince them to buy a paid plan when the free trial ends. Many businesses achieve this by offering strategic discounts when users buy yearly plans instead of monthly plans.
Choosing The Right SaaS Pricing Strategy
There are many, based on what businesses are already offering their companies. Here are a few you can explore:
Pricing Per User
This is a common strategy for SaaS businesses that promote services for teams. A good example here is Slack, which charges per active user each month. It’s a great deal for the customer, who gets to decide how many users will use the service, and the company, as the pricing is more effective for costing purposes.
Pricing per Usage
This kind of pricing is also known as pay-as-you-go pricing and is actually pretty common among SaaS businesses. If you’re offering email marketing services, in particular, this might be the best strategy for you.
Pricing based on Features
This is pretty much the most popular pricing strategy for SaaS businesses, where different payment plans unlock access to more and more advanced features. Some companies even use a psychological trick to get users to go for the most profitable payment plan by highlighting it as the recommended plan.
Make your Pricing Transparent
This is the best way to stand out from your competitors. You can do this in a variety of ways, such as sharing your revenue reports and explaining to users the exact process that goes into determining the pricing for each payment plan. That way, your users become more empathetic to your business and trust it more. Be careful, however, as it may not necessarily be a good strategy for your business.
Conclusion
None of these strategies is necessarily the best. It really is all about which strategy fits in best with the kind of SaaS business you are running and what your business plan is. You also don’t have to stick to a single pricing plan indefinitely; you can change between plans as they become more feasible. Start by conducting market research and getting your customers to chip in their ideas and suggestions via surveys and polls. That way you’ll be better informed on what would be best for your business.
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