Like all businesses, SaaS startups need cash to survive and remain in the business. To ensure the same, a good pricing strategy plays an important part.
Now the big question is to figure out the best pricing model for your business. It could be deciding between a free trial or a free plan or charging a flat rate or on a per-user basis.
Every SaaS business industry uses a different pricing strategy which makes it challenging for new businesses to figure out a particular strategy to be followed without giving the competitors the upper hand. Pricing a service or a product is one of the trickiest aspects of a business and the business needs to get it right in order to sustain in the long run.
For those who are starting a new SaaS business, the wisest approach could be to explore the different pricing strategies used by other established SaaS firms. This helps you position your pricing model in a better way to your target audience. Let’s see how you can get started:
Lead generation with free trials
Free plans sound great. Doesn’t it? But when you are a startup, you can’t imagine giving your services for free especially when there are so many costs getting incurred in your business.
If you take Dropbox’s example, it is quite a profitable SaaS business with more than 500 million registered users out of whom only 11 million users are paying for the service. That’s about 2% conversion rate from free to paid. Dropbox has a giant hold in the business now and can afford to support 500 million free users and only earn from the rest of 11 million paid ones. But if you are a startup, you can’t gather resources to keep this going.
On the other hand, free trials are more practical and effective strategy a startup can follow to generate leads. This doesn’t put a lot of resource or cost burden on you and also makes it easier for you to convert leads into paying customers at a better conversion rate.
The conversion rate from free trial to paid ones goes up to 50% which is a great strategy, SaaS startup may apply instead of going for free plans.
Attractive conversion deals
Once you have your visitors’ interests with free trials, the next goal is to convince them to buy the paid plan after the trial period expires. Many SaaS businesses offer incredible discounts while offering paid services. Take, for example- Instapage offers a 12% discount on its monthly plan rate when billed annually. The business tactic which is used in free trials is to get users accustomed to the services till the end of a fortnight or 30 days’ trial period and the customers would want to continue using the service. To onboard them for a paid plan, an attractive deal or a discounted offer can be offered.
Take inspiration from Pricing strategies followed by other SaaS businesses
Sometimes, it’s wise to see your competitors’ tactics, take inspiration and improvise on the same to create a pricing strategy of your own. Other SaaS businesses may have various techniques which you may monitor closely and eventually decide basis on the nature of your business.
1. Honest and transparent pricing
In the world of manipulations, being clear and honest about your expenses and pricing is rare and hence stands you out from the crowd. There are few companies that disclose their monthly revenue reports publically and hence openly put their entire pricing model out there for everyone to see. While this may work for few companies in building empathy and trust from your customers and potentials buyers, it may not be the best strategy for all the SaaS businesses.
2. Pricing per user
Charging per user is one more pricing strategy you can use, specifically if you’re a business that promotes team-based services. Like for example- Slack uses this strategy and charges on the basis of per active user each month. It turns out to be win-win deal for both the business and the end-user.
3. Feature-based pricing models
In this kind of pricing model, the users can upgrade to a better plan with more advanced features with an extra fee. Adobe, for example, uses this technique by highlighting a recommended plan to drive more people to buy the most profitable plan.
4. Usage-based pricing.
Usage-based pricing, or pay as you go pricing is one of the most commonly used pricing tactics. This is particularly used in the world of the emails marketing industry. Like for example- MailChimp uses this strategy and offer competent prices on the basis of subscribers count one has on his email list instead of charging a flat rate.
What strategy should you pick?
There is no one strategy that works for all businesses so opt a strategy that goes well along with your business plan. Take into consideration the type of service and product that you have for offer.
Also, a business can’t just fixate on one particular strategy and keep using it for decades. There are businesses that find the need to keep upgrading and/or changing their pricing strategies. As a business, its required to evolve along with the economy and technological advancements to sustain growth.
Additionally, to pick an effective pricing strategy, you can conduct a thorough market research and ask feedbacks directly from your customers through a survey or a poll. Not only you will gain certain insights on what your customers prefer, but you will also be able to trim down your options of strategies and will take a quicker decision.