Businesses need to find the right pricing strategies. They must consider different factors, such as competitor prices, costs, and expenses while deciding on a pricing strategy.
When we talk about SaaS business, product engineering companies need to be more thoughtful about their pricing strategies; otherwise, they may miss some opportunities to generate more revenue.
In this guide, we will cover different pricing strategies for SaaS businesses; from that, you can choose your preferred pricing strategy according to your business. Now, let’s explore some commonly used pricing strategies.
SaaS Products Pricing Strategies and Models
Penetration Pricing Strategy
Software product development company, and other businesses that enter the SAAS products market as beginners use a penetration pricing strategy to reach a large customer base. It means setting the lowest price compared to competitors.
This low-pricing strategy helps establish a strong position in a new and competitive market. However, it would help if you did not count it as a long-term business strategy because low prices can drive you to losses.
Cost-Plus Pricing Strategy
Cost-based pricing strategy is more like a traditional strategy. This strategy requires details of all costs, from product engineering to final delivery. It works on a fundamental principle. First, you need to set a profit margin and then add the margin to your cost of goods sold.
[Cost-plus pricing formula: Customer Acquisition Cost (CAC)+ COGS + Profit Margin.]
Competition-Based Pricing
The competitor-based pricing strategy relies on your competitors’ prices. It ignores factors like demand and costs. You can price products higher, lower, or the same as your competition.
This strategy is simple and helps in a competitive market for product engineering companies. However, it limits your control over pricing decisions, which could cause you to miss out on making more money.
Value-Based Pricing
Value-based pricing strategy is the most preferable and acceptable strategy in the market. This approach is based on the value of the product and services according to the consumers’ grading.
This strategy helps you to grasp a good knowledge of your customers and fulfill their specific needs.
Flat-Rate Pricing Model
In this pricing model, software product development company offers a client the product or service with a fixed price (monthly/annually) and predetermined features. This strategy is known as “one size fits all.” The number of users and the product usage is not very important.
Tiered Pricing Model
It’s the opposite of the Flat-Rate pricing model. The model offers different product versions at different prices based on features, users, or usage.
Businesses create 2 to 5 tiers for customers, allowing incremental upselling as they grow. The tiered pricing model and tiered pricing strategy are often used in an alternative manner, which confuses customers. Careful construction of pricing tiers is crucial to avoid customer confusion.
Usage-Based Pricing
The usage-based pricing model is often called “pay as you go” among the SaaS product development community. Customers are charged based on how much they use the product or the service; more usage means higher charges, while less usage means lower costs.
Most of the postpaid plans are based on this model. Usage can be measured by factors like emails sent, API calls, or transactions. Some variants have a base subscription fee and additional charges based on usage.
Per User-Based Pricing Model
As per experts from product engineering services, the per-user-based pricing model is straightforward: businesses charge based on the number of people using the product as more users adopt the product, revenue increases. Each account is charged, making revenue predictions easier.
Per Feature Pricing
In feature-based Saas products pricing, the cost of the product depends on the features and functions provided to customers. More features mean higher prices, while fewer features result in lower prices.
Here, the availability of functionality determines the price. As customers grow, they can upgrade to higher tiers to access new solutions. Feature-based pricing directly links the cost to the value provided to customers.
Conclusion
The future of the SaaS business is a hot topic because this is a significant part of the growing cloud market.
Developing a SaaS product is just a step for an infant; maturity comes after several experiments and the selection of preferable strategies and models according to your product to get better ROI. Hopefully, the mentioned pricing strategy for product engineering companies will help.
