Over 99% of businesses use at least one SaaS tool, and the average stack is much larger.
Sastrify customers use an average of 96 SaaS tools, with an average monthly spend increasing steadily since 2020. Subscription prices are also on the rise. Industry forecasts anticipated this shift coinciding with the widespread adoption of SaaS tools, predicting that software ownership, operation and support costs would increase by as much as 35% by the end of 2025. SaaS prices are also increasing due to inflation and other economic forces.
It’s now more important than ever to optimize your SaaS stacks to ensure you’re getting the best prices on your software. However, SaaS pricing is complex. From flat rate to tier or usage-based, the complexity can be confusing for the buyer, and determining which tools are right for your business is also challenging. Understanding the different pricing models helps ensure that you’re only paying for what you need and that there are no hidden costs. It also helps to ensure you’ve aligned costs against your business needs ahead of any negotiations.
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Sven Lackinger is Co-Founder at Sastrify.
SaaS pricing models explained
Various moving parts contribute to pricing strategies, including vendor competitors’ pricing, costs, and expenses. Here are the pros and cons of six popular pricing strategies:
1. Fixed or flat-rate pricing:
Fixed or flat-rate pricing is essentially the simplest way to sell a SaaS solution, and represents a one-size-fits-all approach in which every customer pays the same price for the same product or service.
As a customer, it’s an easy model to navigate and make a decision on. However, the converse of the model’s simplicity is the lack of options and customization available, which means that the product is not scalable. While this one-size-fits-all approach may be simple, there is no flexibility for different user needs, meaning that you’ll pay the same price per user whether or not they need full functionality, or just a small element of the tool. As there is no option to upgrade plans, you effectively lose out on any upselling opportunities to gain pricing advantages as your relationship with the vendor grows.
2. Usage-based pricing:
In the usage-based pricing, or “pay as you go” model, customers are billed only when a product or service is used. If they use more, they’re charged more, and if they use less, they’re charged less, so it can be viewed as a fairer system that is directly proportional to usage.
Usage-based pricing ensures that companies can easily initiate a service and start with low costs if required. In this way, the pay as you go model encourages experimentation, and also represents a high degree of flexibility; adapting to business fluctuations, for example. As a result, the usage-based model is becoming increasingly popular as a long-term solution for both start-ups and enterprises alike. However, users should keep in mind that because pricing is entirely based on usage, there may be months when invoices are considerably higher than you planned.
3. Per user-based pricing model:
User-based pricing is based on the number of users of the SaaS solution, with customers paying a fixed price per user. This makes it easy to understand how costs directly relate to benefits, therefore representing one of the most popular pricing models used by SaaS companies. If you add a user, the price simply goes up. Because the price per user is easy to determine, buyers can accurately manage and forecast their costs.
However, charging per person can be a deterrent to buyers adding more users, which could have the effect of limiting growth if not everyone on the team has access to the same tools. Similarly, adding users (and therefore cost) may reduce the perceived value of the service.
4. Per-active user pricing model:
Representing an evolution to user-based pricing models, per-active user means subscribers are only charged for users who actively use the product. Teams can enroll as many users as they like when signing up, but they will only be charged for those who use them.
This is a cost-effective option with no money being wasted on inactive users and means. This pricing model works well for improving adoption in enterprise organizations, but when cash is tight and team sizes are small, per-active user pricing doesn't offer much extra incentive to bite the bullet.
5. Tiered or feature-based pricing:
Tiered pricing allows SaaS vendors to offer multiple products or "packages" with different combinations of tools at different price points. Feature-based pricing creates different pricing tiers based on the number of tools and software features available in each package. The more features the user chooses, the higher the price of the package.
This type of pricing model means that services and products can be tailored, with the option to add new features to a buyer’s subscription as they outgrow what they’re currently using. This creates a scalable SaaS solution.
The flip side for buyers is that too many options can lead to confusion and decision overwhelm, while frustration can be created by the need to pay more every time you want to access a different feature.
6. Lifetime value with one-time pricing:
With one-time pricing, you pay once to use a solution forever. The main benefit of one-time pricing is the ability to focus on the value of a service rather than the price. It becomes easier for customers to see what they're getting out of each offer without worrying about how much money they're spending.
However, it is important to keep an objective look at the cost side. The time investment of users and the solution itself can incur unexpected costs in the long run. SaaS providers that use this pricing model are not directly compensated for constantly keeping their solution up-to-date, and can unilaterally adjust their prices to a recurring payment structure at any time. It is therefore a good idea to stay informed about alternative solutions on the market.
Choosing and negotiating the right option for your business
The above options represent a handful of the most common SaaS pricing models. The choice is vast and can be confusing. Moreover, finding the right pricing model is unique to every business, and strongly depends on the solution you are looking for. It’s important to accurately map out the needs of your company. In some cases, you will find that these are so specific that you don't have the luxury of choosing a solution based on your ideal pricing model.
However, if you do have a choice then the usage-based pricing model can offer a good ‘jumping off point’. It will create the most long-term value for the majority of customers; allowing you to use all features while keeping costs low with minimal use, and enabling you to efficiently determine which solution best meets the needs of your users. Once this is established you can easily scale. It also represents the fairest model for both provider and the user. In other words, you can be sure that the provider is encouraged to continue to provide good service.
Remember that any pricing model is negotiable provided that you have a good understanding of your end user needs, as well as specific knowledge on each SaaS provider. When vendor sales periods start and end, for example, can have a significant impact on willingness to be flexible on price. Pricing models can also have different benefits according to billing frequency (monthly, quarterly or annually) so it’s worth looking at your plan from this perspective as well.
SaaS prices are never set in stone, leaving scope to negotiate custom prices. Many SaaS vendors offer discounts of up to 20% to bring in new business for example, while there’s often room to maneuver around the extra costs that can often add up quickly. Try to start with the basic system and avoid too many functionality changes or integrations. It’s also often better to agree on a shorter contract period than a longer one. If you do go for the long term, make sure there is an exit clause in your contracts.
Choosing the tools that provide the most flexibility and agility is a must, and a partner with the technical expertise to generate real value that matches the needs of your business can free up your staff to innovate in other areas. To get the most out of the right pricing model for your business, a SaaS procurement specialist can help you create new SaaS procurement targets, real-time budgeting, and implement a smarter procurement process. This makes both SaaS procurement and expense management easier, and more efficient - saving you both time and money.