Determining pricing for B2B SaaS products has always been complicated.
Unlike B2C pricing, which mostly balances consumer psychology, competitor activity, and your product's value, B2B pricing involves several more elements. You need to please multiple stakeholders, create customized offers based on a prospect's unique needs, business size, or importance, and beat competitor offers, whose pricing is usually more hidden or variable than a typical B2C competitor.
Too often, B2B SaaS companies find themselves on the losing side when trying to address all these needs simultaneously. Losing revenue to steep discounts on annual contracts, undervaluing your product, or failing to close deals because you couldn't offer a price to fulfill a particular customer need are all widespread scenarios.
If you're struggling to find the right B2B SaaS pricing model for your business, this post is here to help. It’ll review the 5 most common B2B SaaS pricing models, their pros and cons, and how to choose the right one for your product.
The importance of using the right SaaS pricing model
Before we review the 5 most popular pricing models for SaaS, let's briefly touch on what a SaaS pricing model means and why getting the right model is so important for B2B SaaS companies.
What is a SaaS pricing model?
A SaaS pricing model is how a SaaS company packages and presents its pricing to its customers. Common pricing models for SaaS products include usage-based, tiered, value-based, freemium, and per-user.
How is a pricing model different from a pricing strategy?
The term “pricing model” is sometimes used interchangeably with "pricing strategy." Technically, a pricing strategy refers to the logic behind your pricing, while your pricing model refers to the format your pricing is presented in. But this is mostly a matter of semantics—if you’re trying to build your pricing, you’re likely figuring out both at the same time, and the difference between the two doesn’t really matter.
Why do I need the right SaaS pricing model?
The most important reason to choose the right pricing model for SaaS is simply because it's directly tied to your capacity for revenue generation. If your product is priced fairly and competitively, you can close more deals, attract more customers, reduce churn, and get a higher LTV from each customer, which all lead to a higher ARR.
This is because, aside from determining the literal value of your product, pricing impacts many aspects of how your customers perceive and interact with your company. Setting your prices lower or higher than your competitors can make your product seem cheaper or more premium, even if the product itself is the same.
Similarly, having flexible pricing that can adapt to a customer's needs, such as offering usage-based pricing or per-user pricing, will send the message that your company is in tune with its audience and is willing to go the extra mile to serve the customer. Having rigid pricing that's the same no matter how much your customers use your product may send the message that your company is simple, direct, and efficient—but it also could show that your company is unhelpful or inflexible to its customers.
When choosing your pricing model, it's essential to consider your business objectives, business image, and the needs of your target audience.
5 Common B2B SaaS product pricing models
Below are the 5 most common B2B SaaS product pricing models.
1. Usage-based pricing
Usage-based pricing is a pricing model where customers only pay for the portion of the product that they use. For B2B SaaS companies, this usually means customers are charged based on their real-time software consumption.
The factors that determine how the product is priced are often based on tangible usage metrics like the number of API calls made, the storage space utilized, or the volume of data processed. Unlike fixed-rate models, where a standard fee is charged regardless of usage, usage-based pricing aligns costs with actual utilization, making it a more cost-effective option for customers.
When is it best to use usage-based pricing?
Usage-based pricing can provide significant cost savings to customers, but it also requires a more nuanced understanding of customer needs and resource consumption. It's particularly well-suited for companies that offer products where usage can fluctuate significantly between different customers.
For instance, a business might require more processing power during peak seasons but less during quieter periods. Usage-based pricing adapts to these variations, ensuring that costs reflect the actual value derived from the SaaS solution on a per-customer basis.
Companies like Twilio and SendGrid have embraced usage-based pricing to align costs with customer usage. Twilio charges customers based on the number of communications (like text messages or phone calls) they make through its platform. SendGrid, which provides email marketing services, bills based on the number of emails sent.
Both companies operate in sectors where usage can vary wildly, making usage-based pricing a logical choice.
Pros of usage-based pricing
- Flexibility and cost control. Customers appreciate paying only for what they use, which can make the product more attractive to those with varying needs.
- Enhanced customer satisfaction. Since pricing aligns with actual usage, customers are more likely to feel they’re getting the appropriate value from your product.
Cons of usage-based pricing
- Unpredictability. Usage may vary unexpectedly, which could lead to fluctuating revenue streams that make financial planning trickier.
- Difficult to implement. Because usage-based pricing requires careful tracking of customer usage data, it can be challenging to execute well.
- Poor choice for products with stable usage patterns. If your product tends to have stable usage patterns across all customers, it may not be worth the extra time and effort to set up usage-based pricing.
2. Tiered pricing
Tiered pricing is a popular pricing model for SaaS products that caters to the diverse needs and budgets of customers. In this model, businesses offer different pricing tiers or packages, each with varying levels of features, functionalities, or service levels. By offering a menu of options, customers can select the tier that best aligns with their unique requirements.
Most B2B SaaS companies use tiered pricing to offer several versions of their products with different capabilities, usually in ascending order from least expensive and complex to most expensive and complex. A common way this is packaged is by offering “personal,” “business,” and “enterprise” tiers. Personal tiers may include minimal storage, data usage, number of users, or features, while enterprise tiers may have enough resources for an entire company to use the product.
When is tiered pricing most appropriate?
Tiered pricing is best used by companies with several different customer segments with very different needs—such as companies that offer both B2C and B2B versions of their product.
By offering a range of options, tiered pricing allows businesses to cast a wide net and appeal to multiple customer segments while making those segments feel like the product is catered to their unique needs. Customers who require more advanced capabilities can opt for higher-priced tiers, while those with basic needs can choose more economical options.
Mailchimp and HubSpot employ tier-based pricing to cater to a broad spectrum of users. Mailchimp offers different plans with varying levels of email marketing features, allowing businesses to choose a plan that aligns with their email marketing needs.
HubSpot, on the other hand, offers tiers with varying levels of inbound marketing, sales, and customer service tools, giving customers the flexibility to select the features most relevant to their operations.
Pros of tiered pricing
- Captures a wider net of customers. Because tier-based pricing caters to multiple customer segments at once, you have a higher chance of converting all of them.
- Customers feel accommodated. Offering different specialized tiers can make customers feel like their unique needs are being catered to, which increases overall customer satisfaction.
- Helps you add additional value. Adding premium features in higher-priced tiers can help boost your revenue and add more value for your customers without making them sign on for a new product or add-on service.
Cons of tiered pricing
- Scalability is limited. Because each pricing tier acts like its own product, careful monitoring is necessary to ensure each tier remains profitable. This can complicate adding more tiers or adjusting existing tiers when you want to scale or change your product.
- Risk of feature fragmentation. Too many pricing tiers and complex divisions between features can confuse both your customers and your internal team.
- Risk of decision fatigue. Having too many pricing tiers can cause customers to struggle to decide which option is right for them. They may become overwhelmed trying to choose the perfect product, and instead fail to convert.
3. Flat-rate pricing
Unlike models that factor in usage or features, flat-rate pricing adopts a straightforward approach—customers pay a fixed fee for the software, regardless of the extent of their usage or the features they access.
With flat-rate pricing, one simple pricing option includes all the features your product is capable of. Customers pay this fee on a recurring basis (most commonly monthly or quarterly) and get to use your product as much or as little as they want. Many companies with flat-rate pricing may also sell extra add-on features, such as extra space or functionalities, at additional flat fees.
When is flat-rate pricing most appropriate?
Flat-rate pricing offers consistency and ease of planning for both customers and businesses. Customers know exactly how much they'll be spending each month, which can simplify their financial management. From a business perspective, it provides a reliable revenue stream that isn't subject to fluctuations caused by usage variations.
Because of this simplicity, flat-rate pricing works best for simple products that don’t require a lot of extra features or augmentations. It’s also best used for products that are roughly the same price to produce no matter how the customer uses them, or for companies that can easily absorb the cost of excessive use by balancing it out with the extra revenue from low-use customers.
Flat-rate pricing is rarely used by big SaaS companies nowadays, primarily because most products have evolved into needing more complex pricing structures. However, some still use elements of the flat-rate model in their more complex plans. For example, even though Spotify offers different tiers according to the number of users, the rates remain the same no matter how much content you consume.
Pros of flat-rate pricing
- Simplicity and predictability for customers. Customers will find comfort in knowing exactly how much they're paying, making flat-rate pricing a compelling option for those who prefer straightforward billing.
- Stable revenue for businesses. Similarly, knowing exactly how much revenue will come in month after month will allow your team to make better financial decisions and predictions.
- Reduced administrative complexity. Simple pricing makes billing and collections much easier, saving your team time.
- Good value for high-volume users. Customers who use your product a lot may feel like they’re getting a great deal from playing the same flat rate as less enthusiastic customers.
Cons of flat-rate pricing
- Difficult to scale. A flat-rate pricing model makes it difficult to add features to your product or create new products without disrupting your customer’s expectations.
- One-size-fits-all deters some customer segments. While the simple, one-size-fits-all approach may make it easier to convert some customer segments, other segments may feel the product isn’t properly attuned to their needs.
- Bad for complex products. Businesses that offer products with many features and variables will find it hard to create a single flat-rate that accounts for everything their product offers.
4. Freemium pricing
Freemium pricing is a popular pricing model that uses a two-tier structure. Under this model, the basic version of the SaaS product is offered to users free of charge to give them a taste of the software’s functionalities. Then, a paid version of the product with all the advanced features and benefits is offered as an upgrade.
There are several approaches to freemium pricing. Some companies offer a super-light product version as the free version and heavily upsell the paid version to the free users. Often, key features that are essential to the product’s functionality may be locked or heavily restricted in the free version.
Other companies offer a more comprehensive free version of their product that could be used by itself on a long-term basis. In addition to offering a paid version, these companies may also generate revenue through advertising or data harvesting through the free version.
When is freemium pricing most appropriate?
Freemium pricing isn't just about giving something away for free—it's about strategically drawing in a broad user base. By offering free access to basic features, businesses create an opportunity to engage a large number of users. This can help create a network effect where more users attract more users. As users become accustomed to the software and recognize its value, they're more likely to consider upgrading to the premium version to unlock advanced capabilities.
Freemium pricing is best for companies that want to play the long game in building customer trust and create products with a high potential to achieve viral word-of-mouth adoption. It’s also necessary for companies that offer freemium to have the financial bandwidth to support non-revenue generation users.
Notable SaaS companies like Dropbox and Slack have harnessed the power of freemium pricing to drive user adoption and upsell premium features. Dropbox initially gained a massive user base by offering free storage space and then successfully converted some users into paying customers by highlighting the benefits of their premium plans. Even today, Dropbox still offers a free trial.
Slack, on the other hand, permanently offers a free version of its messaging platform, which paves the way for users to upgrade to its paid offerings for enhanced collaboration tools.
Pros of freemium pricing
- Great user acquisition strategy. Nothing makes it easier for users to sign on than making your product free. By providing free access to basic features, businesses attract a broad user base that can later become paying customers.
- Thoroughly sets expectations. Because users get to experience your software’s interface, functionality, and overall experience for free, they know what they’re getting themselves into when they choose to buy. This can drastically cut down complaints or churn from misaligned expectations.
- Builds customer loyalty. Customers are more likely to think positively about your brand and stick with your product if they feel they’re getting a good value out of it.
Cons of freemium pricing
- Low conversion rate. While a free product may attract many users, relatively few of those users are likely to buy the full version—especially if they can get by fine with the free version.
- Balance of paid vs. free features is difficult to strike. If the free version offers too much, users might not see the need to upgrade. Conversely, users might not find enough value to stick around if the free version offers too little. And, of course, if you don’t frame the offer carefully, you risk seeming like you’re “tricking” people into buying the paid version.
- Expensive and hard to monetize. Supporting a bunch of users that aren’t bringing in revenue is, quite simply, expensive—often more expensive than it's worth.
5. Per-user pricing
Per-user pricing is a popular model in B2B SaaS, especially for products that are built to be used by teams. In this model, businesses charge customers based on the number of users or licenses they require, ensuring that the pricing scales alongside the size of the customer's organization and the number of individuals who need access to the SaaS product.
Per-user pricing can be offered in lumped tiers or on a true per-user basis. In the tiered version, a SaaS product may be priced at $500/mo for 1-20 users, $1000 for 20-100 users, and so on. In a pure per-user model, a SaaS product will increase in price incrementally with every new user added.
When is per-user pricing most appropriate?
Per-user pricing offers scalability that adapts to the needs of an organization. Whether a customer is a small startup or a large enterprise, the pricing model scales proportionately with the number of users. This ensures businesses don't overpay for unused features or underpay and risk insufficient access.
Because it is based on the number of users and is unique to each customer, per-user pricing is most appropriate for B2B products built for multiple users, such as workflow or marketing automation software. It is also a great option for products that can be used by both small teams and large teams, and don’t have much difference in functionality between the two. User-based pricing allows the product price to scale alongside usage without requiring extra features or add-ons to justify the increased cost.
B2B SaaS workflow project management platforms Asana and Trello leverage per-user pricing to ensure businesses pay for the precise number of users who utilize the software. As companies grow and more employees require access, the pricing adjusts to reflect the increased demand.
This approach not only aligns costs with usage but also encourages companies to consider the software's value in relation to the number of users who benefit from it.
Pros of per-user pricing
- Highly scalable–for you and your customers. Per-user pricing offers a simple and predictable way for costs to scale as your customers’ businesses’ grow, and for your revenue to scale just as predictably.
- Tailored costs boost customer satisfaction. Pricing that aligns with the number of users prevents overpayment or underutilization, which means customers are likely to be satisfied with the value they’re getting for their money.
- High upselling potential. Customers who are used to adjusting costs are more likely to accept upselling offers for additional features.
Cons of per-user pricing
- Hard to balance pricing. Setting the per-user price too high could deter potential customers, while pricing too low might not sustain your business. And, of course, the price needs to calculate the actual cost it takes to support each user.
- Extra hassle to manage fluctuations. Organizations experiencing rapid growth or downsizing might necessitate frequent adjustments to pricing and licensing, which can be time-consuming and confusing for your team to execute and keep track of.
- Value proposition may not scale linearly. The per-user value of your product at 1-10 users may deserve a different cost than the per-user value at 1000 users. You need to ensure your price makes sense across all quantities of users.
How to choose the right SaaS B2B pricing model for your product
Selecting the most suitable pricing model for your B2B SaaS product is a pivotal decision that can greatly impact your business's success. Here are some factors to consider to ensure your chosen pricing model aligns with your product, market, and customer needs.
1. Product type and complexity
The functionalities, scalability, industry norms, product type, and the number and arrangement of your product features all influence its ideal price.
Products with many benefits that can vary depending on the customer’s needs may benefit from a tier-based or per-user model. Similarly, simple products with minimal extra features that don’t change much across different use cases may be best suited for a flat-rate model.
2. Target market and competition
Understanding your target market and analyzing the competitive landscape is incredibly important to determining the suitable pricing model for your product. Conduct thorough research into your target market and its size, demographics, and specific needs. Different markets require different pricing models.
Competitive analysis is also important here. If your target market expects a particular pricing model because all your competitors are doing it, it’s in your best interest not to deviate from that model too much.
3. Customer preferences and behavior
Employ tools like surveys, interviews, or market research to understand customer pain points, challenges, and desired solutions. You should also research your target market’s behavior, such as their willingness to pay, price sensitivity, value expectations, and subscription preferences. This information will guide you in designing a pricing model that meets their needs.
Optimize your SaaS pricing model with Capchase Pay
Choosing the right pricing model for your product is a delicate process that requires the consideration of many factors. The cost of producing your product, your customer expectations, competitor activity, and a multitude of other factors all play a role in determining the sweet spot that will generate the most revenue.
However, even the perfect pricing strategy doesn’t convert every customer. If you’re looking for a way to accelerate your revenue and get more conversions without needing to change your pricing, consider using a B2B BNPL solution like Capchase Pay.
By allowing customers to pay in comfortable installments while you secure the full ARR of each contract upfront, Capchase Pay lets you speed up sales cycles, increase your revenue, and improve the value of your product from your customer’s perspective.