CHAPTER 2

Common SaaS Pricing Models

Today, there are eight common billing models that SaaS companies deploy. Across these models, there is a wide degree of complexity and functionality that combines to impact consumers in unique ways.Often these complexities prove difficult to solve and result in delaying go-to-market plans.

Having the flexibility to design and deploy offers via the eight key monetization methods can be the difference from stagnating your SaaS business growth to moving your business forward.

Subscriptions

Subscription billing is a charging method that enables merchants to bill customers automatically on a fixed schedule (monthly, quarterly, annually) for a specific product or service.

BENEFITS

Sell products and services on a recurring basis, providing for a steady and predictable revenue stream
Offer customers the ability to use these services rather than own them
Align price to value by user type

Consumption

Consumption-based billing is the ability to rate and bill based on the usage of a product – clicks, API calls, downloads, seats, text messages, minutes, bandwidth, water or electricity usage. Also known as metered billing or pay-as-you-go pricing.

BENEFITS

Lower price of entry could be a competitive advantage
Generate additional revenue on top of basic subscriptions
Customers pay only for what they use

Dynamic Pricing

Dynamic pricing is the ability to calculate a price based on complex formulas that take multiple conditions or attributes into account - the same concept as creating formulas in Excel.

BENEFITS

Unlimited flexibility in pricing & packaging
Offer exact pricing that is fair and logical

Hybrid Pricing

Hybrid pricing gives companies the ability to charge for both physical and digital goods.

BENEFITS

Combine one-time, consumption-based and a la carte pricing models to create differentiated packages and bundles
Hybrid pricing models provide the best of subscription and usage-based pricing models - subscriptions provide predictability of revenue while usage/consumption provides upside

Partner Arrangements

Partner arrangements provide companies flexibility to define various billing arrangements. These arrangements could be with a reseller, distributor, partner, or through a marketplace.

BENEFITS

Combine one-time, consumption-based and a la carte pricing models to create differentiated packages and bundles
Hybrid pricing models provide the best of subscription and usage-based pricing models - subscriptions provide predictability of revenue while usage/consumption provides upside

Revenue Commitments

Revenue commitments is the ability to allow customers to pay a flat rate for a set amount of services (regardless if used in full or not) for a discounted rate.

BENEFITS

Customer gets a discounted rate for the service(s)
Business benefits from a predictable revenue stream as well as being protected against revenue decline of underperforming accounts

Consolidated Invoicing

Consolidated invoicing has two meanings. The first meaning is the ability to combine multiple subscriptions or purchases from a customer onto a single invoice for a set period of time. The second is for customers with account hierarchies, privinding the ability to consolidate invoices from multiple child accounts and roll-up into the parent account.

BENEFITS

Easy access to parent/child relationships within a company to see total sales, profits, churn etc. across the company in one place

Prepaid Credits

Prepaid credits provide the ability to offer customers and prospects a prepaid balance for a specific product or service valued with a specific monetary value and the ability to draw down over time.

BENEFITS

Incentivize customers to use more products and services as a way to increase revenue, loyalty and as a way convert prospects to customers
Flexible discounts and promotions