{"id":16569,"date":"2023-04-04T09:54:11","date_gmt":"2023-04-04T13:54:11","guid":{"rendered":"https:\/\/www.sage.com\/en-us\/blog\/?p=16569"},"modified":"2025-02-06T11:02:27","modified_gmt":"2025-02-06T16:02:27","slug":"a-straightforward-pricing-guide-models-strategies-examples","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-us\/blog\/a-straightforward-pricing-guide-models-strategies-examples\/","title":{"rendered":"A straightforward pricing guide: models, strategies, examples"},"content":{"rendered":"
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\n\t\t\t\t\t\t\tMoney Matters<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t
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\n\t\t\t\t\t\tA straightforward pricing guide: models, strategies, examples\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

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\n\t\t\t\n\t\t\t\t\"David\t\t\t\tDavid Appel<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t<\/div>\n\t\t<\/div>\n\n\n\n

For many CFOs, the sheer number of SaaS billing and pricing models can be overwhelming. The array of choices has become so large that it often requires specialized tools and processes to determine the SaaS billing process best suited to your company. <\/p>\n\n\n\n

That\u2019s why we\u2019ve written this guide to SaaS billing models, strategies, and examples aimed at CFOs who may find it overwhelming to navigate the various pricing models available. This post explores what SaaS billing is all about and discusses the ins and outs of SaaS billing models. We\u2019ll also provide real-world examples of pricing tiers to help you choose the right model for your business. <\/p>\n\n\n\n

By the end of this guide, you should have a much clearer idea of how to construct and implement the ideal SaaS billing model for your company. Without further ado, read on to gain a deeper understanding of SaaS billing and make informed decisions for your company\u2019s success. <\/p>\n\n\n\n

SaaS pricing (models, strategies, and examples)<\/h2>\n\n\n\n

We\u2019ll start at the very beginning: What are SaaS billing models?<\/p>\n\n\n\n

SaaS billing models are the billing and invoicing methods a SaaS company adopts. In a nutshell, it\u2019s how you charge your customers for your services. <\/p>\n\n\n\n

Simple, right? Not so much.<\/p>\n\n\n\n

Let\u2019s peel back a few more layers.<\/p>\n\n\n\n

What is SaaS pricing?<\/h3>\n\n\n\n

SaaS pricing refers to the pricing of your SaaS product. This is where you deliver on the value that your solution brings to your customers.  You want to deliver ROI to your clients on the problems they are looking to solve, and charge an amount that delivers on that brand promise.  To that end, subscription businesses operate on the basis of recurring charges over time. As a CFO, you\u2019re probably aware that this has important ramifications for your choice of SaaS billing models. <\/p>\n\n\n\n

Let\u2019s say you selected a pricing model that was 3% less profitable than it could have been. A 3% loss isn\u2019t a huge deal, you might think. But remember, SaaS companies use recurring charges.  <\/p>\n\n\n\n

That 3% in unrealized profits comes back with each new billing cycle, and soon you\u2019re staring down considerable sums of lost cash. <\/p>\n\n\n\n

That\u2019s why the SaaS billing process has important metrics and KPIs. Most finance teams use automated software to track their SaaS pricing metrics. <\/p>\n\n\n\n

SaaS pricing refers to the pricing of your SaaS product. This is where you deliver on the value that your solution brings to your customers.  You want to deliver ROI to your clients on the problems they are looking to solve, and charge an amount that delivers on that brand promise.  To that end, subscription businesses operate on the basis of recurring charges over time. As a CFO, you\u2019re probably aware that this has important ramifications for your choice of SaaS billing models. <\/p>\n\n\n\n

Let\u2019s say you selected a pricing model that was 3% less profitable than it could have been. A 3% loss isn\u2019t a huge deal, you might think. But remember, SaaS companies use recurring charges.  <\/p>\n\n\n\n

That 3% in unrealized profits comes back with each new billing cycle, and soon you\u2019re staring down considerable sums of lost cash. <\/p>\n\n\n\n

That\u2019s why the SaaS billing process has important metrics and KPIs. Most finance teams use automated software to track their SaaS pricing metrics. <\/p>\n\n\n\n

\"SaaS<\/figure>\n\n\n\n

Another part of what makes SaaS billing complex is its unique accounting realities and requirements. Having the ability to recognize revenue over time, and manage deferred revenue waterfalls, is extremely important. Companies that lag in adopting automation will have an especially tough time in that department.\u00a0<\/p>\n\n\n\n

Another part of what makes SaaS billing complex is its unique accounting realities and requirements. Having the ability to recognize revenue over time, and manage deferred revenue waterfalls, is extremely important. Companies that lag in adopting automation will have an especially tough time in that department. <\/p>\n\n\n\n

SaaS pricing strategies<\/h3>\n\n\n\n

It only takes a moment of researching SaaS billing strategies before you come up against the well-known \u201cparadox of choice.\u201d Between all the different hybrid billing options, potential feature bundles, freemium packages and more, it can feel impossible to know how to choose. <\/p>\n\n\n\n

We\u2019re going to run through the most popular SaaS pricing strategies. After that, we\u2019ll cover everything you need to know in order to confidently select the right one for your firm. <\/p>\n\n\n\n

Usage-based pricing model<\/strong><\/h4>\n\n\n\n

Usage-based billing charges users by how much they use your product. Typically this involves a set amount of usage time that resets every month, but some other medium such as digital tokens might be used. <\/p>\n\n\n\n

Flat-rate pricing model<\/strong><\/h4>\n\n\n\n

Flat-rate SaaS pricing enjoys enduring popularity among customers. They tend to see it as a transparent, \u201cknow what you\u2019re paying upfront\u201d type of transaction. On the other end, it offers companies a higher level of predictability with respect to recurring charges. It\u2019s important to note that flat-rate pricing can also carry some opportunity costs because of its inflexibility.<\/p>\n\n\n\n

Freemium pricing model<\/strong><\/h4>\n\n\n\n

Everybody loves a free trial, and SaaS users are no exception. A freemium can be a great way to draw new users to your product. This is especially true if your company does project management software or anything that encourages users to develop a sense of investment or progress with your app, which they stand to lose once the free trial ends. <\/p>\n\n\n\n

Pricing tiers model<\/strong><\/h4>\n\n\n\n

Using pricing tiers involves packaging different features together and charging a set price for each tier. If you have one or two features that tend to be standouts with your audience, you can slip them in or near the top tier to strategically drive more revenue. <\/p>\n\n\n\n

Per active user pricing model<\/strong><\/h4>\n\n\n\n

This pricing model is popular in workplaces that use enterprise software. It involves charging different rates for different numbers of users. 25 users might cost $2,500 annually, whereas 50 users might be discounted at $4,500, and so on, with discount incentives usually increasing with additional users.<\/p>\n\n\n\n

Per-feature pricing model<\/strong><\/h4>\n\n\n\n

The per feature model is also referred to as \u201ca la carte\u201d pricing because it allows users to select and pay for features as they please. <\/p>\n\n\n\n

It\u2019s not enough to simply know about SaaS billing models, though. You and your team need to equip yourselves with SaaS pricing metrics, as well as the accounting tools to run reports and forecasts on them. <\/p>\n\n\n\n

SaaS pricing metrics<\/strong><\/h3>\n\n\n\n

As a SaaS CFO, the task of tracking all the various SaaS pricing metrics falls to you. This task gets nuanced quickly, given the large number of moving pieces and recurring charges involved. <\/p>\n\n\n\n

A few of your most pivotal pricing KPIs are your<\/a>:<\/p>\n\n\n\n

Expansion MRR<\/strong><\/p>\n\n\n\n

Expansion monthly recurring revenue (MRR) measures revenue increases from cross-sales and subscription upgrades. SaaS CFOs always want to see this metric increase, and frequently use automated revenue forecasting to help that happen. <\/p>\n\n\n\n

Gross MRR Churn Ratio<\/strong><\/p>\n\n\n\n

Your gross MRR churn ratio is another of your central SaaS pricing metrics and should be evaluated monthly. It shows you the monthly percentage of recurring revenue you\u2019re losing to canceled subscriptions or product downgrades. <\/p>\n\n\n\n

CLTV\/CAC Ratio<\/strong><\/p>\n\n\n\n

Your customer lifetime value (CLTV) to customer acquisition cost (CAC) ratio is central to your success. It compares how much money you\u2019re making from each customer with how pricey they were to acquire. A successful pricing strategy makes customers less hesitant to onboard, which makes them less expensive to acquire because it shortens their buying cycle.<\/p>\n\n\n\n

Now let\u2019s look at the various reasons why it\u2019s so critical to select the right pricing strategy.<\/p>\n\n\n\n

Why is choosing the right SaaS pricing strategy important?<\/h2>\n\n\n\n

As we touched on earlier, the recurring charges in the SaaS industry mean that even minuscule pricing differences can have outsized effects over time. <\/p>\n\n\n\n

That\u2019s hardly the only reason to be thorough with your due diligence, however. The right SaaS pricing strategy will also help you: <\/p>\n\n\n\n