This guest post was written by Ashley Lipman.
You’ve created a great, user-friendly SaaS product. You and your team are ready to launch it, except—and here’s the big except—you aren’t sure how to price it. Should you use a per feature pricing model? Do you offer free trials? What should you charge for individual and group packages?
The truth is, the pricing model you choose plays a part in whether your target audience buys your product, much less looks at it. But should every person who goes to your site press that purchase button? Surprisingly no. And here’s why.
But First, Choosing the Right Pricing Model
Not sure which pricing model to choose for your SaaS product? You have several options at your disposal, two of which we’ll highlight: per feature pricing and pay as you go pricing.
Feature Pricing in a Nutshell
As the name suggests, this SaaS pricing model is based on—yep, you guessed it—the product’s features. Basically, the more expensive the tier, the more features users will get. Conversely, the opposite is true: the lower tiers, while less expensive, will not offer as many features to users as the higher tiers.
Feature Pricing’s Double-Edged Sword Exposed
Here’s the good news: users may convert to a higher tier because they are attracted to all the more features available to them versus what’s in the lower tiers.
Now here’s the bad news: users who may only be able to afford lower tiers may feel discouraged or frustrated because they see how many (unavailable) features they can’t have.
This may be incentive to up their revenue and, in turn, up their tier. Or, it may turn them into a disgruntled customer. Ultimately, it comes down to the number of features you include in the tiers, as well as what those particular features are. A double-edged sword, to say the least.
Pay as You Go Pricing Demystified
Like feature pricing, pay as you go leaves little mystery: it is just that: the users’ cost is dependent on how much of the SaaS product they use. In other words, if a business uses more of your product’s features in June, they pay more. If that same business, however, has a slower month in July and ends up using less, they pay less.
Also, a Double-Edged Sword
Yes, software firms can make a lot if their customers use their SaaS products a lot. However, contrarily (and unfortunately), their revenue could take a dip should customers not use as the product as frequently. This makes for a potentially unpredictable income.
Two Hidden Reasons Why It’s Good You’re Not Getting Every Customer
Here’s two reasons why not every customer is pressing the purchase button:
You’ve Narrowed Down Your Target Audience
One key component business owners need to include in their buyer personas is income. In other words, how much does you target audience make? If you’re not turning away some customers, you may have not answered that question yet.
How You Price Your SaaS Product Determines How Customers Perceive Its Value
Priced too low, and customers will actually be walking out the door—or, you may be attracting the wrong type of customers (aka, not your target audience). Why? The simple yet ironic answer is, your business and product does not revolve around price alone.
Believing this and then thinking a lower-than-market price will attract your target audience may actually do the opposite: your target audience may perceive your product to be cheap because of the low price. By pricing your SaaS product appropriately, you turn off the wrong customer.
Needless to say, not every customer is going to agree with your pricing. Which is why you won’t get everyone to press buy after that free trial.
Still, the more market research you do, the better price range you’ll have. And, be sure to know What Is Application Performance Management? 10 APM Features, as you’ll want to track who goes to your pricing page.
What other SaaS pricing tips do you have?