Software as a service (SaaS) market is growing rapidly, but with it the competition as well.
So, it becomes more important for SaaS companies to find their own way to gain a competitive advantage.
Choosing the right pricing model is critical for driving business revenue, and it requires careful planning and understanding of your costs.
You should ensure to generate enough revenue to maintain your product and business market position while remaining competitive in your industry.
However, by choosing the right prices for your SaaS products, you can bring bigger value to your customers, differentiate from your competitors, and launch more profitable products.
Of course, if you want to get the most of your pricing strategy, it’s important to:
- Spend more time on it
- Review it regularly
In this article, we’ll cut through the noise and help you decide on the best SaaS pricing model for your business.
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Their functionality and design fulfill and transcend even the highest global standards, which will surely affect better work quality and employees’ productivity.
What are SaaS products?
Software as a service (SaaS) is a kind of software that is always connected to the internet and is distributed by billing method to its customers.
Simply said, users “rent” or borrow online software instead of buying and installing it on their desktop computers.
For app access, all you need is just an internet connection, with SaaS you don’t even have to think about updates or software or hardware maintenance.
The main benefit of software as a service is time-saving, improving business performance, and also cost savings for everyone in this system.
Strategies for defining prices of SaaS products
Choosing the right pricing strategy is something you must do, before picking the final pricing for your SaaS (Software as a Service) product.
Choosing the right strategy will lead you to more sales and will bring you the customers’ attention.
By using these strategies you will get the right pricing:
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- Defining cost-based pricing
- Defining competition-based pricing
- Defining penetration pricing
- Defining value-based pricing
- Defining pricing per customer strategy
Cost-based pricing
This is one of the most basic strategies to define pricing.
Cost-based pricing involves calculating the total production costs, then adding a percentage markup to determine the final price.
Cost-based pricing is the safest option as they are easy to understand and calculate.
But, every cost cannot be predicted, therefore there is no way of knowing your income will cover all expenses in the end. This is the missing part of this strategy.
Also, this strategy will not always be successful because this kind of pricing does not take into account the prices of competitors.
Competition-based pricing
A pricing strategy based on competition is determined by using competitors’ pricing as a measure for setting good pricing.
This is the best strategic solution for new companies.
Whenever you can’t predict your costs or you are new to the market, trying to stand out, pricing based on your competition can help you gain customer attention and win the market.
Because you are new and you don’t want your pricing set up so high, a competitor’s pricing should be a great orientation.
On the other hand, setting a low price is not the best solution, because potential customers might question the value of your product.
It is easy to implement this strategy. Over your competitors’ websites, you will easily find their pricing and compare them with your own.
Penetration pricing strategy
Penetration pricing is a form of promotional pricing strategy where companies temporarily shred their prices to attract customers and increase demand.
This strategy is usually time-limited. Here are some examples:
- This offer lasts only 3 more days
- Pinned price is for the first 6 months of service
- The first 100 users get a new product/service for this special price. etc.
The penetration pricing strategy is efficient and will reach new customers.
The disadvantage is that it is a short-term strategy.
Ultimately, the strategy of penetration pricing should be seen as a precursor to larger and more lasting pricing strategies.
Value-based pricing
You can assume what kind of pricing we are going to talk about.
Pricing based on the value is determined by the quantity of value and quality your service or product provides.
This strategy is based on the wants and expectations of the target group.
If a customer understands the value of your SaaS (Software as a service) product and is willing to pay for the service, you can set your pricing even higher than the competition and increase your income.
Value-based pricing strategy implementation is time-consuming and demands commitment. If you choose this strategy you need to understand your customers, to know who they are, what they want and how much are they willing to pay for your service/product.
The good thing about this method is that you spend time getting to know your customers. This helps you earn the customer’s trust and loyalty.
Pricing per customer strategy
Pricing per customer is one of the simplest and the most direct pricing models that provide customers with clear monthly or annual prices.
The most common, and perhaps the best strategy for companies offering software as a service (SaaS) is the pricing per user.
Using this method, a user pays a fixed monthly or yearly fee.
This also makes it easier for SaaS companies to calculate and predict monthly revenue.
The only flaw in this strategy is that users can grant access to multiple people, whereas you only sold your service to just one person.
Conclusion
We’ve shown you some of the most popular pricing strategies for SaaS (Software as a service) products.
The most crucial thing for you is to choose the strategy for your service and what you want to achieve with that pricing.
If you are the company providing SaaS solutions or you plan to be one of them, be sure that Desk&More can help you grow and provide you with the perfect working environment.
We hope this article will help you choose the right strategy for improving your business, and also increasing your profit.
