When it comes to attracting subscribers to your Monthly Recurring Revenue (MRR) SaaS business, pricing is an important consideration. There are probably numerous other organisations that are out there offering similar or substitute products to your own. While price isn’t always a factor in the purchasing decision of recurring customers, for new customers it can be high on their priority list.
The biggest advantage of owning and managing a SaaS business is that you have significant freedom on your pricing strategy, especially compared to other businesses.
Most business models are required to charge the customer as goods are ordered or delivered, this can create irregular revenue and can be hard to manage. However, it would be challenging for a grocer to charge a subscription as they wouldn’t know when customers would return to their store or how much they would need to purchase at any one time.
On the other hand, if your business has a regular demand that is more predictable, there are other pricing strategies that you could use to entice certain types of customers to your brand.
Here are those different pricing strategies and how they work.
1. Flat Fee
One of the most basic fees is for your business to charge one fee for access to your software. This is one of the most common pricing strategies for your business and therefore the easiest for your accounting team to calculate the revenue expected each month. An example of this would be StockUnlimited who charge a flat fee of $9.99 for unlimited downloads of their images.
This however doesn’t offer much flexibility to the customers. What if the customer only wanted a couple of images a month? There might be more cost effective options available elsewhere.
So this model is only really suitable when the customer knows they are going to be using the entire package on offer or you can only offer a single level of service.
2. Tiered Pricing
Another popular pricing model is to introduce a tiered pricing model. This is where you have at least two different price points which offer the customer something different. Netflix has the perfect example of this. Their lower level allows only one person to use the account at a time, while their second and third tier levels allow two and three people respectively to watch programmes on different devices.
There is a limited difference in the amount charged per level, but it does give the client choice on their level of use and their control.
Another example would be MailChimp. Their pricing structure is based on the number of subscribers on your list and the number of emails you send out in a month.
3. Long Term Discounts
If your services are expected to be used over the longer period, then you can sign up individuals on quarterly, six monthly or annual contracts where they will receive a discount for committing to longer term contracts. For instance, if they subscribe to a monthly plan they will pay $12 per month, but if they sign up to an annual plan they can pay just $120, saving $24.
This only works if the subscription is taken upfront as there might be those who take up the cheaper options and then cancel their subscription before paying the full amount.
A good example of this would be ShutterStock where a monthly plan costs $249 per month and a yearly plan costs $199 per month.
4. Bolt Packages
Another, less common, model is the bolt on model. This is where the client pays you a regular ‘retainer’ or consultation fee and then can add on modules to their preference. This is a great model because it gives the customer complete freedom in their purchasing decisions and they can tailor the price so it matches their ability to pay.
An example of this would be UK company TwoFeetMarketing. They charge a low consultation fee as a membership and then additional monthly subscriptions for services like social media management.
There are many different pricing strategies that you can use in your pricing strategy to attract new customers and keep others happy. Many of these will help grow your business’ profits and make your revenue more predicatable.