7 SaaS Pricing Models for 2023
If your company is considering pricing changes in the coming year, you’re not alone. Over half of SaaS companies are changing their prices in 2023 due to macroeconomic pressures—like inflation and changes in the economy leading to layoffs across the tech industry. Likewise, budget cuts may also be pushing B2B SaaS businesses to look for the most cost-efficient solutions for their now smaller teams.
Before undergoing a pricing update in 2023, you’ll want first to understand how SaaS pricing models differ and the benefits of each so you can strike the right balance between optimizing revenue and offering customers value.
One of these seven monetization models (or a combination of several) could help your team drive revenue in 2023 and beyond.
1. Tiered Pricing
The tiered pricing model offers customers a different set of features based on distinct product packages. Products under this model may start with a basic package (or even a free one) before climbing up to advanced, professional, and custom-made enterprise solutions—all set with a progressively higher price point and more functionality.
Valuable product features are only truly valuable to customers if they meet that customer’s needs, and the SaaS needs of small businesses are different from those of a big company. Offering several tiered options gives every customer in your demographic the best pricing options that allow them to work with you—and it leaves room for customers to upgrade as their needs change and they become more familiar with your product.
The tiered approach allows your customer base to choose the level that best fits each stage of their business. The extensive list of features (and higher price tag) of your enterprise option probably won’t be a good fit for startups, so separating your product out into tiers allows you to offer the most value possible for each of the buyer personas you’re targeting.
We found that a tiered pricing structure is a great fit for UserVoice. This approach lets us break out our product features into sets that are most likely to offer lifetime value to customers with different customer feedback management needs.
2. Flat-Rate Pricing
Flat-rate products are perhaps the simplest to advertise because your messaging doesn’t need to be customized to describe different offerings.
In a flat-rate pricing strategy, you offer one SaaS product for a set price. There are no feature add-ons or pricing tiers to complicate your customers’ decision-making process. They simply choose whether or not to commit to your annual or monthly fee for your software license, and they get access to the entire suite of tools.
The downside is this pricing plan is that it doesn’t offer customization options for customers. So, depending on the needs of your target market, you may lose out to competitors that offer flexible options that come with flexible (and often lower) pricing.
The inflexibility of a flat-rate approach may not be a good fit if you offer a complex product, but this option may work if you offer a simple product without a lot of additional features.
3. Feature-Based Pricing
Feature-based product pricing is best for teams who have to manage products that have many unrelated features or lots of specific parts that not every customer will need. In that way, feature-based pricing is ideal for vertical SaaS products, although horizontal SaaS teams could still benefit from offering their clients customization.
Per-feature pricing starts with a base rate for the product and includes add-on features that customers can purchase ad hoc. This approach allows your customers to really customize your product, so their combination of features is tailor-made to their business needs.
The feature pricing approach could simplify part of a feature launch. Any time you add a new feature to your product, you can simply include it on your list of available add-ons instead of needing to reconsider your overarching pricing strategy.
However, it can also make your life as a product manager more complicated because each of your customers essentially has their own version of your product, and you’re responsible for attending to their feedback and creating updates that optimize every individual customer’s experience.
If you decide on a feature-based pricing model, make sure you have the bandwidth to handle the extra inquiries, updates, and feedback you’ll receive.
4. Active User Pricing
Pricing that is based on the number of active users can actually help some customers save money, especially for teams that are unsure how many seats they need. The cost is usually a monthly fee, too. So, as their active users change, the price flexes with it.
With active user pricing, your customers can add or subtract users to control costs. And as they learn more about your product and its features, adding a user is easy and flexible. Teams can enroll as many users as they would like when buying the product, but they will be charged only based on those who use them. This means that no money is spent on vacant places. Scaling happens naturally.
This model is similar to user-based or per-seat pricing, with one important distinction: it takes into account the number of users who are actively logged in and using the product during the month instead of charging based on a predetermined number of users or seats.
This model may not work well for products sold on annual plans since it’s really designed to work for usage that varies from month to month. Active user pricing options can also make it tough for you to maintain a predictable monthly recurring revenue (MRR) since your customers’ costs may rise and fall with little warning.
5. Usage-based Pricing
For companies that are trying to watch their budget, usage-based pricing allows them to lock in a low price by restricting their team’s activity.
Usage-based pricing sets your rates on how many logins a customer is allowed with your product. This is also called pay-as-you-go pricing. Your customers lock in a low price, but they’re limited by how many team members are logged in at any given time.
That level of control is a plus for businesses (like Slack and Elastic, for example) that want to offer great pricing for a product but need to limit access in order to keep net profits high. Usage-based pricing can lead to highly satisfied customers (lower pricing makes everyone happy!) and a sticky product (since many users use it and are swayed to advocate for your product within their company).
However, it isn’t the right fit for every SaaS offering. At UserVoice, we’ve tried pricing based on usage in the past, but the metric wasn’t quite right. Usage-based pricing theoretically ties the price your potential customers pay directly to the value of your product, but in practice, you may find that the customers’ attention is actually focused on their ability to access the system or log in. In other words, if they can’t log in, they don’t think your product is useful.
In that case, you may want to turn their attention to the value you are providing instead (for that, consider feature-based pricing).
6. Freemium Pricing
The freemium option is very attractive for B2B buyers who want to sample your product without needing to speak to sales or schedule a demo. HubSpot, for instance, uses freemium pricing.
The freemium pricing model offers a chance for users to sign up for a pared-down product for free—with the hope that they decide to purchase a subscription for the full offering. This business model is becoming increasingly common in SaaS, as it gives your customers a low-barrier way to test out your product before they decide to buy.
Users can sign up for a trial through a simple, low-touch process. They get the chance to sample your product before deciding to purchase, while you avoid some of the pitfalls associated with long-term free plans (like customers staying on the free plan forever).
Even though the approach eliminates the barriers to entry for the average customer, a freemium approach can have downsides. Free user models cause a drain on resources without guaranteed ROI. It can also leave room for dissatisfied customers if the freemium plan doesn’t give them access to company resources in the form of bug fixes, tech help, and customer support.
Offering a free trial for the entire suite of tools—as we do for UserVoice Discovery—can give you a good middle-ground option.
7. Monthly or Quarterly vs. Annual Pricing
While not a pricing plan on its own, the choice of how often to bill affects your customer churn and retention. Typically, customers on a monthly or quarterly plan have a higher churn rate, whereas annual billing plans provide your business with upfront revenue and healthy profit margins while also encouraging customer retention.
ProfitWell recommends annual plans, but it’s often beneficial to give your customers the option of a shorter billing period (like a month-to-month plan) so customers can try your product out for a few months before officially deciding if it’s right for their company. When you present the different prices available for each billing option, showcase any discounts you offer in tangible dollar amounts (rather than just including a savings percentage).
At UserVoice, we decided to offer quarterly and annual billing plans with an easy toggle on our pricing page so prospective customers can quickly compare savings with each option.
Reassess and Update Your SAAS Pricing Strategy Regularly
Even after you select your pricing structure for 2023, you’ll need to reevaluate your strategy every so often. Undercharging could ultimately negatively impact your business, so it’s important to assess your price points regularly and avoid missing out on revenue.
ProfitWell recommends updating your pricing every three months—a process that results in 2-4 times higher ARPU (average revenue per user).
You may need to change tactics periodically as the marketplace shifts and your goals evolve. Periodic change is part of what we encourage at UserVoice—after all, our products help you track customer feedback and update your product to meet their needs, so we know the power of positive change!