What Approaches can we Learn from SAAS? 💻 Podcast Ep. 64
More and more services for businesses and consumers are delivered as SAAS – Software As A Service. What common trick and SAAS pricing approach can we see from these companies?
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TIME-STAMPED SHOW NOTES
[00:00] Introduction
[00:54] The subscription model
[02:16] The freemium offer
[02:44] Tiered pricing, the good better best approach
[03:22] How are the offers differentiated?
[04:05] The use of price optimisation software and analytics
The 5 different SAAS pricing approaches
In today’s episode, we want to cover one of the new more modern approaches to pricing that you’ll see more and more. And that is the pricing approach used by SAAS companies or software as a service. You will commonly use their services in a B2B environment or many other scenarios.
So in this episode, we wanted to cover five pricing techniques.
Some of which we’ve covered in other episodes. That you will commonly see and experience if you deal with our SAAS company.
1. SAAS Pricing Approach: Subscription Model
This is applicable for IT vendors who are used to dealing in terms of the old distribution method. Using tenders and fairly fixed prices to then. Those who are thinking a bit broadly now and thinking about new pricing and distribution methods models for their customers.
Okay, so number one I suppose would be a subscription model is a fairly typical feature of SAAS.
So this subscription model is a new type of pricing revenue model. Essentially, it gives customers a different option to buy from them.
They could pay for the product service on a monthly basis. As opposed to, as I said, going through tender and doing a large deal at the enterprise level.
They may do an enterprise-level deal. Or, they can choose to do, maybe as a team pay for it as a team deal or on a user basis.
So it just gives the customer more flexibility with how they’re going to pay for that particular SAAS offer.
2. SAAS Pricing Approach: Freemium Offer
The second one is very commonly you’ll get a freemium offer. Just to whet the appetite and to give you the chance to experience the product or service.
This is especially useful if it’s a new style of product that you haven’t used before. Or, that’s quite innovative so that you haven’t had the experience or know what to expect.
One thing I’d say about the freemium offer is they nearly always give you the best version of the product.
So you get used to the best option. They very rarely will give you a free experience at the lowest cost.
3. SAAS Pricing Approach: Tiered Pricing
Okay, so the third feature of SAAS pricing would be tiered pricing, like a good, better, best approach.
You might see that in terms of other names like price plans. And things that you commonly would see on mobile phone websites. Ultimately you’ll see three different options.
As I said good better best, there’ll be all of them higher value offers. But there will be a distinct difference between the three options.
4. SAAS Pricing Approach: How are offers differentiated?
Okay, so the fourth option is, how are the offers differentiated? Nearly always because they’re selling you Software as a Service and the differentiation is somewhere designed to segment the customer base.
It is designed to charge larger companies or larger users higher sums.
The tiering will be based on something along the lines of metrics specifically, the business. If it’s a CRM system such as sales Salesforce or something like that it will nearly always be based on the number of customers you have in there. The number of leads, or it could be based on the number of users in your organisation.
So you could have a small startup. You could have a business version or enterprise with the enterprise company 50 To 100 users.
5. SAAS Pricing Approach: The use of price optimisation software and analytics
The final feature for more sophisticated SAAS firms would be the use of price optimisation software and analytics. I suppose according to research companies and pricing consultancies in this space.
Research has shown that make the majority of IT vendors and firms have been setting prices pretty much by guesswork. Or just using some inputs. Not fully confident whether the pricing is right. Possibly the best would be sort of a good competitive level pricing.
I suppose now, real SAAS pricing for great IT vendors and firms is much more scientific, more analytical and they’re thinking about optimisation…
- It could mean a lot of monitoring.
- Looking at different customer groups.
- Seeing what the price response rate is using price elasticity modelling.
- Calibrating that with market research.
Then really determine price ceilings and determine the right price parameters for each of their offers.
So we’ll move away from fixed mainly cost-based pricing. Moving into understanding customer demand using real data analytics as well as multiple information sources.
Bottomline
That’s it from me, that’s the five and you’ll see them more and more. Whether it’s something like Spotify for home use. One big thing I’m a believer in and I think traditional mainframe systems and large CAPEX will probably be decreasing year on year in the business space. As we get more and more used to seeing this.
The one thing I’m interested in always is, how do procurement deal with this sort of approach?
Whereby it’s very much a set rate card and they try to tailor to set systems. I wonder, will undermine procurement strength and drive down costs. Well, that’s something for a future episode.
So if you want to find out a bit more about SAAS pricing, where it’s going in the future?
A bit more detail about the pricing mechanisms and the revenue model options. Then feel free to go to our webs website at Taylor Wells go to our resources pages. There you’ll find documents reports and guides on SAAS pricing and pricing strategy.
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