In this article, you will learn not only the 7 SaaS subscription models you need to know but also how to optimize any of them.
Let’s go!
1. Tiered Pricing
One of the most common SaaS subscription models. The Tierer pricing offers a set of packages, each with its own price and bundle of features. Think of it as a menu where customers can pick a package that best fits their needs and budget.
This model is popular because it caters to a broad audience, from small startups to large corporations and enterprises, by providing options that scale with customer growth.
Examples
Salesforce. Known for its CRM solutions, Salesforce structures its offerings into several tiers, each designed to suit different business sizes and needs, from basic contact management to full-enterprise solutions with advanced analytics.
HubSpot. This platform offers separate tiers for its marketing, sales, and customer service hubs. Each tier includes more advanced features and higher limits, allowing businesses to scale their operations as they grow.
Clearscope: A leading tool in content optimization and SEO, addresses individual bloggers to large content teams, and anything in between. Each tier provides access to more advanced features, including a higher number of content reports, keyword suggestions, and integrations with other platforms.
Ideal for
The tiered pricing model is best for SaaS companies that offer a wide range of features that can be naturally grouped into distinct packages.
It’s particularly effective for businesses that serve a diverse customer base, as it allows for clear differentiation between service levels and helps customers choose the plan that’s right for them without paying for unneeded features.
Pros & Cons
Tiered pricing is very flexible, however, it can complicate billing and customer support at times.
👍 Pros
Flexibility: Customers appreciate having options, as they can choose a plan that closely matches their needs without overspending for features they don’t use.
Scalability: As customers’ needs grow, they can easily move to a higher tier, making this model conducive to customer growth and retention.
Clear value proposition: Each tier can be tailored to different customer segments, making it easier to communicate the value and benefits specific to each group.
👎 Cons
Complexity in management: Offering multiple tiers means managing multiple sets of features, pricing, and customers, which can complicate billing, customer support, and feature updates.
Choice overload: Too many options can overwhelm customers, making it hard for them to decide which plan is best for them. This can lead to analysis paralysis, where the customer opts not to purchase because the decision is too hard.
Potential for downgrades: While it’s easy for customers to upgrade as their needs grow, they can also downgrade if they feel they’re not using enough of the features in a higher tier. Naturally, this can impact your revenue.
2. Per-User Pricing
The Per-user pricing model charges customers based on the number of individuals using the service. It’s straightforward: the more users you have, the more you pay.
This model promotes simplicity and transparency, making it easy for businesses to understand their costs as they scale.
Ideal for
SaaS companies whose value proposition increases with the number of users. It works well for collaborative tools and productivity software where each additional user directly benefits from access to the service.
Examples
Microsoft 365. Offers productivity tools with per-user pricing, allowing businesses to scale their subscriptions based on team size.
Asana. A project management tool that charges based on the number of team members, making it a scalable solution for teams of all sizes.
Slack. Slack’s tiered pricing model is designed to accommodate teams of all sizes, offering more integrations, features, and storage as you move up the tiers, making it ideal for growing businesses.
Pros & Cons
Per-user pricing is a simple but limited model.
👍 Pros
Simplicity: Pricing is easy to understand, and costs scale linearly with the number of users, making budgeting straightforward for customers.
Fairness: Customers pay only for the access they need, which can be seen as fairer, especially for small teams or businesses just starting out.
Scalability: As a company grows and adds more users, it naturally moves into higher payment brackets, which can smoothly increase revenue for the SaaS provider.
👎 Cons
Limiting collaboration: In some cases, per-user pricing can discourage the addition of new users, particularly if the cost per user is high, potentially limiting collaboration within customer organizations.
Revenue plateau: For products that don’t naturally scale with user count or where additional users don’t add significant value, revenue might plateau as customers find workarounds to adding users.
User management overhead: Companies might need to actively manage who has access to keep costs down, leading to potential administrative overhead.
3. Usage-Based Model
The Usage-based model, sometimes called “pay-as-you-go,” charges customers based on their actual usage of the service.
This model is akin to utility billing, such as for water or electricity, where you pay for what you consume. It’s appreciated for its fairness, as customers only pay for the resources or services they use.
Ideal for
This model suits SaaS companies offering services where consumption can vary widely, such as cloud storage, data processing, or API requests.
It’s particularly effective for businesses whose usage may spike or vary seasonally.
Examples
AWS (Amazon Web Services). Offers cloud computing services where costs are directly tied to the amount of computing power, storage, and other resources used.
Google Cloud Platform. Similar to AWS, charges are based on the resources consumed, catering to businesses with fluctuating needs.
Twilio. A communications platform that bills for the volume of messages or calls made, adapting to businesses large and small.
Pros & Cons
Usage-based SaaS subscription models are flexible and scalable, albeit unpredictable.
👍 Pros
Flexibility: Customers appreciate the flexibility of only paying for what they use, which can be especially attractive for startups or companies with fluctuating demands.
Scalability: The model naturally scales with a customer’s usage, allowing for organic growth in revenue as customers’ needs increase.
Lower barriers to entry: With no large upfront costs, it’s easier for new customers to adopt the service, potentially leading to quicker customer acquisition.
👎 Cons
Unpredictable costs: While flexibility is a plus, it can also lead to unpredictable billing, which some businesses may find challenging to budget for.
Overuse concerns: Customers might limit their use of the service to control costs, potentially not getting the full benefit of the software.
Complexity in billing: Managing and tracking usage for billing can be complex for the provider, requiring sophisticated systems to monitor and report usage accurately.
4. Freemium Model
The Freemium Model offers a basic version of the service for free, with the option to pay for advanced features or capabilities.
Thanks to this model, you can give a taste of your product to any user, with the hope they’ll want more and be willing to pay for it
Ideal for
SaaS companies with products that can offer significant value even in a limited, free version. It works well for apps and platforms aiming to quickly build a large user base and convert a portion to paying customers.
Examples
MailChimp. Offers free email marketing services with limited features, encouraging users to upgrade as their needs grow.
Evernote. Allows users to organize and store notes for free, with premium options for additional storage and functionalities.
Dropbox. Provides a basic storage service for free, with the option to upgrade for more space and features, attracting a wide user base.
Pros & Cons
A freemium model comes with low barriers to entry but comes with some conversion challenges.
👍 Pros
Low barrier to entry: The free tier encourages trials and adoption, reducing the friction for new users to start using the service.
Viral growth potential: Satisfied free users are likely to recommend the service to others, potentially leading to viral growth.
Customer upsell opportunities: Once users see the value in the free version, they may be more inclined to pay for additional features or capabilities.
👎 Cons
Conversion challenges: Converting free users to paying customers can be difficult, requiring clear value propositions for premium features.
Resource allocation: Supporting a large base of non-paying users can strain resources, impacting the service quality for paying customers.
Perceived value risk: If the free version is too good, users may not see enough value in upgrading, limiting revenue potential.
5. Per-Feature Pricing Model
The Per-feature pricing model allows customers to pay based on the specific features or functionalities they choose to use.
This a la carte approach lets users customize their subscriptions by selecting only the features they need, similar to building a personalized meal from a menu of options.
Ideal for
This model suits SaaS companies with modular products where features can be easily segmented and offered individually.
It works well for platforms where users have diverse needs and prefer to manage their subscriptions.
Examples
ClickFunnels. Allows businesses to create basic sales funnels and landing pages, with the ability to unlock advanced features such as email marketing integrations, A/B testing, and comprehensive analytics on a per-feature basis.
Zoho. Provides a core set of productivity and business tools for free, with options to add advanced functionalities like CRM automation, custom reports, and multi-user collaboration.
Shopify. Offers a basic platform for setting up an online store, with additional features such as advanced inventory management, detailed reporting, and third-party integrations available for purchase individually.
Pros & Cons
Highly customizable but sometimes overwhelming are some of the characteristics of per-feature pricing model.
👍 Pros
Customization: Customers can tailor their subscription to their exact needs, avoiding paying for unnecessary features.
Flexibility: As business needs change, customers can easily add or remove features, making the service highly adaptable.
Clear value proposition: Each feature’s value is clearly defined, making it easier for customers to understand what they’re paying for.
👎 Cons
Decision complexity: Too many options can overwhelm customers, making it challenging for them to decide which features are necessary.
Potential for nickel-and-diming: If not carefully managed, this model can create a perception that the company is nickel-and-diming customers for every little feature.
Feature silos: Important features might become siloed behind paywalls, frustrating users who need a comprehensive solution but find it financially inaccessible.
6. Credit-Based Model
In the credit-based model, customers purchase credits that they can then spend on various services or features within the SaaS platform.
This model is akin to a prepaid phone plan where you buy credits upfront and use them as needed, offering a balance between pay-as-you-go and subscription-based approaches.
Ideal for
SaaS companies providing services that don’t have a steady consumption rate or where users prefer to manage their usage and expenses more granularly.
It’s particularly effective for platforms offering a range of services or digital goods that can be quantified and priced individually.
Examples
AWS (for certain services). While primarily usage-based, AWS also offers credits for services like its Lambda function, where users can pre-purchase credits for compute time.
Shutterstock. Users buy credits to download stock photos, videos, and music tracks, with different assets costing different credit amounts.
Adobe stock. Offers credits for purchasing high-quality images and videos, allowing users to stock up and use credits as their projects demand.
Pros & Cons
Users have full control over credit-based models but they often need to estimate in advance to make the most out of it.
👍 Pros
Prepayment control: Customers can control their spending by purchasing credits in advance, making budget management easier.
Flexibility: Users have the flexibility to use credits as needed without worrying about monthly subscription fees or usage overages.
Encourages usage: Pre-purchased credits can encourage users to engage more with the platform, as they’ve already committed financially.
👎 Cons
Usage estimation: Customers need to estimate their needs in advance, which can be challenging and lead to either overbuying or running out of credits unexpectedly.
Credit expiry: In some cases, credits may expire, leading to potential waste if not used within a certain timeframe.
Complexity: Managing and tracking credit balances can add complexity for both the users and the provider, especially if different services consume credits at different rates.
7. Hybrid Model
The hybrid model combines elements from various pricing strategies to offer a tailored approach that can adapt to a wide range of customer needs.
This kind of model tries to combine the best aspects of the previous models, benefiting both the SaaS company and the customer when done correctly.
Ideal for
The hybrid model is best for SaaS companies that want to cater to a diverse customer base with varying needs, from individual freelancers to large enterprises.
It’s particularly effective when a company offers a wide array of products or services that can’t be neatly categorized into a single pricing model.
Examples
Airtable. Combines a freemium entry-level with tiered pricing for additional features and collaboration tools, catering to both individual users and large teams.
Adobe Creative Cloud. Provides individual app subscriptions, bundled app packages, and enterprise solutions, allowing users to choose the most suitable combination for their needs.
Notion. Offers a free basic plan with limitations, tiered subscriptions for more features, and usage-based pricing for advanced collaboration tools.
Pros & Cons
It comes as no surprise that the most versatile SaaS subscription model can also be the most complex one.
👍 Pros
Versatility: Hybrid models offer a versatile solution that can be customized to fit a wide range of customer preferences and usage patterns.
Customer acquisition: The combination of free and paid options can attract a broad audience, increasing the potential for customer acquisition.
Revenue opportunities: Multiple pricing mechanisms provide various revenue streams and upsell opportunities.
👎 Cons
Complexity: Managing different pricing models can be complex for the provider, requiring sophisticated systems for billing and customer management.
Customer confusion: The variety of options might confuse customers, making it harder for them to choose the most suitable plan.
Balancing act: Finding the right balance between free and paid features, as well as between different paid options, can be challenging to ensure fairness and value.
Optimizing Your SaaS Subscription Pricing
To optimize your SaaS pricing, focus on aligning your price with the perceived value of your service. Start by analyzing the cost to deliver your service and how customers value your features. Key steps include:
Conduct competitive analysis: Benchmark your pricing against similar services. Understand what competitors offer and at what price, but price your service based on the unique value you provide.
Segment your customer base: Recognize that different customers may value your service differently. Some might pay more for premium features, while others are more price-sensitive. Use this insight to structure your pricing, possibly through tiered models or add-ons, to cater to diverse needs.
Learn from the market: Take cues from successful pricing strategies like Slack’s Fair Billing Policy or Zoom’s freemium model. These approaches make the service appealing and demonstrate a clear value proposition.
Highlight balance clearly: Ensure customers understand the value they get for their price. Use success stories, comparisons, and cost-benefit analyses to justify your pricing.
Iterate and optimize: Regularly test different pricing structures and gather customer feedback to refine your approach. Consider dynamic pricing to stay competitive and meet customer expectations.
SaaS Subscription Models – Conclusion
It should be clear by now that when it comes to SaaS subscription models, you have more than a few options to choose from.
You also need to keep in mind that horizontal and vertical SaaS are different.
For a vertical SaaS, which targets a specific industry (e.g., healthcare or legal services), models like tiered pricing or per-feature pricing are ideal. They allow businesses to scale their use and select features specific to their needs.
For a horizontal SaaS, which serves a broad range of industries (e.g., CRM or email marketing tools), per-user pricing or freemium models often work best. These models support scalability across different sectors with various user bases.
Do you need some help deciding what is the best subscription model for your SaaS? We are a SaaS marketing agency so you can count on us to find what works for you.
Just contact us and you will hear back from us sooner than you think!
I write for GrowthRocks, one of the top growth hacking agencies. For some mysterious reason, I write on the internet yet I’m not a vegan, I don’t do yoga and I don’t drink smoothies.
