I went and looked at 100+ SaaS pricing pages, and in this video, I want to go over some of
the variations, plus the pros and cons of each different model. I also have a couple
of examples of companies that pivoted from one model to the other, and how the transition went.
The world of startups was essentially transformed when we figured out SaaS. When companies pivoted
from a one-time sale to a monthly subscription, a whole world of possibilities was unveiled.
SaaS allows predictable revenue. It lets us estimate customer lifetime value with
unprecedented accuracy. These days you can even raise capital or get a loan based on your MRR.
So let’s get to it.
Let's start with Flat A flat SaaS model means
that the platform has a fixed cost regardless of features or usage.
I won’t spend too much time on Flat pricing because in this day and age it is pretty rare.
While it’s simple and very easy to explain to customers, flat pricing doesn’t allow upselling,
which translates to negative churn, which is SaaS nirvana.
Negative churn is when you make more money from the same set of customers because instead of
canceling the upgrade their plans to a more expensive billing. The majority of products
have plain and simple churn, which is when you lose customers or revenue from a cohort of users.
By the way if that didn’t make a lot of sense, you should pause this video and watch our
video on SaaS metrics, it’ll prepare you much better for what’s to come.
OK so here are some examples of flat pricing.
Skillshare interestingly doesn’t show pricing on the page. You can only find it after you’ve
signed up- I would guess this is to reduce friction and capture as many leads as possible.
Brain.fm is another example. Notice how simple and frictionless this is.
Here’s recurring.co- our SaaS expense tracking platform:
Last but not least, this is us. We are moving to a single flat plan precisely
because we want to make things simple for our customers. We are willing to sacrifice
that possibility to upsell, in return for better conversion and just the simpler experience overall
So now let's get to Tiered
Previously we had something like this, which is a Tiered pricing plan.
When going tiered, you can essentially group sets of features into groups and
force customers to upgrade if they want access to them.
As I mentioned, we used this model for years, and overall it worked well.
Entry-level plans allow for customers to dip their toes while leaving
a chance to upgrade and to make more revenue from these customers
You may also group features by the type of customer, and tailor the
plan to them. Look at this page from Geckoboard.
Their cheaper plan is very cheap and has very few features, but the moment you need
custom logos, or additional screens, the plan jumps by over 500%.
While that may sound like a lot, it relates to the type of customer it targets. An individual
or super-early startup doesn’t need any of that. A small business with multiple employees,
3 screens, and multiple dashboards can probably afford $100 more.
Here’s another tiered example from another platform we use:
Most companies try to stick to 2-3 different tiers, with some
going all the way up to 4 which does translate into confusing landing pages.
Also, try and fit this into a responsive layout.
Tiered works really well if you can find that ideal balance of features so that a
customer upgrading does so because the plan as a whole is tailored for them.
This balance can backfire if you have customers upgrading because of a single function they need
access to. In those cases, the pricing can easily be perceived as ‘wasted’ if
you aren’t really taking advantage of everything else that it offers.
Now, an alternative way to scale that is with Usage-Based pricing.
Usage-Based has the advantage of being connected directly to the value the platform provides. These
modules are usually associated to a very important KPI that the platform as an influence on.
For example Stripe, a payment processor, charges a flat 2.9% of transactions, period.
Algolia, which we use for database search, charges you a flat $1 per 1,000 search requests.
ChartMogul, a revenue tracking platform- bases its main plan on the MRR of its customer
(which their platform tracks).
In their case, even though they don’t directly influence MRR, recurring revenue is a
good measure of company size and therefore, the amount of value extracted. Coincidentally,
the more MRR a company has, the more computing power their server needs to process it.
That’s the main advantage of this model: if the KPI selected is the right one,
the pricing can nearly feel ‘fair’ to the customer and reduce push-back in that churn
One risk, though, is that usage-based pricing depends on the scale
of the companies. Your growth is essentially tied to the growth of your customers.
Now, the last model we’ll look at is user-based. Companies like Slack, ClickUp,
Monday, Calendly and even Google’s Gsuite scale based on the number of team members using them.
It’s another way to proportionally scale
pricing based on company size (and hopefully value extracted as well).
If the companies you target are large enough, this makes a lot of sense.
We actually tried this at some point with Slidebean,
only to find out that it was mainly the CEO who used our pitch deck builder and rarely had to
bring in new people. We even found some cases of sharing passwords, which broke our hearts.
That being said, we still do that with some platforms. Shame on us. We have a shared password
for many of our stock footage libraries, for many of our marketing tools- simply because the people
who need the platform on a regular basis are just 1-2, and never at the same time.
Amazon Business prime is a good example of this. They charge a few hundred dollars per additional
user and for a company our size, it’s just simpler to have a shared Prime account where that only
required team members can access. We don’t need a separate account for each one of them.
Now that being said, we can also, of course,
combine these pricing pages or these pricing models
Zapier for example expands both with features
and with number of actions. It’s a combo of Tier-Based and Usage-Based.
ClickUp has two plans, which makes it a Tier-Based and User-Based pricing plan.
Adobe for Teams scales both on a per-user basis, and a flat fee per tool.
The general conclusion with all of this is… understand customer usage,
and adjust your pricing to that. You should adapt to your customers, not the other way around.
Now in this particular video, I am
not going to get into onboarding/conversion tactics. We could go into Freemium vs Premium,
Monthly vs Annual - which connects to a concept called ‘Time to Value’, or ‘Aha moment’- but again
if you’d like us to cover that in a video let us know in the comments.
Ok, so now let's talk a little about Pivoting Models
I think a very interesting case study is ChartMogul.
These guys moved from Tier-Based pricing to Usage-Based pricing a couple of years ago,
and they are willing to share some numbers with us today
Now, our experience with pricing has also been a roller coaster. At some point we had
5 different tiered plans which was just plain confusing to everyone, even us.
Our most recent iteration is that we moved to a single, flat pricing plan. We’ve seen
some really good conversion rates, up to 3x higher than our previous combo,
but are yet to see if it works out from the retention and the conversion
side and just the general scale will do it We'll update you with that in the future.
Thanks all for watching hope this video was useful and will see you next week.