Breaking down SaaS pricing options
Monday 20th January 2014
Software as a Service (SaaS) means that Independent Software Vendors (ISVs) have to completely change their revenue model, luckily there are a couple of tried and tested methods that have proved successful with customers in the past.
While in the past, ISVs offered products on a license model, taking one lump sum from customers upon the purchase of a service, the rise of SaaS has meant this is no longer preferable.
SaaS has allowed customers to try or to purchase software as and when they need it, allowing them to pay in smaller increments. This is a better model for them as it means, if a product doesn't work out, then they can cancel their subscription.
While this helps to build loyalty in the long run, it is a challenge for ISVs to consider how to draw in customers in the short term. Under the subscription model, they have a couple of choices on the type of payment plans they can offer to customers.
One method of pricing that ISVs can present is "per unit". Here they charge customers based on their use of, for example, one gigabyte of storage. ISVs set a usage limit per service and put a price on this. This method can allow for easy analysis as ISVs can look at what products are selling a lot of units and which are not, helping them see which of their services can offer the highest growth revenue.
It is true that a lot of people like to get something for free, which is why freemium can be a useful model for drawing customers in. Freemium lets customers use the base features of a piece of software for free and then, if there are any features or functionality they want added on, they can buy these for a monthly cost.
This method is great for allowing customers to see what a piece of software can do, and therefore what the ISV is capable of, but there is a danger that some customers will use what they can get for free without purchasing any extra services. It's a delicate balancing act: customers need to get a feel for a service while still feeling they must pay to get the best out of it.