SaaS Brief

How to Build Your SaaS Billing Model

Building SaaS Billing Models

One of the make-or-break factors in the success of any recurring billing company is the way it selects and implements its product billing model. There are several factors that contribute to the importance of SaaS billing. 

For one thing, other than product quality and market fit, there are very few things that play a larger role in your customers’ choice to remain loyal to your brand or not. 

Part of what makes finding an optimal pricing strategy so tricky is that it needs to accomplish two different goals at once: 

  • It should line up with the value your customers get from using your product. And ideally, it should also offer them some benefits like the flexibility to upgrade or downgrade to appropriately align with their needs.
  • Your pricing strategy should be set up to maximize your SaaS company’s monthly and annual recurring revenue. 

Accomplishing these goals is simple in theory, though not so easy to put into practice. (Though automated billing and accounting software has made it significantly simpler and faster than it was.) The pricing discovery process often involves ongoing experimentation across time as your customer base develops. 

Here are the five most common SaaS pricing models, and the benefits they can deliver for your customers and your company’s bottom line. 

Feature-Based Pricing 

Feature-based pricing is one of the more popular pricing strategies among SaaS companies. There are a few different reasons for this, including: 

  • It allows users to “choose their own adventure” within your app or software product. They’re only paying for the features they actively use and need, which means they’re much less likely to churn.
  • Feature-based pricing sets the stage for customers to upgrade to access more benefits. Allowing your customers to encounter the limits of their subscription level over time lets them see the benefits of upgrading. 
  • It allows SaaS companies to recoup their expenses on product features that might be costly or time-consuming to implement and maintain.

Feature-based pricing offers your customers an a la carte SaaS experience. And if there’s one thing that draws in customers in all kinds of different contexts, it’s the power of choice. 

Sometimes, though, a simpler approach might be preferable.

Flat-Rate Pricing 

Flat-rate pricing is probably the simplest of all the pricing strategies. 

Everything is laid out for the customer right at the start of their relationship with you. They know precisely what they’re getting for the duration of that relationship, and precisely what it costs. Sounds simple, right?

But in the world of CFOs, there’s no such thing as a free lunch. Even if you go the flat-rate route, you’re going to have to clearly explain to your board how and why your choice of pricing model will lead to long-term profits. 

In other words, you’ll be involved in a process of strategically justifying your choice with concrete figures and projections. And you’ll be expected to do this no matter which pricing model you advocate for.

SaaS accounting software enables you to plug in different data sets based on different pricing models, and get lightning-fast annual and monthly recurring revenue projections.

Give Out a Free Sample

Giving customers a free sample is one of the oldest sales strategies in existence, for a simple reason: it tends to work. Many SaaS companies and startups have demonstrated the effectiveness of the “freemium” approach, from dating apps to digital job hunting sites and everything in between.

In the software world, there are 2 different approaches to giving out free samples. The first involves giving customers access to a limited number of features for as long as they’d like. The second involves giving them access–either full or partial–for a limited amount of time and then shutting off their free trial.

Especially if you’re in the B2B SaaS market, if you give someone access to your product for a period of time, there’s a strong chance for repeat business because they’re probably using your software for a revolving and repeating task. 

Most business departments, after all, tend to engage in a somewhat narrow and repetitive set of daily tasks. This strategy allows you to capitalize on that.

User-Based Pricing 

Speaking of corporate teams, user-based pricing is incredibly well-suited for SaaS startups that cater to corporate teams. 

If one member of a company’s marketing department or accounting department finds your product genuinely useful, the odds are high that they’ll tell their colleagues about it. 

Streaming apps are also known for using this type of pricing in the form of variable-price family plans. However, this pricing model could be easily and effectively adapted to SaaS companies in all sorts of different industries.

Another benefit of this approach is that it’s transparent and simple. There’s no pricing ambiguity involved when it comes to user-based billing.

Tiered Pricing 

Tiered pricing is very similar to feature-based pricing, where customers pay based on the number of features they select. 

However, there’s one key difference. With tiered pricing, the company has divided all of the features up into different tiers, with set prices for each tier and the ability to upgrade at any time the user chooses.

Tiered pricing puts a bit more control into the hands of SaaS CFOs in one important sense. Once you have data on what the most-used features of your product are, you can strategically arrange your pricing tiers so that a few of the most popular features are only available to those who are willing to pay top dollar. 

Of course, you’ll also need to be careful that you don’t price yourself out of the market. If you roll out (or switch to) tiered pricing, make sure you use your tech stack to carry out research to maximize your revenue from different pricing tiers without driving customers away.

Summing Up

Whatever pricing strategy you decide to bring into play, make sure it’s backed up by as much data supporting data as you can gather.

When it comes to product pricing, there will always be a certain amount of guesswork, trial and error involved. But you should do your best to minimize that by relying on hard data generated by your accounting software. If you’ve outgrown your current tech stack and are ready for an upgrade, these are the 5 essential features you need.

Upgrading from QuickBooks SaaS eBook Banner

Back to Blog Home

Recent Posts