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Are you a Software as a Service (SaaS) business owner? If so, you probably know that you need to price your product well so that your company is profitable.
If you price it too low, you may attract a large customer base. But you may find that the return on your investment is not high enough to overcome your own opportunity cost. If you price it too high, you risk not having enough customers, as your product is far above the average customer’s budget.
While the SaaS design is essential, pricing is vital. If you price your product appropriately, you can reap the advantages of SaaS. You can get a good idea of pricing your SaaS on key metrics for SaaS startups, like customer or revenue churn rate. Here, we look at some ways to price your SaaS product.
How Is SaaS Price Calculated?
The price of a SaaS product needs to balance out how much you, as the SaaS business owner, need to make to remain profitable with how much value a customer derives from the product. The less use a customer gets from a SaaS product, the less you can charge for it.
However, there are other elements to consider.
If your SaaS product is unique and highly innovative, you can charge more for it than you would if you were in a saturated market. But, even though you may have a monopoly on a SaaS product, customers will only buy if they think it is worthwhile. You need to find that pricing balance to become successful.
SaaS Pricing Structure
One of the advantages of SaaS products is that providers can sell them on a subscription basis. It means you can be more flexible in your pricing structures than if you were selling traditional software or even a hardware product.
In other words, you can attract customers by offering a better deal. It also means you have lowered your customer acquisition cost. For example, if you have a client that wants to have more than ten accounts available to access your SaaS, you can charge them less per head than someone who only wants one or two.
Another idea to consider when structuring pricing for your SaaS is having different tiers of accounts. Many clients may still be attracted to your SaaS, despite a higher subscription fee. If they get a slightly better service, it can be a good way of attracting various customers, and revenue streams will broadly reflect the same marketing spend.
What’s great about this is that this slightly better service will not cost you more from the business side. You could offer more storage or accounts which can access your service. These unique selling points can attract customers and, importantly, persuade them to stay on as subscribers.
Other Considerations For SaaS Business Models
SaaS business models can be more reactive to their pricing structures than companies that make physical goods. Once the infrastructure is up, most SaaS companies often spend their budget marketing to new customers.
We also must keep an eye on critical metrics such as retention and churn rates. A high churn rate identifies your product is not delivering value to customers, and they are jumping ship. If you lower your pricing, you can stop spending money on new customers to replace old ones since they will be much more likely to stay.
Pricing Enterprise SaaS
Getting your price right is vital for your business to become a successful one. And even if your pricing structure means you are profitable, you still take home less income than in a regular job. Significantly, you must factor in how much money you need to take from the company to pay the bills. You may want to revisit your pricing structure to see whether you can improve it to increase your overall earnings. Get the fee structure right, and you will undoubtedly begin to see the profits roll in!
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