8 SaaS pricing models and how to choose one

Alvaro Morales

Embarking on the journey of launching and maintaining a B2B SaaS platform is an endeavor that demands not just continuous innovation but also strategic foresight.

It's about laying a robust foundation — from selecting an advanced tech stack to navigating the intricacies of data and privacy regulations and managing cloud hosting expenses with acumen.

But if there's one thing that industry leaders and successful B2B SaaS companies agree on it’s this

Pricing is the lifeblood of revenue

You might have a solid grasp on how you want to monetize your product, but then, key questions start to pile up…

  • What value do we offer? How does it compare to costs?
  • What's going to make our customers feel like they're getting bang for their buck? 
  • Should we throw in a free tier so we can create opportunities for upselling? 

In our in-depth guide on choosing the right SaaS pricing model, we’ll help you quickly assess the winning strategy for your B2B SaaS products by:

  • Exploring what a SaaS pricing model actually is.
  • Running you through the 8 most popular types
  • Helping you choose one that’s right for your SaaS product.

First, let's ground ourselves with a fundamental definition.

What is a SaaS pricing model?

Simply put, a SaaS pricing model determines how much you charge customers for using your product. Additionally, it structures how you categorize customers - from free users to premium and enterprise clients – each with distinct features, access rights, and pricing.

But that’s not all – the pricing model also outlines how customers pay for the offering; whether that’s a flat monthly fee, pay-per-use, or a hybrid approach that combines several billing strategies to accommodate diverse customer needs and usage patterns.

With that in mind, let’s take a look at some options you can choose from

A quick look at the 8 most popular pricing models

  • Monthly subscription: A fixed fee for access to the solution each month.
  • Usage-based pricing: Costs vary based on the amount of service or resources used.
  • Tiered subscription: Different pricing levels offering varying features and limits.
  • Per seat/user: Pricing based on the number of users or seats.
  • Active user pricing: Charges based on the number of monthly or daily active users.
  • Prepaid pricing: Users pay in advance for usage credits/tokens or time.
  • Lifetime deal: One-time payment for lifetime access to the software.
  • Freemium: Basic services offered for free with charges for advanced features.

Putting SaaS pricing models under the lens

1. Monthly subscription

Opting for this pricing model means you’re committing to a paradigm where customers gain access to your software against a backdrop of a predictable monthly fee. By choosing this model, you’re:

  • Making your revenue easy to predict: A fixed price means you’ll know what’s coming each month, helping you gauge revenue once a couple of months have passed. 
  • Helping customers with budgeting: If they know how much they need to pay each month, it takes all of the guesswork out of budgeting. This makes it easier for them to sign up for your SaaS solution without any nasty surprises at the end of the month. 
  • Simplifying administration: Streamlining the billing and access process makes it easier for both your team and our customers to manage accounts and payments.

2. Usage-based pricing

If you go with a usage-based pricing model, customers will pay based on how much they use your SaaS solution. We’re talking anything from bandwidth to storage, or API calls (especially with AI-based products). So, by choosing this model, you're:

  • Matching cost to value: This model excels in aligning cost directly with the value rendered, ensuring a symbiotic relationship between your service's utility and the customer’s investment.
  • Supporting different types of needs: Scale-ups and startups have different usage patterns. usage-based pricing gives different types of customers the power to decide how much they want to spend based on their particular needs.

3. Tiered subscription

Implementing a tiered subscription model involves structuring your pricing to offer various levels of service or features at different price points. This approach signals that you're:

  • Catering to a wider customer pool: More tiers mean more options for customers to choose from. Startups might think “basic functionalities will do for now” while large enterprises might go with the “I need the full suite of tools approach.
  • Encouraging growth: Designing your tiers to naturally lead customers towards higher tiers as their needs evolve, facilitating both their growth and yours.

4. Per seat/user

In a B2B context, a per-seat pricing model aligns costs with the scale of the client's operations, reflecting the value and utility provided to larger teams. This approach highlights that you're:

  • Making customer success a priority: If your customer’s team grows, so does your revenue. If your customer’s team stays the same, they won’t have to pay higher fees. This guarantees your revenue directly correlates to your customer’s growth.  
  • Providing financial clarity: Customers will be more likely to choose solutions that help them portion their budget in a clear-cut fashion. A per-seat model lets customers know how much things are going to cost as their team scales up. 

5. Active user pricing

Opting for active user pricing means your billing is directly tied to how often users actively engage with your software, either on a monthly or daily basis. 

While this may seem similar to per-seat strategies, it’s important to make the following distinction: Per-seat fees change if new users join the platform, while active user pricing fees change based on usage – even if it’s just one active user engaging with your solution. 

So, going with this strategy means you’re: 

  • Charging customers fairly: Nobody likes paying for something they aren’t using. If you align costs with actual engagements, customers will pay proportionately to the value they derive from your SaaS product.
  • Making billing easier: A pricing model based on Monthly Active Users offers a more accurate billing method for small teams servicing large customer bases, compared to per-seat pricing that scales with the number of employees using your platform.

6. Prepaid pricing

If you implement a prepaid pricing strategy, it means that customers pay in advance for a specific volume of service. By choosing to go down this road, you're:

  • Making costs more predictable: By requiring payment upfront, you and your customers benefit from a clear financial outlook. You’re guaranteeing revenue for your business while providing customers the benefit of a locked-in rate. 
  • Offering value through discounts: Another key benefit of a prepaid plan comes in the form of discounted rates, which provide the added value of being an incentive for customers to commit. 
  • Giving yourself a huge cashflow boost: Opting for prepaid pricing secures revenue in advance and enhances your cash flow, allowing you to reinvest in your business before services are delivered.

7. Lifetime deal

Going for a lifetime deal model means you're offering customers unlimited access to your software for a single upfront payment. This strategy highlights that you're:

  • Making fast growth a priority: A lifetime deal can help you expand your customer base, making it an attractive option for customers looking to establish a market presence. You’re offering high value at a perceived low risk for the customer.
  • Catering to budget-conscious users: This model appeals to customers seeking long-term solutions without the worry of ongoing costs, providing significant value upfront.

8. Freemium

Going the freemium route means offering a basic version of your software for free while charging for advanced features or functionalities. This approach signals that you're:

  • Expanding your market reach: Providing free access lowers the barrier to entry, allowing a wider audience to experience your core offering. This is a great strategy to increase your user base without being too salesy
  • Encouraging product exploration: You’re essentially making your product do the heavy lifting! This happens because users can test and derive value from your service without financial commitment, helping you increase conversion rates. 

Decision time: How do you choose the right one?

Choosing the right pricing model is a strategic decision that requires a deep understanding of your B2B market segment. 

But before you make a definitive choice, let’s take a look at some key considerations you should be taking into account when choosing your ideal SaaS pricing model.

Your product type

In the diverse ecosystem of SaaS offerings, each product emerges with its unique blueprint. Grasping how your customers interact with and extract value from your product’s features is paramount, shining a light on the essence of its utility.

For instance, AI-based products generally require you to pay model providers like OpenAI or Anthropic for credits when someone uses your service, so your SaaS pricing will need to charge customers appropriately based on this key factor. 

On the other hand, if your solution offers a full suite of tools, then your product might benefit from a tiered subscription model due to the sheer amount of features on offer. You don’t want to give them all away but still give customers a clear upgrade path

Our recommendation

For products that vary significantly in how customers derive value or in their consumption patterns, it is advisable to implement clear usage metrics and thresholds

These should reflect the actual consumption rates and limits of your SaaS product, ensuring transparency with customers. This approach prevents surprises and fosters trust by closely aligning costs with the value provided or usage levels experienced by the customer.

  • Why it makes sense: Services like Amazon Web Services (AWS) demonstrate the advantage of usage-based pricing, where costs directly correlate with the amount of resources used. This model can make expenses more flexible and aligned with actual usage.

Extra tip: Keep in mind that this approach may lead to unpredictability in costs without clear visibility into usage patterns. 

Users often face surprises when invoices arrive, highlighting the need for real-time monitoring tools. Such tools can help users better anticipate expenses, merging the benefits of usage-based pricing with greater cost predictability.

Your target customers

When choosing the right pricing model, consider your customers' budget and their perception of value as key indicators.

For instance, if your target customers are small to medium-sized businesses (SMBs) consider a freemium or affordable monthly subscription. This approach minimizes their financial risk and makes trying your service an easy choice

Our recommendation

Consider a freemium model but take a didactic approach. Take this as an opportunity to teach your customers about how great your SaaS solution is by letting them experiment with it freely. 

Ideally, every feature unlocked at every tier should feel like an expansion of what they already know.

  • Why it makes sense: Dropbox’s freemium model is targeted at individual users and small teams with their free Basic package. They understand that casual users may not pay for the service upfront, but continued engagement with the product could lead to upselling opportunities.

Extra tip: You can replicate and improve on Dropbox’s strategy by ensuring your free tier provides enough value to engage users while making the benefits of upgrading clear and compelling from the get-go. 

Your growth goals

Whether your definition of “growth” means rapid market share acquisition or sustained revenue aligning your pricing strategy with your business's growth objectives really makes a difference. 

But there’s a catch… Growing also means new challenges. 

Think of a credit-based AI solution vs. a standard non-AI cloud-based solution. Most AI products rely on API requests to ChatGPT, and paying for those requests comes out of your pocket. 

So, exponential growth with the wrong pricing model might mean losing money every time users interact with your solution.

Our recommendation

Try a tiered subscription model. This strategy helps in rapid market penetration because it offers options for every budget and need, making it attractive to a wider range of customers.

It also secures ongoing revenue growth by encouraging upgrades as customer needs evolve. Initially, users might sign up for a lower-cost tier, but as they grow or require more features, they're likely to move to higher-priced tiers. 

You should provide clear value at each level and a smooth upgrade path so customers can visualize which features they could get access to if they need to upgrade in the future.

  • Why it makes sense: Zoom's tiered subscription model is a great example of successful growth alignment. It offers a free basic tier with some trial limitations while also providing compelling paid options for extended meeting times and extra features. 

Competitors' pricing

Crowded markets can be a huge issue when trying to get your SaaS solution out into the world. That’s why positioning your product competitively while offering clear value is an absolute must if you don’t want your product to be left by the wayside. 

Our recommendation

For businesses looking to avoid head-on competition, focusing on how your product's delivery model can evolve to meet contemporary needs and exceed customer expectations can give your product the competitive edge it needs to remain relevant.

You can take a tip from Adobe’s playbook, as they shifted from lifetime licenses to the Creative Cloud subscription model

  • Why it makes sense: This change helped the company meet evolving user preferences while also setting it apart from its competitors, emphasizing continuous innovation and value over one-time purchases with its full set of tools readily available for paying users. 

Ease of billing

To put it simply, the easier your billing process is, the easier it will be to up your game in terms of operational efficiency. In practice, building and supporting an in-house billing system requires huge engineering resource expenditure. Needless to say, that is not optimal at all. 

Our recommendation

Consider automating billing processes and providing clear, detailed invoices to boost customer trust and make administrative tasks more straightforward. For example, Spotify’s straightforward monthly subscription model offers a hassle-free billing experience.

Partnering with experts in billing would be a good call, especially if billing issues are hindering your finance team’s efficiency or if your specific target users could benefit from more granular data in their billing info.

  • Why it makes sense: We’re circling back to the AI-based software example for this one. Usually, a single token may equate to fractions of a dollar, so choosing a pricing model that accounts for these particular cases makes your monetization strategy more transparent both for customers and your finance team.

Bottom line

Choosing the right SaaS pricing model doesn’t need to be an overly complex matter

Now you're ready to make an informed decision that will help you focus on making your solution the best it can be, rather than wondering how you’ll actually make money with it.

Next steps

For B2B SaaS platforms, establishing an efficient and flexible billing system is crucial to accommodate complex pricing strategies and customer agreements.

Orb offers a done-for-you solution designed to transform usage data into invoices:

  • Fast integration: Orb's user-friendly platform offers granular invoice data, extensive documentation, and dedicated support. Whether you need to integrate data from legacy systems or build your billing engine from scratch, Orb’s got you covered.
  • Customization is king: Orb’s flexibility allows you to support a myriad of SaaS pricing models, including hybrid strategies that combine usage-based models and subscription-based fees.
  • Plays nicely with your existing stack: Orb comes with integrations to data warehouses like Snowflake, finance tools like Netsuite and Quickbooks, and even has a direct SQL editor available when your team needs to roll up their sleeves.
March 25, 2024

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