8 SaaS pricing models: How to choose one, strategies and tips for success

What is a SaaS pricing model?

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. 

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. 

Key considerations

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: Consider structuring like Amazon Web Services (AWS).

Amazon Web Services 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. 

Key considerations

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, because:

• Why it makes sense: Look at Dropbox’s freemium model.

Dropbox 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 pro-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. 

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

Key considerations

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: Consider Zoom's tiered subscription model.

Zoom 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. 

Key considerations

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

• Why it makes sense: Look at how Adobe does it.

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

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. 

Key considerations

Consider automating billing processes and providing clear, detailed invoices to boost customer trust and make administrative tasks more straightforward. For example, many companies have a straightforward monthly subscription model that 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.

Tips for testing and refining SaaS pricing models

Continuous evaluation is vital after choosing your software-as-a-service pricing model. Market dynamics, customer behavior, and your product's evolution necessitate ongoing adjustments to your SaaS fees. Here are key strategies for testing and refining your pricing:

1. A/B testing different pricing models

A/B testing involves presenting different pricing structures to various segments of your audience. This method allows you to compare the performance of different SaaS billing models in a controlled environment.

For example, you could test a per-user model against a tiered subscription model to see which generates more conversions or higher average revenue per user. A/B testing offers insights into user preferences. It also helps you understand the effectiveness of different pricing and packaging strategies.

2. Monitoring key metrics

Regularly tracking specific metrics helps you understand the impact of your pricing strategy. Let’s zoom in on what those key metrics are: 

• Customer acquisition cost (CAC): This metric shows how much it costs to acquire a new customer. Monitoring CAC helps you understand if your pricing model is attracting new users efficiently.
• Lifetime value (LTV): The LTV represents the total revenue a business expects to earn from a customer over their relationship. A healthy LTV indicates your pricing retains customers and encourages long-term engagement.
• Churn rate: This measures the percentage of customers who cancel their subscriptions over a given period. A high churn rate may suggest your pricing is too high or does not align with perceived value.
• Average revenue per user (ARPU): This ARPU metric calculates the average revenue generated per user. This metric helps assess the financial impact of different pricing tiers or usage patterns.
• Conversion rate: This measures the percentage of visitors who become paying customers. A low conversion rate might indicate that your pricing is a barrier for potential users.
• Monthly recurring revenue (MRR): The MRR is the predictable recurring revenue generated by your subscriptions each month. Monitoring MRR helps you understand your business's financial health and growth trajectory.
• Annual recurring revenue (ARR): Your ARR is the annualized value of your predictable recurring revenue. For businesses with longer contract terms, ARR provides a clear picture of long-term revenue stability and growth.

3. Pricing experiments

Beyond A/B testing, conduct broader pricing experiments. Think offering temporary discounts, introducing new tiers, or adjusting feature sets within existing plans. 

For instance, you might offer a limited-time promotional price for a new feature to gauge customer interest and willingness to pay. Document the results of each experiment to inform future pricing decisions as well.

4. Customer and sales team Feedback

Your customers and sales team can provide direct feedback on your pricing. Customers often share their perceived value of your product and whether they feel the pricing is fair.

Sales teams, on the other hand, hear common objections and preferences during their interactions with prospects. Gather this feedback through surveys, interviews, and regular team meetings. This qualitative data complements your quantitative metrics.

5. Competitive analysis

Regularly analyze your competitors' pricing strategies. Understanding how your rivals structure their fees helps you position your product effectively. 

Look for opportunities to differentiate your offering, either through value-based pricing or by targeting specific customer segments that competitors may overlook. This does not mean simply matching prices; instead, it means finding your unique competitive edge.

6. Value-based pricing evaluation

Continuously assess if your pricing accurately reflects the value your product provides. As your product evolves and adds new features, its perceived value may increase. 

Re-evaluate your pricing to ensure it aligns with the evolving benefits and solutions you deliver. Consider conducting customer surveys or interviews to understand how they quantify the value they receive.

SaaS pricing models for enterprises

Enterprise pricing for SaaS companies differs greatly from models for SMBs or individual users. While smaller businesses often benefit from standardized pricing of models like monthly subscriptions or freemium tiers, enterprise clients require more tailored solutions. The difference stems from their greater scale, specific needs, and higher potential value.

Enterprise deals often involve direct negotiations rather than fixed public prices. These negotiations can lead to custom contracts. These contracts include specific terms, service level agreements (SLAs), and bespoke feature sets.

Feature-based tiers are common in enterprise SaaS pricing. These tiers offer advanced functionalities, dedicated support, or higher usage limits that cater to large organizations. 

For instance, an enterprise tier might include single sign-on (SSO), advanced analytics, or custom integrations not available to smaller customers.

Challenges with scaling enterprise pricing structures

As a SaaS company grows its enterprise client base, managing custom contracts can become resource-intensive. Each negotiation may require considerable time from sales, legal, and product teams.

Another challenge is maintaining consistency across contracts while still allowing for necessary customization. This balance helps make sure you’re offering fair pricing and clear internal processes. Plus, as enterprise clients grow, their needs will of course evolve. 

The pricing structure must remain flexible enough to accommodate these changes without requiring constant renegotiation for minor adjustments.

7 Common mistakes with SaaS pricing models and their solutions

Mistakes in pricing SaaS models can hinder growth, impact revenue, and lead to customer dissatisfaction. One of the most effective ways to overcome these challenges is by using Orb Simulations, a powerful tool designed to take the guesswork out of pricing.

Orb lets you model and refine your pricing strategy using real usage data, before making any changes public. With Orb, you can test multiple pricing models in parallel, accurately forecast revenue impact, and adapt without code or disruption. 

Avoiding these pitfalls helps confirm your strategy supports your business goals:

1. Underpricing or overpricing your product

• Mistake: Charging too little undervalues your product and leaves money on the table. Charging too much deters potential customers and limits market adoption.
• Solution: Conduct thorough market research. Analyze competitor pricing. Understand your product's value proposition and customer willingness to pay. Balance cost recovery with perceived value and market position.

2. Lack of clarity in pricing tiers

• Mistake: Confusing or overly complex pricing tiers make it hard for customers to choose the right plan. Hidden fees or unclear feature distinctions cause frustration.
• Solution: Simplify your pricing structure. Clearly define features and limitations for each tier. Use straightforward language. Ensure transparency about all costs.

3. Not revisiting pricing regularly

• Mistake: Setting prices once and never adjusting them. Market conditions, product features, and customer needs evolve, making static pricing quickly outdated.
• Solution: Schedule regular pricing reviews, ideally every 6-12 months. Assess market changes, new features, and competitor strategies. Be prepared to adapt your SaaS billing models as your product and market mature.

4. Ignoring customer feedback

• Mistake: Developing pricing in isolation without considering customer input. Customers often reveal pain points, perceived value, and acceptable price ranges.
• Solution: Actively collect feedback from current and potential customers. Use surveys, interviews, and sales team insights. Adjust your pricing strategy based on these findings to align with customer expectations.

5. Failing to align pricing with value metrics

• Mistake: Choosing a pricing metric (e.g., per user) that doesn't scale with the actual value customers derive from your product (e.g., data processed).

Solution: Identify the core value metric that best reflects how customers use and benefit from your service. Align your pricing directly to this metric. For example, if your product's value rises with usage, a usage-based model is more suitable than per-user.

6. Poorly handling upgrades and downgrades

• Mistake: Making it difficult for customers to move between pricing tiers. This can create friction, increase churn, and limit expansion opportunities.
• Solution: Design clear and seamless upgrade and downgrade paths. Automate the process where possible. Ensure customers understand the value gained or lost with each change.

7. Not differentiating enterprise SaaS pricing

• Mistake: Applying the same standard pricing models to both SMBs and large enterprise clients. Enterprise deals often require customization and negotiation.
• Solution: Develop distinct enterprise SaaS pricing strategies. Offer custom contracts, dedicated support, and feature bundles that address the needs of large firms. Be ready for negotiations and value-based selling rather than fixed pricing.

Real-world examples of successful SaaS pricing strategies

To set the stage, the table below summarizes the case studies and their outcomes:

A closer look at each example:

Slack: Freemium model for viral growth

Pricing model: Freemium — Slack offers a free tier with limitations and charges per active user for premium plans. 

Strategic rationale: This model enabled product-led growth. The free tier allowed teams to use Slack and rapidly adopt it. Limitations on message history and integrations acted as clear upgrade triggers. This bottom-up approach meant users experienced value before committing.

Impact: Slack saw about 30% of free enterprise users convert to paid accounts, a high rate for freemium. This led to rapid user growth and helped them achieve a $1 billion+ valuation quickly. Paid users showed high retention, around 95%, confirming the model's success in monetizing core product value.

Snowflake: Usage-based pricing fueling expansion

Pricing model: Usage-Based (Consumption) — Snowflake charges customers based on actual resource consumption (e.g., computing credits, data storage), not per seat. 

Strategic rationale: This pay-as-you-go approach lowers the entry barrier for new customers. They start with low commitment. As customers gain value and increase their data usage or queries, their spending naturally grows. This directly aligns costs with customer success and product value. 

Impact: The consumption model was key to Snowflake's high growth, with over 106% year-on-year revenue growth. Its net revenue retention was an exceptional 158%, showing that existing customers expand their usage over time.

Salesforce: Tiered, value-based packaging at enterprise scale

Pricing model: Tiered Per-Seat Subscriptions – Salesforce uses multiple tiers (Essentials, Professional, Enterprise, Unlimited) with ascending features and support, priced per user. Add-on features are also available. 

Strategic rationale: This tiered model aligns price with the value delivered and client size. Lower tiers attract smaller businesses, while higher tiers unlock advanced capabilities for large enterprises. This provides a clear upgrade path as customer needs grow. Value-based pricing is reinforced by tying add-ons (like AI features) to direct business outcomes. 

Impact: Salesforce achieved substantial revenue ($31.35 billion in FY2023) with strong ARR growth. The multi-tier strategy enabled broad market coverage and consistent upsells, supported by high enterprise retention rates. Customers often expand their usage and product adoption, showing the model's effectiveness in maximizing customer lifetime value.

Atlassian: Low-touch freemium to enterprise upsell

Pricing model: Freemium + Tiered Per-User Plans — Atlassian offers free versions for small teams and tiered paid plans (Standard, Premium, Enterprise) charged per user, primarily through a self-serve model. 

Strategic rationale: The strategy focuses on volume and efficiency. Free entry points and easy upgrades (without heavy sales involvement) enable low-cost customer acquisition. As teams expand or require more features (e.g., higher user limits, security), they naturally move to higher paid tiers. This product-led, self-service "flywheel" fuels viral adoption and efficient scaling. 

Impact: Atlassian grew to over 260,000 customers and $3.5 billion in annual revenue. Its operating model is highly efficient, with high gross margins due to low customer acquisition costs. Cloud subscription revenue showed strong annual growth, driven by both new sign-ups and existing customers upgrading, demonstrating effective "land-and-expand" dynamics.

HubSpot: Freemium funnel and value-based upselling

Pricing model: Freemium Core + Tiered Bundles – HubSpot offers a free CRM and basic tools, then sells tiered paid "Hubs" (Marketing, Sales) priced by contacts or users. Bundled plans are also available. 

Strategic rationale: This model attracts a large volume of small businesses with free tools, acting as a "land then expand" approach. Once engaged, customers can upgrade individual hubs or add more based on their growing needs, aligning price with the value they derive (e.g., number of contacts, advanced features). 

Impact: HubSpot achieved high growth, with revenue reaching $2.6 billion in 2024. The freemium core resulted in a large user base (248,000 customers, 205,000 paying), significantly lowering customer acquisition costs. Paid customers often expand their subscriptions, leading to strong retention and expansion revenue (dollar-based net retention typically 110–120%).

Ready for a more efficient billing system?

For B2B SaaS platforms, establishing an efficient billing system is a must. It should accommodate complex pricing strategies and evolving user agreements. Orb offers a done-for-you billing platform that helps you handle any SaaS pricing model you choose.

Orb changes how SaaS and GenAI companies approach usage-based pricing and billing. Unlike rigid, traditional vendors, Orb helps you move faster.

 It decouples usage data from pricing metrics, ingesting all usage properties. This advantage allows easy pricing experimentation and fine-tuning your monetization strategy. 

You avoid missing events, losing revenue, or dealing with billing inaccuracies. Orb offers frictionless invoicing and financial reporting that adapts to your business. Here’s how Orb helps:

• Unmatched agility: Experiment with pricing and adapt to changes without limitations. Business teams can launch new pricing models without needing engineering resources. You can test pricing changes using historical data for confident decision-making. 
  
  Orb's flexibility supports all modern pricing models, including usage, subscription, and hybrid strategies.

• Precision billing: Deliver precise, error-free invoices by ingesting and processing all raw event data. This ensures complete data accuracy with a full audit trail for every calculation. 
  
  You get real-time usage tracking and a complete separation of product code from pricing logic.

• Seamless extensibility: Harness high-scale data ingestion with the Orb API. Query data with the Orb SQL Editor. Use built-in functions like Orb Billing, Invoicing, and Reporting. These tools are all built on your usage data with full financial stack integration and enterprise-grade reliability.
  
  You can also use Orb Simulations to test multiple pricing models in parallel, ensuring you select the best revenue-optimizing strategy before going live.

• Expert partnership: Orb acts as a trusted guide for SaaS companies navigating usage-based pricing. We offer dedicated implementation support, industry expertise, and ongoing optimization to confirm your pricing strategy drives growth.

Ready to take your billing to the next level and make scaling up less of a hassle? Check out Orb's flexible pricing tiers to find one that fits your needs.