Pricing Schemes in SaaS Industry— Wharton’s Marketing Analytics program
This is Wharton’s Marketing Analytics program activity 3.1 during week three’s module — Pricing Analytics. The module talks about how to use data to make better pricing decisions. Below are the questions and my thoughts on them.
Do some internet research to find an innovative pricing scheme, either in your industry or in another industry you’re interested in.
- What industry did you research?
- What was the pricing scheme you found?
- Which organization uses it?
- What did you find interesting about this pricing scheme?
- How well does the pricing scheme appear to be working for the organization?
My research: pricing scheme in subscription-based SaaS industry
I researched the pricing scheme in the subscription-based SaaS industry for professionals, including integration service, SEO tools, and project management software.
These are the five common pricing schemes in the field: Flat Rate, Tiered Plan, Usage-Based, Module-Based, and Per-User.
Below is an explanation of each of these pricing schemes:
Flat Rate Pricing
Flat rate pricing charges users a flat fee per billing cycle for all features at all offerings. For example, if you subscribe to the New York Times, you pay a fixed rate per month or year.
This pricing model makes it easy for customers to opt-in, and similarly, it also makes it easy for business owners to forecast revenue based on seasonal patterns, sales trends, customer retention, and churn rate.
However, more and more SaaS companies are turning to tiered pricing for scalable pricing structures. This model is used primarily by businesses that sell physical products in consumer-facing contexts.
Tiered Pricing
Tiered pricing offers multiple options for customers and charges them based on their needs.
Take Netflix for example, it offers three tiers of plans to their customers in Taiwan. The plan you choose will determine the video quality and the number of screens you can watch Netflix on at the same time.
Tiered pricing models give customers the flexibility to scale up or down, depending on what they need. In the meantime, it gives you opportunities to upsell different service levels for added revenue.
Usage-Based Pricing (aka Pay as You Go Pricing)
Usage-based pricing allows customers to pay for products according to how much they use. Most cloud-based and API-based services use this usage-based pricing model.
Take the automation platform, Zapier, for example. It offers a free tier to customers to get started. Customers will be charged based on the number of tasks automated through the platform.
This pricing model allows a customer to start at a low cost, attracting more customers to get started while still preserving the ability to monetize.
Module-based Pricing ( Add-on Pricing)
Module-based pricing model, a.k.a Add-on pricing, charges customers with a “base product”, and provides the option to add modules for more functionality — at a higher cost.
Companies with modular functionality can easily create added value to their core product. Customers enjoy the flexibility to choose which add-ons they want base on those values and functionalities they need.
This pricing model has been commonly used in ERP, constructions software, and website builder. For example, a website builder that provides add-on features, such as WordPress.
Per-User (Per-seat Pricing)
The per-user pricing model allows businesses to charge based on the number of individuals using the product. For instance, Canva, an online graphic tool, charges its users on a per-user basis for using the product.
In this model, the revenue scales with the product’s adoption by the users in the company. Every account is charged, which makes it easier to predict revenue.
My findings: $12USD ~ $15USD per month is the right price to charge
From my experience, the tiered pricing scheme seems to be the most frequently used. I started my research with Wix.com, a famous website builder for content creators, which offers four pricing plans that come with different features, such as bandwidth, storage space, and video hours for customers to choose from.
I found it interesting that the most popular/ standard plan across different SaaS tools is priced at $12USD to $15 USD per month. It seems like there is an unspoken rule that this is the right price to charge monthly!
According to the Wix website, there are over 200 million users worldwide. From all appearances, the pricing scheme of the tiered plan appears to be working fine for Wix.com.
References
https://www.profitwell.com/recur/all/flat-rate-pricinghttps://www.chargebee.com/resources/guides/saas-pricing-models-guide/https://www.iproduction.com/modules/module-based-pricing
