6 Common SaaS Pricing Models for Businesses: Pros, Cons, & Tips

Choosing a Software as a Service (SaaS) pricing model is a make-or-break decision for start-ups and enterprises alike. The right model will help you reach profitability and growth on the way to product-market fit. The wrong model will lead to lost revenue and potentially alienating customers if it’s too complicated.

Pricing models for SaaS products vary widely, but can essentially be broken down into six main types, each with its advantages and trade-offs.

Here’s a closer look at each common pricing model.

Flat rate pricing

Flat rate SaaS pricing is the easiest way to sell software. You offer a single price for a product and a set of features, and either the client likes and buys or dislikes and doesn’t buy.

In the world of sales, it doesn’t get much simpler.

Pros

• Easily communicable price – It’s easier to convey, market, and sell a product with a single price.
• Predictable revenue generation – Every customer pays the same amount, providing a steady revenue stream that’s easy to forecast and drive decisions.
• Ideal for niche products – Flat rate works well in specialized industries where customers value stability over new features or flexibility.
• Suitable for initial traction – Early-stage startups can focus more on reaching out to customers, building momentum, and searching for product-market fit if they have a straightforward, low-risk entry point.

Cons

• Missed opportunities with larger customers – Enterprises might extract more value without paying more, leaving revenue on the table.
• Fewer upselling possibilities – Companies may find themselves with limited options to increase customer lifetime value as their needs expand.
• No segmentation – You can’t tailor offers to different customer personas, which can hinder your efforts when entering new markets.
• One shot at pitching customers – There’s no nuance or flexibility to flat rates. Either the customers want the product or don’t.

Flat rate pricing is uncommon nowadays for SaaS companies, but some companies use it to help build traction, target a niche market, or emphasize a straightforward nature.

Example: AiSDR 

AiSDR offers a flat rate of $750 per 1,000 emails with all features unlocked.  

Usage-based pricing

Also known as the pay-as-you-go model, usage-based pricing changes users only for what they use. The more you use, the more your bill goes up. Use less, and your bill goes down.

The end goal of this model is to align pricing with the value users receive. Naturally, this comes with pros and cons.

Pros

• Scalability – Usage-based pricing is ideal for companies with fluctuating needs, such as businesses and enterprises with different divisions.
• Low barriers to entry – Small businesses and startups can start small and pay more as they grow.
• Flexible for variable needs – Companies experiencing seasonal demand benefit by scaling costs according to their actual usage.
• Perceived fairness – Customers perceive usage-based pricing as fairer because they don’t pay for idleness.

Cons

• Unpredictable revenue – Revenue can be challenging to forecast because usage can and will vary from month to month.
• Potential for “sticker shock” – Unexpected usage spikes can lead to higher bills, causing discontent, frustration, and potentially even anger. You won’t like it if your product has a bug and uses a lot more than it should have.
• Disconnect from product value – Customers may struggle to link usage metrics (like API queries or bandwidth) to the benefits they gain from the product, making it difficult for them to justify the pricing.
• Revenue imbalance – You might undercharge large enterprises with low usage while overcharging smaller companies during usage spikes.

According to Pricing Intelligently’s The State of B2B SaaS Pricing in 2023 report, over 33% of companies use a value-based pricing strategy to scale their SaaS companies.

Usage-based pricing can come with uncertainty. For example, large enterprises may end up using your product less than expected while small companies run higher usage than predicted.

Example: Amazon Web Services

AWS effectively championed usage-based pricing when it created its Web Services department. All services are on-demand, and you pay strictly for what you use.

Tiered pricing

Tiered pricing allows you to offer multiple packages with different features at various prices. It’s also the de facto pricing model used by most SaaS companies, as well as sales software and many AI tools. On average, companies offer 3-4 tiers geared towards low, middle, and high price points.

Pros

• Caters to multiple personas – By offering various tiers, you can appeal to different customer segments.
• Reduced churn – Adjustable plans improve customer satisfaction and reduce the risks of churn.
• Incremental upgrades – You can incentivize customers to start with a more affordable tier and upgrade their plan when their needs grow.
• Encourages upselling – Tiered pricing enables you to upsell to existing customers without aggressive marketing. You can instead emphasize the extra features and value to be gained.

Cons

• Confusing to customers – Too many tiers or inconsistent feature inclusion can lead to decision paralysis and lost sales.
• Doesn’t suit all industries – Tiered pricing can appear inflexible in niche markets with specific needs.
• Risk of value overlap – Poorly structured tiers may blur the perceived value difference, making upgrades less appealing.

The tiered pricing strategy is one of the most common in SaaS because it allows products to target start-ups and enterprises alike while minimizing the risk of under or overcharging.

Example: Dropbox

Dropbox tailors its pricing tiers based on the types of customers they expect: individuals, professionals, and teams. This approach also makes it easier to understand the value of higher tiers.

Seat-based pricing (user-based)

Seat-based pricing means charging a single account based on the number of users and entities that access the software. Many companies that choose seat-based pricing frequently use it in tandem with tiered pricing.

Pros

• Scalable revenue generation – Your revenue scales as the clients extend their user base.
• Prevents churn – If the client downsizes, they can still keep using your product for a smaller fee.
• Predictable for both parties – Both you and your customers can reliably forecast revenue and expenses.
• Ideal for collaboration tools – This model is suitable for B2B projects that require team collaboration.

Cons

• Limited adoption – Smaller companies may limit user numbers due to cost concerns, affecting adoption rates.
• Possible login sharing – Log-in abuse can become an issue, with teams sharing credentials to avoid paying for extra seats.
• Disconnect between users and value – The number of users may not correlate with the value received.
• Value misalignment – It can affect satisfaction and churn rates if pricing doesn’t reflect actual usage.

Seat-based pricing is preferable when you plan for multiple users with distinct accounts to rely heavily on a product. It’s ideal for companies that want to keep costs limited to the number of users, and scale up and down as necessary.

Example: Slack

Slack employs a hybrid model where they use seat-based pricing in addition to tiered pricing. First you select the tier you want, then Slack will charge a flat amount for every user.

Slack takes this model one step further by only charging you for active users, regardless of the number of users connected to your account.

Freemium

A portmanteau of the words “free” and “premium”, the freemium model is a way for you to offer a free version of your product while providing an option to upgrade to a premium plan with extra features.

Pros

• Lower barrier to entry – You can attract more users by allowing them to try the software without financial commitment.
• Viral potential – More users mean more word-of-mouth marketing, which provides a pool of new potential customers.
• Great for smaller businesses – Companies with tight budgets can use the free version and upgrade as they grow.

Cons

• Conversion challenges – It’s difficult to turn free users into paying customers if they find the free version enough for their needs.
• High operational costs – Supporting a large base of free users without a proportionate revenue stream can drain your server capacity or customer support resources.
• Devalues premium features – If the free tier offers too much, users may not see the need to upgrade at all.

In theory, freemium is a useful strategy for building a dedicated customer base before pivoting to a pricing strategy that targets premium users. However, this is easier said than done, and you need to emphasize the value gained by upgrading to a paid account.

A common tactic companies might try is a free trial of a premium tier for one or two weeks before downgrading the user to the freemium model.

Example: Zoom

Zoom is far from the only famous freemium model. Google Workspace and Dropbox also used it to great success. That said, Zoom’s model is notable for its limit on meetings, which are capped at 40 minutes, which is too short for a large business meeting or classroom session. 

Per-feature pricing

A la carte or per-feature pricing allows customers to pay for individual features. It’s similar to a tiered plan, but it offers companies the chance to pick and choose the features they want.

Pros

• Fully customizable plans – Customers can add or remove specific features based on their needs.
• Strong upgrade incentives – You can encourage customers to unlock advanced features incrementally.
• Strong retention tool – Customers who only pay for the features they use are less likely to churn.

Cons

• Complexity in pricing – A wide array of features can make pricing complicated to market and sell.
• Difficult to get right – Misjudging the pricing of certain tools can devalue the premium product, pushing customers away.
• Room for resentment – Customers might feel overcharged for essential features if improperly implemented.

Per-feature pricing gives users a sense of control over their spending. It’s common for specialized SaaS products, like business intelligence or legal and accounting suites. 

However, the complexity of per-feature pricing requires careful management to ensure customers understand the value and feel that pricing is fair. It also demands more time and effort to ensure that the features will lead to profitability.

Example: Adobe Creative Cloud

Adobe allows users to buy bundles of features for specific purposes, such as photography, illustrator, and PDF-related work. As you buy more bundles, the price goes up. At some point, you’ll come across a bundle of all apps with a big discount.

How to adjust your SaaS pricing for revenue growth

Finding the right pricing strategy for you takes time and experimentation. After all, every company is different.

• You shouldn’t feel limited by the available pricing models. If necessary, combine several plans into a hybrid model. 

• You can offer flat-rate and subscription-based plans. You may also consider introducing a unique pricing model for different suites of features.

• If operating globally, adjust your pricing based on the customer’s buying potential and local competition. You might have to account for if your PMF type changes for different countries.

• Psychological tactics work. You can “anchor” a high-priced enterprise-tier plan next to a mid-range plan to make the latter appear more attractive. 

• Use time-limited trials or feature limits to create a sense of urgency, encouraging free users to convert to paid plans.

Between 2022 and 2023, 98% of SaaS businesses updated pricing and packaging, with 38% of these companies adjusting their pricing models quarterly.