Software-as-a-Service (SaaS) is an amazing way to deliver a product for many reasons, one of which is that there’s almost no marginal cost save for hosting bills and customer service. With high gross margins generally, there’s a fair amount of flexibility in how the service is priced.
Here are some of the more common pricing options for SaaS products:
- Per user that uses the system with pricing differentiation based on type of user (e.g. an administrator user would be more expensive than a report viewer user)
- Per module used (e.g. based on functionality)
- Per instance of a type of object used (e.g. based on how many of X are used, like projects managed or emails sent)
- Per transaction (e.g. a percentage of a deal, like how eBay does)
There’s no right or wrong answer, but in general, pricing should be kept as simple as possible while also representing the value delivered to the customer.
What else? What are some other pricing options for SaaS products?
David, I’ve really enjoyed reading your blog. I am part of a Saas startup which recently got an unexpected call from a LARGE global firm who has asked us to quote a corporate level price. They have >500 offices with between 10-20 users per office. We’re a little unprepared to quote a price yet, as i) we are just out of beta ii) we haven’t set up our payment processing yet iii) expected we would sell the service user-by-user rather than at the corporate level in the beginning. Is there an email address I could use to send you more information and background? I would enjoy (and appreciate) any insight you could provide us, as you are one of the only bloggers I have found who regularly discusses Saas pricing so openly.
Sure, use LinkedIn to connect with me and I’d be happy to help.
Also would be interested to hear any recommendations for legal counsel to review any type of service agreement we would need to put in place for a large deal such as this. Thanks David.
Is there a common product in your industry that you could re-use their terms of service (e.g. Salesforce.com)?