Is the User Based pricing model right for your SaaS application?

Often criticized as a relic of the 90s, the user based pricing model is still used to sell SaaS services and many successful companies rely on it. However, it does not make sense for every business.

If you are trying to figure out if the user based pricing model is the right model to sell your SaaS application, you are in the right place.

User based vs usage based pricing model

Sometimes software vendors confuse user based pricing with usage based pricing. Even if the name may sound similar, they are completely different.

With the usage based pricing model, vendors bill customers for the actual usage of an application. With the user based pricing model, vendors charge customers for the number of users associated to their account.

The user based pricing model is typically used to sell customer support, CRM or ERP solutions. As a matter of fact, companies pay according to the number of employees who can access and use the application.

If you find it interesting, you are not the only one: according to a survey by Pacific Crest, the user based pricing model is the most popular pricing model among SaaS businesses.

Pros and cons of the user based pricing model

Pros

Simple and scalable

The user based pricing model is great for businesses which scale over time. Customers can start at an affordable price, and then pay more as their needs grow. Moreover, it is easy to understand, so customers know exactly what they are paying for.

Ideal for large and small organizations

Small organizations appreciate the fact that they can keep costs low, paying only for the number of users that actually need the service and knowing that adding new seats is easy and quick. Large organizations appreciate that the price is clear and that there will be no unexpected fluctuations in the costs of the service.

Predictable revenues

Vendors can easily calculate and predict revenues.

Cons

Share and save

To keep costs low, customers tend to share their accounts so that they do not need to add users to their plan. Especially if you are targeting small organizations, this might be a problem for your revenues.

Churn

When customers use the service only for a limited number of users, they could churn and witch to a new service with a minimum impact on their activities: retention is usually an issue, especially if you are targeting small organizations.

Slower growth

Account sharing and high churn rates can represent a problem for growth: according to a survey by McKinsey, companies with non-user based metrics tend to grow about 40% faster than those that do not.

How you can implement a usage based pricing model in Cloudesire

The Cloudesire marketplace platform allows software vendors to easily implement different pricing models, including the user based pricing model.

This is how you can implement the user based pricing model:

Step 1: Create the "Users" extra resource in the product configuration section

Step 2: Set up the price for the "Users" extra resource for each plan

Step 3: Save & publish on the marketplace

For more information about the "Extra resources" section, take a look at this video.

 

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