So you’ve poured months (maybe even years) of work into building your SaaS product. The features work smoothly, your beta users love it, and you’re ready to take the market by storm. But first, it’s time to tackle the all-important subject of choosing a pricing model.
Should you go with a flat rate or a usage-based approach? Would a tiered structure better capture different customer segments? Is freemium a smart growth tactic, or will it devalue your product?
These pricing models do more than help you set prices. They shape your customer’s perception of value, influence buying decisions, and directly inform your revenue and growth potential.
This article breaks down the most popular SaaS pricing models, their pros and cons, and helpful tips for choosing one that best suits your business to help you decide.
What Is a SaaS Pricing Model?
A SaaS pricing model is the strategy you use to set prices for your product. More specifically, it’s your blueprint for capturing the monetary value your SaaS product delivers to customers, including how much you charge, who you charge, and when you charge them.
So why is choosing a pricing model so important? Pricing is largely subjective. Your model needs to reflect market realities—like what competitors charge and what customers expect to pay—while highlighting what makes your product unique.
Your choice of pricing model also sends strong signals to potential customers. Price too low, and you risk undervaluing your solution, making it hard to grow sustainably. Price too high, and you risk pushing customers toward cheaper alternatives.
The right SaaS pricing model for your startup hits that delicate balance. It ensures customers feel they’re getting value for their money while giving your business the revenue it needs to thrive.
The 6 Main Types of SaaS Pricing Models
Whether you’re targeting SMBs or enterprise-level clients, these six pricing models can help you create a pricing strategy that fits your product and audience.
Tiered
Tiered pricing is one of the most popular SaaS models. Here, you offer different plans at various price points, each with its own set of features. Typically, companies offer three to five tiers, such as Basic, Plus, Premium, Enterprise, etc. Here’s an example from Instantly:
This model lets you cater to different customer segments by matching their needs and budgets. For example, a basic growth plan offers chat support, while the enterprise tier offers dedicated account managers and shared Slack channels for faster, personalized communication.
By clearly defining the differences between tiers, customers can easily see the value of upgrading. It also allows them to start small and scale up as their needs grow. Plus, offering discounts or extra perks for higher-tier subscriptions can encourage long-term loyalty.
If you’re considering the tiered pricing model for your SaaS startup, make sure each tier is clearly defined and provides meaningful value at every level.
Flat Rate
Flat-rate pricing is arguably the simplest model. You set one price that includes all your features, and customers pay either monthly or annually. There are no tiers, no add-ons—just one straightforward price. Here’s an example from IXACT Contact:
This model gives customers clarity and predictability. They know exactly what they’re paying each month, which is great for budgeting. It’s especially useful if your product has a simple feature set with little need for customization.
The drawback? Flat-rate pricing can be limiting. You might miss out on customers who only need a few features or willing to pay more for advanced options. It works best when you’re offering a streamlined product that appeals to a broad audience.
Usage Based
Usage-based pricing charges customers for what they use—nothing more, nothing less. Whether it’s the number of emails sent, bandwidth, data stored, or transactions processed, the price scales with usage.
This model is popular because it feels fair to customers. They’re not locked into a fixed rate and only pay for the value they get. For example, a cold email automation tool might sell credits for sending emails instead of offering a fixed subscription, like ZeroBounce does here:
Alternatively, invoicing software could charge a base monthly fee with additional costs per invoice sent. This flexibility allows customers to scale their usage up or down as needed. While the usage-based model is flexible and scalable, the unpredictability of monthly costs can be a downside for customers who prefer stable budgets.
Freemium
Freemium lets customers use the basic version of your SaaS product at zero cost, giving them a taste of your service before deciding to upgrade. It’s a great way to build trust and attract a large user base without the pressure of an upfront commitment. Here’s an example from Basecamp:
This model works especially well if you’re using a product-led growth strategy because users can explore your product without needing to speak to a salesperson. It’s a low-risk way for customers to see the value of your product firsthand.
That said, turning free users into paying customers requires a solid conversion strategy. This often means offering premium features or exclusive content that clearly shows the added value of upgrading. Without a strong conversion funnel, freemium can lead to high user numbers but low revenue.
Per-User
Per-user pricing is another popular and refreshingly straightforward model. You charge a set fee for each user who accesses your product—priced as either a monthly or annual subscription. It’s predictable and scalable, making it easier for companies to budget as they grow.
For example, Canva charges a flat rate per user, letting businesses control costs by adding or removing users as needed:
A per-user model works best for team-based tools or collaborative software, where the value directly increases with each new user. However, it might discourage wider adoption if businesses are looking to limit expenses by restricting user access.
Feature-Based
Like the tiered model, feature-based pricing lets customers pay only for the features they need. The more features they want, the more they pay. It’s a flexible approach that aligns pricing with value, which makes it perfect for products with diverse use cases. Here’s an example from Notion:
For example, a startup might only need basic email automation, while an enterprise might require advanced analytics, A/B testing, and lead scoring. By letting customers mix and match features, you cater to different needs without forcing them to pay for unnecessary extras.
The key to success with feature-based pricing is transparency. Clearly outline which features are included in each plan and why they matter. This helps customers make informed decisions and feel confident they’re getting the best value for their investment.
Choosing the Right SaaS Pricing Model
Choosing the right SaaS pricing model for your startup is admittedly tricky. Consider these four key factors to guide your decision:
Analyze Your Competition
Before deciding on a pricing model, start by mapping out how your competitors price their products. This doesn’t mean copying them but learning from their successes and mistakes.
Consider the following:
- Pricing Structure: What pricing models do they use (e.g., freemium, tiered, or per-user)? How do they position themselves in the market?
- Feature Allocation: What features do they offer at each price point? Which packages do their customers gravitate toward?
- Customer Feedback: Where do customers complain about pricing? Look at customer reviews and feedback to spot common pain points and areas for improvement.
- Value Proposition: What value do they provide at each pricing tier, and how do they communicate this to customers?
Competitor analysis gives you a benchmark and helps you understand what customers expect to pay. Using dedicated tools like Price Intelligently to compare strategies is also a great way to find a suitable pricing model for your startup.
Value of Your Offer
Value-based pricing is about setting prices based on how much value your product delivers to customers, not just production costs or market rates.
Imagine two flower shops selling similar bouquets. One charges $20, while the other charges $30. You choose the $30 option because it offers higher-quality flowers and a free vase—better value for the price. The same concept applies to SaaS.
Think about:
- Customer Pain Points: What problems does your product solve? How valuable is this solution to your customers?
- Unique Differentiators: What features set you apart from competitors? Are customers willing to pay a premium for these features?
- Customer Segments: Different customer segments may perceive value differently. Tailor your pricing to match their needs and willingness to pay.
With value-based pricing, you’re going beyond selling features to sell the outcome and impact your SaaS product delivers.
Sustainability and Scalability
Your SaaS pricing model should generate steady revenue over time (sustainability) and grow with your business (scalability). Here’s how:
- Sustainability: Your prices should cover operating costs—like hosting, salaries, and marketing—while maintaining profitability. Track customer acquisition and retention rates to ensure long-term revenue.
- Scalability: Choose a model that can grow with your business. For example, usage-based pricing scales easily as more users join. Alternatively, tiered pricing lets you upsell advanced features as customers grow.
Review your pricing model regularly. As your SaaS evolves, your pricing strategy should adapt to new features, customer needs, and market trends.
Let Your Product Lead the Way
Last but certainly not least, your product’s features should heavily influence your pricing model. Ask yourself:
- What features do users value the most?
- Are some features used more than others?
- Does usage increase as customers grow?
For example:
- If your product solves one primary problem (e.g., an API service), a usage-based model might be best.
- If it offers a variety of features (e.g., an all-in-one marketing platform), a tiered or feature-based model may be ideal so customers can choose the features they need.
The key is to align your pricing model with the value your product delivers. This way, you give customers exactly what they need at any point in time without compromising your startup’s revenue and growth potential.
Key Takeaways
Picking the right SaaS pricing model for your startup can mean the difference between struggling to grow and scaling smoothly. Here’s a quick recap of the most popular pricing models available today:
- Flat-rate pricing works for products with a clear, singular value proposition.
- Usage-based models make sense when value scales with usage.
- Freemium helps you capture market share but needs a clear upgrade path.
- Tiered pricing lets you serve different customer segments effectively.
- Per-user pricing works best for team-focused tools.
- Feature-based models let customers build their perfect package.
Of course, no pricing model is set in stone. Start with the model that best fits your current market and product. Then, keep tabs on relevant metrics, customer feedback, and industry trends to adjust your approach based on what resonates with customers.
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