Pricing Models

Goals

To understand pricing models by identifying the per-seat and usage pricing models and examples of companies employing these models to inform the development of a pricing strategy.

Early Findings

Per User Model

  • Per seat pricing is also known as per user pricing, and it is one of the most common models used in Software as a Service (SaaS) products.
  • Companies using the per user pricing model charge a set amount monthly for each user. This is an easy to use model; however, it has its downsides.
  • It has been considered that this pricing model penalizes growth, as companies pay more when more employees adopt the software in question, which can lead to inadequate license-sharing.
  • This model used alone is considered antiquated and it has been estimated it will be used less often as technology evolves.

Per Usage Model

  • This refers to how much customers pay according to how often they use a service.
  • There are different per usage models, which include tiered pricing, subscription+usage pricing, subscription+overage pricing, and linear pricing.
  • Some benefits of per usage pricing are the fact that prices correspond to the growth of a business as well as the demand for their services.
  • Furthermore, it is available for businesses of all sizes, adapting to the size of each business and user costs.
  • A negative part of this model is that it makes it very difficult to predict revenue and user costs overall, as volatile clients might have unexpected changes.
  • This model is not as common in SaaS companies. An example of services using this model includes cell phone and bandwidth companies.

Per Seat + Per Usage Model

  • A version of this model is the per active user pricing scheme. A company can hire an annual service meant for hundreds of employees with the caveat that it will only be charged for the number of active users.
  • A second version could be the subscription+usage model in which a company pays a subscription fee and additional usage costs.
  • This applies to companies in different industries. For example, there are car insurance models that charge a subscription fee plus an additional amount per mile driven.
  • The advantages of this model include the fact that there is a base, predictable revenue, which can cover platform expenses. Also, additional services can be offered on top of those included in the subscription. That said, the base subscription rate could be a limit for smaller companies.

Companies

  • Companies that are often used as examples for efficient pricing models include G-Suite, Slack, and HubSpot.

Summary of Findings

  • We used this initial hour of research to assess the availability of the information and to provide a brief overview of per-seat or user-based pricing, usage-based pricing, and combined pricing models.
  • During our research, we identified pros and cons regarding the use of these types of models, with combination models appearing to be the most recommended.
  • While we identified examples of companies using these models, we did not have time to provide insights into how they apply the model. We could provide this information with additional research.

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