Choosing the right SaaS pricing model: secrets from Slack & Notion

This guide will delve into the experiences of industry giants Slack and Notion, revealing how they navigated the challenges of balancing the attractiveness of their free plans with the imperative of driving paid conversions.

By exploring their strategies, successes, and lessons learned, we aim to equip you with the insights and tools necessary to optimize your own SaaS pricing model.

What is a pricing model?

A pricing model is a structured framework or strategy that a business uses to determine the appropriate price for its products or services. It outlines how a company will set prices based on various factors, such as production costs, competition, market demand, and desired profit margins.

Here is an example: The SaaS business “Zoom” charges its customers based on the number of "seats" or user licenses they require. Each user who needs access to the platform, whether for hosting meetings or participating in them, requires a separate license.

The seat-based pricing model employed by Zoom aligns perfectly with its diverse customer base, offering scalability and flexibility to accommodate varying team sizes. In simpler terms, Zoom has picked a pricing model that perfectly matches their brand and product.

But finding the right pricing model isn’t that simple, except if you got the perfect article to help you out! So let’s dive into the 6 main pricing models, giving you the lowdown on which one might be the best fit for your business.

What are the different pricing models for SaaS? 6 examples

1. Flat-rate pricing

Flat-rate pricing is a straightforward pricing model where a company charges a fixed, unchanging fee for a product or service, regardless of the quantity used or the level of service provided.

Netflix is a well-known example of a SaaS company using flat-rate pricing. They offer unlimited streaming of movies and TV shows for a fixed monthly subscription fee.

Let's say you choose the Standard Plan at $13.99 per month. Regardless of how many movies you watch during that month, your charge remains the same. Whether you watch 10 hours or 100 hours of content, the cost is $13.99, that’s flat-rate pricing!

2. Per-user pricing

Per-user (also called “seat-based”) pricing is about charging customers based on the number of users who will have access to a product or service.

Example: For a project management tool like Notion, the cost might be $10 per user per month. A team of 5 users would pay $50 per month,

ProsConsVery easy to set up and follow metrics.May become costly for businesses with a large number of users.Allows for fair pricing based on actual usage.Could discourage if the pricing per user is perceived as too high.

Most people mix up per-user pricing and seat-based, it’s very similar. The only difference will be that “Per-user pricing” charges a fixed amount per individual user, while “seat-based pricing” may include different types of access beyond individual users with varying costs.

3. Usage-based pricing

Usage-based Pricing Involves charging customers based on the quantity or extent of their usage of a product or service.

For example, consider a cloud storage service. If a business stores 100 GB of data, they are billed according to this usage. If they later increase storage to 150 GB, their charges will be adjusted accordingly.

4. Tiered pricing

That kind of pricing involves offering different packages of a product or service at different price points, each with its own set of features or levels of service.

For example, Mailchimp is a SaaS that offers tiered pricing based on the number of subscribers a user has. They have different plans like Free, Essentials, Standard, and Premium, each with varying levels of features and subscriber limits.

5. Pay-per-use pricing

The customer pays each time they use a specific feature or service.

A very famous one would be Airbnb's pay-per-use model. Hosts set a nightly rate for their property.

For example, if a host charges $100 per night and a guest stays for 3 nights, the total cost for the guest would be: $100 per night x 3 nights = $300 total cost for the stay.

6. Customization-based pricing

Customization can be a way of charging customers. It involves charging customers based on the level of customization or personalization they require for a product or service.

An easy example of a SaaS using customization-based is HubSpot. HubSpot's pricing is tailored to individual business needs, taking into account factors such as the number of contacts, desired features, and the level of automation required.

How to choose the right pricing model for my business?

Choosing the right pricing model for your business is a critical decision that can significantly impact your success. Here are key steps to guide you through the process:

Learn more about pricing models for SaaS

Start by gaining a deep understanding of the various pricing models available for SaaS businesses. (Reading this article could already be enough information for you, so stay until the end!).

Familiarize yourself with models such as subscription-based, usage-based, tiered pricing, and more.

This knowledge will form the foundation for your decision-making.

Questions you need to ask yourself:

• Have I thoroughly researched and understood the various pricing models available for SaaS businesses?
• Am I familiar with the nuances and advantages of subscription-based, usage-based, and tiered pricing, among others?
• How do these models align with my business goals and target audience?

Understand your product and value proposition

Evaluate your product or service thoroughly. Your pricing model should align with this value proposition, ensuring customers perceive your offering as worth the price.

Questions you should have answers to:

• What specific value does my product or service offer to customers?
• How does it differentiate itself from competitors in the market?
• How can I ensure that my pricing model reflects and enhances this value proposition?

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Know your target audience

Your customer base plays an important role in determining the right pricing model. Understand your target audience's demographics, preferences, and purchasing behavior. Different customer segments may respond better to specific pricing structures, so adjust your approach accordingly.

Questions you should answer:

• Who are my ideal customers, and what are their demographics, preferences, and buying behavior?
• Are there specific pricing models that align better with the preferences of my target audience?

Analyze your competitors

Study your competitors' pricing strategies. This competitive analysis can provide insights into market norms and customer expectations.

Questions for you:

• What pricing models are my competitors using for similar products or services?
• How does their pricing strategy influence customer perception and market positioning?
• What can I learn from their successes or shortcomings in pricing?

Test different SaaS pricing models

Consider conducting pricing experiments or pilot programs. Test various pricing models with a subset of your audience to analyze their reactions and willingness to pay.

The important question you must answer:

• How can I conduct pilot programs or A/B tests to evaluate customer responses to different pricing approaches? What do I need? Which segment should I take?

You can answer accordingly to your market and your audience.

Factor in customer feedback

Listen to your customers. Gather feedback through surveys, interviews, or online reviews to understand how they perceive your pricing. This real-world input can help you fine-tune your model and pricing points.

Questions:

• How am I actively seeking and collecting feedback from my customers regarding their perception of my pricing?
• What are the common themes or sentiments expressed by customers regarding the value of my product or service?
• How can this feedback be utilized to refine and optimize my pricing model?

Consider scalability for your business

Evaluate how your chosen pricing model scales with your business growth. Ensure it can accommodate a growing customer base without causing operational challenges or negatively impacting profitability.

The most important questions:

• How will my chosen pricing model accommodate the potential growth of my customer base and business operations?
• Are there any limitations or challenges associated with scaling this pricing model in the future?
• Have I considered the long-term sustainability of this model as my business expands?

Monitor, learn, iterate

Implement your pricing model and closely monitor its performance. Track metrics such as customer acquisition, retention, and revenue. Be prepared to iterate and adjust your pricing strategy as you gather data and insights over time.

Questions about KPI’s:

• What key performance indicators (KPIs) am I tracking to evaluate the relevance of my pricing model?
• Am I prepared to adapt and refine my pricing strategy based on the insights gained from monitoring its performance?

Choosing the right billing system for your pricing models

Selecting an appropriate billing system is crucial for smoothly implementing your pricing model. Ensure that your chosen billing platform can support your pricing structure, automate invoicing, handle subscriptions, and provide flexibility for future adjustments.

In short, your billing system must have the capability to accommodate with your pricing structure and its increasing level of complexity.

With Hyperline, our advanced recurring billing platform, you can effortlessly manage your pricing strategies.

Hyperline streamlines subscription management automates invoicing and provides the flexibility you need.. It seamlessly integrates with your business operations, enhancing your customer experience and allowing you to focus on growing your business.

Slack's approach to SaaS pricing model

Initially, Slack focused heavily on activation and retention metrics rather than driving paid conversions.

“If someone immediately agrees to the price, it’s too low.”

They found that activation strongly correlated with retention, leading to a focus on improving activation experiences and shifted attention towards driving paid conversions after a couple of years of data analysis and product maturation.

Notion's SaaS pricing strategy

“In productivity, it’s pretty obvious that you need to go seat-based pricing.”

Notion started with a generous free plan allowing unlimited seats but with limits on block usage, catering to both individual and team use cases.

Initially, growth was driven by viral spread and user advocates, bypassing traditional sales. The key to increasing paid conversions was found in fine-tuning pricing strategies to match customer needs and value perception.

This led to continuous improvements in the free plan, guided by data analysis and experimentation, to better convert users into paying customers by adjusting features and limits with a focus on effective pricing strategy.

Key Learnings about their pricing plans

Important tips: Understanding customer pain points and aligning pricing and packaging with perceived value were essential for driving paid conversions.

Experimentation with pricing model, such as the reverse free trial in Slack's case, helped address some of the challenges associated with the free plan. Moreover, continuous iteration on the free plan based on data-driven insights and user feedback was crucial for optimizing paid conversion rates over time.

Both Slack and Notion encountered challenges in managing the generosity of their free plans while effectively encouraging paid subscriptions. They found that providing a too generous free tier could lead to reduced rates of conversion to paid plans, emphasizing the importance of finding the right balance in their pricing strategy.

“In productivity, it’s pretty obvious that you need to go seat-based pricing.” someone immediately agrees to the price, it’s too low.”

Why Hyperline excels in addressing these challenges:

• Comprehensive feature set: Hyperline offers a comprehensive set of features tailored to meet the diverse needs of users, ensuring that both individuals and teams can benefit from its functionalities.
• Intuitive user experience: With a focus on user experience design, Hyperline provides an intuitive and seamless interface that enhances user satisfaction and encourages adoption.
• Scalable pricing model: Hyperline's pricing model is designed to scale with the growth of the user's organization, offering flexibility and affordability while ensuring that users only pay for what they need.
• Proactive customer support: Hyperline prioritizes customer satisfaction and offers proactive customer support to address any issues or concerns promptly, fostering trust and loyalty among its user base.
• Continuous improvement through feedback: Hyperline actively solicits feedback from users and leverages data-driven insights to drive continuous improvement, ensuring that its platform evolves to meet the changing needs of its users effectively.

Hyperline stands out as the ideal tool for addressing the challenges associated with: optimizing the free-to-paid conversion model, offering a comprehensive feature set, intuitive user experience, scalable pricing model, proactive customer support, and a commitment to continuous improvement based on user feedback.

To conclude: How to develop SaaS pricing models easily?

In simple terms, understanding your product, who it's for, and keeping an eye on the competition are all important, picking the right way to price your SaaS product is like planting seeds for business growth.

Using a tool like Hyperline not only makes that possible but also significantly simplifies the process.

So, remember, choosing the right pricing models for your SaaS isn't just about money, it's about making your business thrive.

Try Hyperline Now.