While SaaS has many advantages over the traditional software business model, it does come with its own unique challenges. One of the most difficult is creating new sources of recurring revenue from existing customers. Unlike traditional software companies that can generate additional revenue through updates and new releases, SaaS businesses must find new and more creative ways to increase their monthly revenue. One of the most effective to emerge has been using varying pricing as a strategy.
Freemium pricing, offering something for free and then increasing prices for add-ons or other benefits is a great way to entice customers. However, there is a wrong way and a right way to do freemium-subscription models.
If the majority of your users are freemium subscribers, you clearly aren’t giving them a good enough incentive to upgrade. One common reason for low upgrade rates is offering too much for free. One simple way to encourage more upgrades is to limit the features of your free version. Tweet
If reducing your product is not an option, you might consider charging a minimal fee for the free product to create revenue from current customers.
SaaS customers are familiar with tiered and premium pricing and expect to pay more for additional services or usage
If your software or service has a per-user cost, consider offering a bundled or unlimited premium package. Offering multiple or unlimited seats at a discounted price gives larger companies an incentive to purchase your SaaS product. While the discount may reduce the individual cost of each subscription, the additional revenue from the bulk sale should more than make up for it.
If you offer hosted software packages, consider offering premium charges for increased data consumption, speed, service and security. All are fair game, as customers have different needs and understand they may need to pay more to meet them.
As a SaaS business, you not only provide your customers with a software or service but also a website and portal to manage their subscription. That creates an opportunity to charge premiums for increased customer service.
Just as with your products, you can use your portal to offer different levels of customer service on a tiered pricing schedule. There is even an opportunity for a freemium-style of customer service where your customer service representatives answer questions on forums and wikis.
As your SaaS business matures, you’ll most likely increase your software or services catalog to the point where you’ll have at least a few complementary offerings that could be paired together. Offering a complementary product as an add-on or putting them together as a premium package is an effective way to increase incremental revenue and drive deeper customer engagement. If, for example, your company offers both an ERP and accounting software, consider bundling the two together as a premium package, or offering the complementary software to the customer at a discounted price. In both cases the customer will have an incentive to upgrade to the premium or combined product, and pay more each month in recurring revenue for the privilege. Tweet
These four strategies demonstrate simple ways to use pricing to increase your monthly revenue. All, in one way or another, leverage the native advantages SaaS businesses have when it comes to increasing or decreasing the level of service or features offered to the customer.
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