Jason Lemkin, Founder SaaStr in a recent Q&A addressed this question. The pro for the selling organisation is obvious. Predictable revenue – irrespective of usage. But is it sustainable and will users continue to pay based on this model? He raises important questions like : “….
- Can’t a customer pay in part based on usage, if they want to?
- Does my price automatically go up, even if I just add 1 or 2 users to my account?
- Does every type of user “cost money”?
- Do I have to figure out now how many users I need for the best pricing, when I don’t really know? “
The first step of course is to examine the Pay-per-use model. Of-course on the face of it you can loose a lot of revenue upfront specially if your model has been per-seat or per-user. Just so we are clear this is a legacy we carry from on-prem days and not a saas invention. Those days it was difficult to track how may users are using our product and which features are being used more and so on. So the per user (actually it started as per computer the software was installed then morphed to per user – based on legacy data of number of computers – once Enterprises moved to servers and hosted solutions) pricing.
On the other hand today with analytics embedded in all saas products we have the ability to check how may users are using our product for how long. What are they using it for and what are they achieving? Are some using only some features? etc.
So to start with, especially if you are a new saas going to market you may want to examine a Pay-per-use model which is more transparent for the buyers. There is a measurable metric that they can see which gives them the ability to assess the value Vs cost that they are receiving.
One question above also gives rise to other thoughts. Should users with limited use case or need for only a few features have a different pricing?
Pitch.Link adopted a pay-per-use model from the word go. While the pricing itself is open to iteration in the future, we are clear that users pay for what they achieve with our product – Sending out Pitches in our case.
Where I learnt it #190