If you’re reading this you’re either looking for how SAAS Pricing Models are created, or how to understand them to save your company money. This article will cover aspects of both.
The most common SAAS pricing model template comes the "og" SAAS vendor Salesforce. They've set the gold standard since inception on what most other cloud/SAAS (software as a service) vendors followed. By understanding how they rank aspects of each product contract by: product breadth, user count, contract duration and timing, you’ll be able to secure better contract prices with vendors, as we’ve done for our clients.
A key concept to understand is pressure selling. Commonly used to create timeline incentives in the SAAS sales process. There’s a difference between what pricing strategies sales teams convey to clients, vs what the reality of what the SAAS pricing model will allow for internally. By understanding the limits of this pricing model, you’ll be able to WIN, save money, and time for your business.
If you want to focus on your business while we secure you 30%+ savings on SAAS (guaranteed) - please reach out.
There’s usually 3 main methodologies which go into SAAS pricing models:
1. User based pricing - how many users will use each product.
2. Usage based pricing - how many email sends/contacts/logins/storage will you require.
3. Single product pricing - usually combined with user based products this would be access to a single feature or product for everyone within the org (usually with some kind of limitation)
Once you’ve determined the solutions you’d like to purchase, and who might use them, (and sometimes how much) as described above, the SAAS vendor will present a pricing contract. This will almost always come at a discount to the advertised website “list price”.
But how do I know if I’m getting a good discount or price? We’ll get to that soon. First, enter the SAAS Pricing model.
Primary pricing factors: Users, volume, usage.
One or more of these primary factors will always drive the bulk of your SAAS pricing discount. Small businesses simply won’t get the same discount that a fortune 500 company will.
Secondary factors ranked by pricing impact (according to vendors):
1. Breadth of Product
2. Timing
3. Contract duration
4. Billing terms
5. Strategic Account (SAAS vendor wants to work with you, perhaps more than others, hot logo, fast growth etc.)
6. X Factor (SAAS Negotiation!)
These you can control to a larger extent to your benefit. Here’s how our experienced team would actually rank secondary pricing factors according to vendors real SAAS pricing models.
1. X Factor (SAAS Negotiation) - this is what we do at Smartcost.io
2. Strategic Account
3. Timing
4. Breadth of Product
5. Contract Duration
6. Billing Terms
To summarize these rankings:
Sales teams want you to think their SAAS pricing model is based on timing and product breadth. However, in reality a single contract with one product worth 100k ACV (Annualized Contract Value) and one contract with 10 products worth 100k ACV usually has similar total discount.
Furthermore, timing is not as important as sales teams make it out to be. There will always be another month, another quarter, and especially in turbulent economic times, firms want your business. The only exception to this may be a companies end of fiscal year you may be able to achieve slightly better pricing terms.
Contract duration and billing terms are not as important as they used to be. The Salesforce pricing model is a perfect example of this. Ask us how you can leverage these two factors to your advantage.
The two most underestimated factors of any SAAS pricing model are negotiation, and if you have a strategic account.
Other aspects of SAAS Pricing Models:
Base pricing discount table - Yes, every SAAS vendor will have table based on ACV or product which scales up the discount based on size. However since these are negotiable based on the factors we mentioned, we can’t focus on this base model as a source of truth.
Approvals - From the starting discount price in the base model, a SAAS pricing model can accommodate further discounting with approvals. It follows a natural hierarchy of AE > Manager > VP > C-Suite. At Smartcost our team can help you understand how far up the chain of approvals you should go to maximize your discount.
The key takeaway from this article is to inform you that key factors impacting your final contract price for software are not the same as the factors the vendor would have you believe.
We've saved our clients on average 30% off their software spend and we'd love to show you how as well.
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