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  • Writer's pictureRoss Bright

Understanding Different SaaS Pricing Strategies: How to Save Costs on Software Acquisition

Imagine you're the Chief Technology Officer of a mid-sized startup with forty-nine other employees relying on you to acquire and implement new software to manage external communication with customers and internal collaboration with team members. After weeks of brainstorming with other C-Suites, you opted for a SaaS product. You have diligently researched the product, checked the company, and requested a demo. Not only that, you even went the extra mile to check customer reviews, and you're impressed with their product capabilities and services.


After you're satisfied with your decision, you subscribe to the SaaS product, which is perfectly integrated. Other employees lauded you, and you felt proud of your achievement.


However, after a week, you went to an industry event, and one of your colleagues told you how they got the same software subscription package for half of the amount you paid. You became furious and mailed support to give you a discount too, but it was too late. You signed a no-refund policy, and the SaaS company never severed the contract. It just happened that the other guy partnered with a cost-saving platform like Smartcost with inside knowledge of SaaS pricing strategy and contract negotiation.


Situations like this can make you doubt your negotiation and decision-making skills. But guess what? You're not alone! According to a recent report, 90% of companies overpay for SaaS products1. Such experiences are not uncommon and can be a wake-up call for many businesses. A deeper understanding of SaaS pricing strategies and models is key to avoiding this pitfall.


In this article, we'll explore different SaaS pricing strategies, factors affecting the pricing method, and how to save costs regardless of the strategy.


SaaS Pricing Strategy Vs. SaaS Pricing Model


SaaS pricing strategy and model are critical elements for setting SaaS product prices. However, it's easy to confuse pricing strategy with pricing model.

The SaaS pricing strategy encompasses the overall marketing strategy determining how a SaaS company prices its products. It considers factors such as market demand, value perception, production cost, competition, and the company's overall business goals. For instance, a new SaaS company aiming to penetrate a highly competitive market in its first year of launch might set its price lower than the average to win customers quickly.


In contrast, the SaaS pricing model is the structure a SaaS company uses to bill its customers. It defines how much a customer pays and how they pay; per usage, per value, per feature, or a combination of these.


5 SaaS Pricing Strategies and Examples of Brands Using Them


As a company representative responsible for software acquisition, you must understand different SaaS pricing strategies to know how best to capitalize on their weaknesses. We explain the five primary SaaS pricing strategies below:


1. Penetration Pricing

Almost all SaaS company sub-niches are super-competitive - from contract negotiation to scheduling, SEO to communication. Therefore, most new SaaS companies will set a low initial price to attract and gain a customer base. After achieving their goal, they gradually increase the pricing while introducing features that help them retain existing costumes and grow new ones. Slack is a good example of a SaaS brand that adopted a penetration pricing strategy.


2. Freemium Pricing

This is one of the commonest SaaS pricing strategies, as many SaaS companies adopt this. They provide a basic free version that anyone can use for $0 with limited features. Asana, Zoom, and Mailchimp are notable companies using this SaaS pricing strategy.



3. Value-based Pricing

Sometimes, SaaS companies let the value of the product do the talking. Rather than basing the price on costs or competition, value-based pricing involves setting a price based on the product's perceived value to the customer. SaaS companies adopting this pricing strategy deeply understand their customer's needs and how they derive value from the product. Drift is a SaaS company that structures its plan based on users' perceived value. The company lets the users decide how they want to use the product depending on their project scope.




4. Skimming Pricing

A few SaaS companies believe in their products' unique features or capabilities so much that they set a high initial price after launch. This is the direct opposite of the penetration pricing strategy, where costs are lowered to accommodate many uses. Such companies usually reduce the price after the product has been widely adopted or when competitors develop new products with improved features. Salesforce adopted this feature when it launched its cloud-based CRM software with an initial focus on enterprise customers. They eventually scaled down later to accommodate smaller businesses.


5. Competitive Pricing

This SaaS pricing strategy involves a company basing its price on its top competitor's charges. Ahrefs and SEMrush are the leading two SEO companies globally, and their pricing per package is similar.





Other SaaS pricing strategies include captive pricing, free trial, cost-plus, and prestige or premium pricing.


SaaS Pricing Models and Examples Here is a quick summary of the SaaS pricing model and examples of companies that adopt them:
  • Flat-Rate Pricing: Pay one price for everything, much like Basecamp's $99 monthly for unlimited users and projects.

  • Tiered Pricing: Pay more for more features, a model Slack employs with its free version and several paid tiers.

  • Per-User Pricing: Pay per user, a model used by Salesforce.

  • Usage-Based Pricing: Pay based on how much you use, as seen with AWS's resource-based billing.

  • Freemium: Basic services for free, pay for premium features. Dropbox employs this with free storage and paid upgrades.

  • Hybrid Pricing: A mix of models, exemplified by Zoom's freemium service and tiered pricing plans.

How to Get the Best SaaS Offers and Save Costs Irrespective of SaaS Pricing Strategies & Models

Here are two ways to get the best offer on your company's enterprise SaaS products:


1. Negotiate

Many companies fail to realize that the listed price isn't always the final price. Research shows that 100% of SaaS providers agreed to lower prices for customers who chose to negotiate, with savings ranging from 15% to 34% per user​1​. The negotiation process involves understanding your organization's needs, having a clear budget, and being willing to walk away if the deal doesn't fit your parameters. Don't be afraid to ask for discounts or better terms. Remember, the goal of the SaaS provider is to make a sale, and they may be willing to offer better pricing or terms to close the deal.


2. Stay Informed

Information is power, particularly when securing the best SaaS deals. You must clearly understand the market, know the average price of the services you need, and be aware of the SaaS pricing strategies and models various providers use. Unfortunately, many SaaS providers do not list their pricing online, or they may have contract clauses that allow them to change prices at any time​1​. This is where services like SmartCost.io can be invaluable.


Our solution delivers superior information to help businesses secure the best SaaS deals. It offers insights into average market prices, details different pricing models, and allows companies to understand the terms and conditions of other SaaS providers. With this information at your disposal, you can approach negotiations confidently, secure in the knowledge that you're getting the best possible deal.


Start Saving on SaaS Acquisition Costs with Smartcost.io


Regardless of your negotiation skills and how informed you are, getting a big chunk off the SaaS product your company needs requires experience and inside knowledge. This is because you will still need access to a proprietary software pricing database with existing partnerships with these SaaS companies to stand a chance. Beyond the subscription cost or license keys, you can also save from software implementation, a process that requires technical expertise at experience. When you partner with us at Smartcost, we do the heavy lifting for you and ensure you save the highest amount possible. And guess what? If we fail to lower your annual spending on software, you have zero obligation to pay us.


Are you ready to save up to 30% on your next SaaS product acquisition? Book a free strategy call today, and let's help you slash the cost.











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