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[edit] SaaS Pricing

Pricing strategy is a major component of any business, whether brick-and-mortar or bits-and-bytes. Generally, it’s quite tricky to do correctly. Should pricing be value based or cost based? Should it focus on maximizing income per unit or volume sold? For all of the things the SaaS delivery model does for us, it does not ease pricing strategy pains.

So, how should a SaaS offering be priced? Clearly, this is something that should be considered on a company by company basis. However, there is a good strategy that focuses on boosting adoption rates, creation of income and healthy margins.

In perpetual license models, high prices generally posed significant barriers to on-boarding new customers, whether it was directly because of the expense or indirectly because of things like requiring approval from line of business managers, the C-level executive or purchasing. SaaS has significantly reduced this barrier but brought its own problems: one single sale of a perpetual license generally equated to significant revenue while one single SaaS customer does not. Given the aforementioned, many providers strive to rapidly boost adoption to reach a sustainable cash-flow position, and rightfully so. But selling at low prices and giving unrestricted access to everything leaves lots of money on the table. There is a solution!

The Strategy

A good SaaS pricing strategy provides the ability to achieve five objectives:

Quantify usage patterns by capturing empirical data

• Mine the usage data and apply BI tools to extrapolate new “access bundles”
• Boost Adoption rates of new customers
• Control Cost for acquiring new customers and up-selling the existing base
• Generate Healthy Margins and Profit

Adoption is generally boosted by lowering the barrier (price) to acquire your SaaS offerings functionality. The optimal base price plan(s) is one that includes a low price and access to all features of your product, but, has contractual limitations on the number of times the client may access specific features. Any additional access can be done, without interruption to the user, but is logged as a “for-charge” use overage. The cost for the overage charges should be slightly above those contracted for in the base plan. This is very similar to your cell phone calling plan or your office photo-copier plan. Such plans reduce adoption resistance, optimize your ability to bring on new customers and maximize revenues for the services delivered. Therefore, usage metering is key to your success!

Generally, companies are not interested in selling at a loss. Obviously, you shouldn’t have too many operating surprises and, given a good amount of time, your cost estimates should be quite accurate. This is where using the right monitoring software matters. By knowing EXACTLY what features your customers are using (when and how) delivers predictability and cost control.

Tracking usage patterns for each client allows up-selling of “access bundles” that allow clients to provision their fit usage patterns precisely and generate the greatest profit for your SaaS offering. The idea (see item 1 above) is to use a low cost oriented pricing to boost adoption then up-sell those clients into a cost justifiable “access bundle”. You’ll have a healthy market for up-selling your existing customers. And such up-selling poses significantly lower resistance to spending more money because it is specifically based on “real” usage data that you’ve collected; giving you good justification to charge a value oriented price.

Summary

The strategy is really very simple:

• Attract new customers to your base product offer and then up-sell these clients into high margin, value priced “access bundles” once they’re on-board.
• Focus on getting as many paying customers on your base product, since this validates that they’re willing to pay and that they value your product.
• Figure out how to profit from that base afterwards.

As I mentioned, this may not apply in all cases, but it seems to be a good starting point. The goal is to exploit the ease at which people can sign-up for SaaS offerings and get as many tenants into your easier to harvest tenant environment as possible.

For more information on this subject Google “SaaS monetizing”, “SaaS Metering”, "SaaS Pricing".

[edit] SaaS Monetizing Platforms

SaaS providers achieve their revenue acceleration, revenue assurance and improved operational efficiency goals by using a SaaS Monetization platforP. The monetization platform should be built as a set of integrated software modules which meter usage of on-demand applications without the need for custom coding and integrate with an existing accounting system..

SaaS developers benefit because the monetization platform will:

• Ensure revenue stream by developing a deeper understanding of customers' needs and expectations
• Recognize efficiencies and reduce costs by focusing on their core competency. They can outsource the development of an operational platform hence improve operational efficiencies and enjoy cost savings
• Expand market presence and increase revenue by creating service bundles for a variety of budgets

A good platform will directly address the SaaS developers' pain points such as insufficient service usage data, distraction of R&D focus from core service development initiatives, inability to support flexible pricing and billing models, difficulty servicing customers, higher costs for manual contract management, and therefore, inability to attract new customers to grow market share.

The foundation of a good platform offering is an Operations Service Manager (OSM) delivered as SaaS. The foundation provides the underlying security, scalability, data storage and visual rendering capabilities. The OSM aggregates customer, business service and service usage data for business processes. The Price Catalog, Usage Tracking, Contract Management and Billing Mediation are the business modules which run on the OSM to provide the necessary functionality.

Pricing Catalog: Publish Business Services

SaaS providers need to advertise services like an auto parts company does in a catalog or a restaurant does in its menu. Their marketing and sales teams need the ability to bundle features, create specials, provide custom orders and clearly communicate this information to their customers. From purely a pricing prospective, providers should consider de-constructing their products into a list of features, associate a price to each feature and then re-construct the product into bundles of features or packages and define how the package is priced. Good monetization software provides an easy to use yet powerful Business Service Catalog that gives providers the flexibility they need to create and position bundled products.

Usage Tracking: Understand Service Utilization

SaaS providers need to measure service usage for pricing consideration, billing purposes and improving revenue generating features. Providers have a big advantage when their customers use systems managed by them. However this benefit can only be realized if they effectively track customers' usage. SaaS Providers can make informed product enhancement decisions, empower the Sales team and ensure contract compliance using easy-to-understand, detailed service usage data. Knowing customer habits is vital for success.

A good monetization platform must have a Usage Tracking module that allows SaaS providers on heterogeneous platforms to collect service usage data and visualize it in a manner most useful to their business. Good technology allows for seamless integration with a provider's usage repository and aggregates the information on an easy to use dashboard. It gives providers the ability to view how customers are utilizing the business service – not page hits or similar high level web statistics, but a detailed view of how specific customers are using the most important features.

Contract Management: Automate Contract Generation and Compliance

SaaS providers need to generate contracts for cataloged services and ensure compliance. SaaS is all about providing business value to customers based on their needs. To do this, SaaS providers need to provide a-la-carte pricing and bundle features into sellable packages. There are many benefits to usage based pricing, however, it also brings complexity to contract creation, tracking and enforcement. A good monetization platform delivers the ability to simplify the creation, metering and compliance of contracts and allows SaaS providers to reap the benefits of not having to deal with the contract complexities. A Contract Management module will allow SaaS providers to create and track unique customer contracts based on packages or custom pricing.

Billing Mediation Simplify the Billing Process

SaaS providers need to generate invoices in accordance with contracts. Generating usage based invoices manually is time consuming and error prone. Therefore, a good SaaS monetization software will have a Billing Mediation module that can automate this process and create invoices based on customer order and billing cycles. It then optionally sends invoice data to a payment processing system through an integration infrastructure to any major accounting system..