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Subscription Vs. Pay-Per-Use for Your SaaS

Mar 16, 2022

SaaS Pricing can be hard to figure out for many online businesses. First, you need to ensure that the price you've set is fair, and second, you want to offer the most appealing payment method to the most users. So, do you extend a payment-by-use (or PPU) option, or do you ask people to join your subscription each month, on a quarterly, or yearly basis? Additionally, how many plans can a SaaS offer? This is a difficult decision to make.

What Is Pay-Per-Use Billing?

Pay-per-use billing is a method of payment where the user purchases a single item with a predetermined price which may be used to be able to conduct business in the future with you. There are many SaaS startup companies start with a fixed charge pay-per-use model due to its ease of use. The model is simple to understand the revenue formula and customers like the stability of a once-off fee.

Take a look at the many aspects that impact the pricing of each model, so that you know the best pricing plan for your SaaS firm.

Pay-Per-Use: When , and Why?

Models based on usage, such as pay-per-use certainly can be used in some instances. Many customers appreciate the affordability and flexibility pay-per-use provides especially when they do not have a need to use the software more than a handful of occasions per month.

The service with a relatively limited lifetime should be available to customers with a form that permits customers to purchase the service when they require it. Additionally, should the service come with a cost of materials that is associated with it, PPU can be a good way to go. If for instance, your SaaS business allows users to create and print custom t-shirts, it would just seem sensible to handle expenses by charging per service rather than having your customers to register and purchase a product that may not ever be utilized again.

Pay-per-use can also be beneficial for SaaS companies who would like to receive accurate feedback on the pricing plan they have in place. Let's say on your pricing page, you're providing a broad range of products and services at different price tiers. Yet, in spite of the vast array of offerings, you're finding that only a few customers are using a small portion of your offerings. By this data on its own, your SaaS company could conclude that:

  • The pricing of your plans is too high.
  • The benefit proposition of these options may not be compelling enough to incite people to switch to higher tiers.
  • Customers you target are likely to are those who prefer an a la carte model and would rather stay at their current tier and pay only for products or services.
  • Some buyer personas prefer certain services over others.

What's the Deal with Subscriptions?

Another benefit to subscriptions is the ability to aid in maintaining customer loyalty. Cancelling a subscription is usually perceived as a hassle, and many customers would prefer to stay with a service that's working for them rather than switching to another service, even when the new service gives them a better deal. Really, the only way most SaaS companies lose subscribers is when they're not satisfied with the service, but even that's not an insurmountable problem. Offer a reduction or few months of free service is usually sufficient to tempt customers back. Then, as long as they are satisfied about the service they'll continue to use it's a sign that you'll be a successful business to last for a long time. Also, because many subscription-based pricing models already have dunning management incorporate - the method of paying for the services you offer is simple. Automated billing means that customers don't have to worry about remembering to pay an invoice, and your company benefits from a consistent income stream.

It is a common reflex of knee-jerk reactions that occurs whenever the invoice for the month's end arrives higher than expected. Pay-per-use models can quickly get out of hand- if someone ends up making use of the service more often than they anticipated, they may find themselves on the receiving end of an unpleasant surprise as the bill arrives at the close each month. An easy-to-understand subscription fee helps you keep your connection with clients by setting clear expectations for either a quarterly or monthly or annual expenditures and help to reduce these unexpected surprises.

The Final Word for SaaS Pricing.

In the case of pricing your SaaS it is essential to have clear buyer personas and a deep understanding of how your customers will make use of your application is essential to ensuring your software's success. Knowing how your SaaS helps solve your customer's issues will assist your digital business make important decisions about how to price your software or service.

In case you're stuck on the fence between choosing between subscription-based or pay-per-use pricing Don't fret! The good news is that there's no need to decide between them. Many SaaS businesses offer subscription and PPU services as part of their pricing strategies, but in general, you should work toward the conversion of PPU customers to subscribers to increase your revenue potential.

Want to know more about the ways a subscription management software will help you increase your company's revenues? Download our ebook: 8 Essential Subscription Management features.