When it comes to software and SaaS products, how you price your offerings can make a huge difference in attracting customers and boosting your revenue. Two popular pricing strategies out there are usage-based pricing and per-seat (user) pricing. Each has its own perks and challenges, making them suitable for different types of businesses. Let's break down what each model is all about, their pros and cons, so you can figure out which one fits your business best.
What’s Usage-Based Pricing?
Usage-based pricing—sometimes called consumption-based or pay-as-you-go—charges customers based on how much they actually use a product or service. This could be anything from data usage to the number of transactions processed or API calls made.
Why you might love usage-based pricing
- Cost Efficiency: Customers only pay for what they use, which is great if their needs change frequently.
- Scalability: Perfect for growing businesses that want to start small with low costs and spend more as they grow.
- Fairness: Customers often feel this model is fairer because there's a direct link between what they pay and the value they get.
- Low Barrier to Entry: The initial cost seems lower since users aren't committing to big expenses upfront.
Things to consider with usage-based pricing
- Complex Billing: Keeping track of usage accurately can be tricky for both providers and consumers.
- Unpredictable Revenue: It makes it hard to predict income since it varies based on customer usage patterns.
- High Costs During Peak Times: Costs can skyrocket during busy periods or growth spurts.
What’s per-seat (user) pricing?
Per-seat pricing charges customers based on the number of seats or users who will access the service within an organisation over a set period—usually monthly or annually.
Why you might love per-seat pricing
- Simple billing: easy-to-understand billing makes budgeting simpler over time.
- Predictable revenue streams: provides stable monthly recurring revenue (MRR), making financial planning easier.
- Ease of onboarding large teams: organisations can easily add new team members without complicated calculations related to usage metrics.
Things to consider with per-seat pricing
- Paying for unused seats: you might end up paying more than you need to if not all seats are being used all the time.
- Could be pricey for small teams: smaller teams could find per-seat fees a bit steep compared to other options out there.
- Lacks flexibility: not the best choice if your organisation's needs change frequently.
Conclusion
Choosing between a usage-based pricing model and a per-seat (user) pricing model depends on what makes sense for your market, business goals, and customer needs.
Usage-based pricing works well if you have fluctuating or unpredictable usage patterns—it offers cost efficiency and scalability but can complicate billing processes and make revenue forecasting tough.
On the flip side, per-seat pricing provides simple billing with predictable revenue streams that help with financial planning but might not be cost-effective for smaller teams or those with varying needs.
With Salable you can try each of these models for free, and configure them in our test mode environment, so there's no strings attached! Alternativlely, if you need help with other pricing models, we also offer various other pricing options!
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