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Which Subscription Pricing Model is Right For You?
As a SaaS CEO or Founder, you’ve got a huge level of responsibility.
Your decisions can make or break the business (no pressure then, right?), and out of the many choices you have to make one of the most critical is the right revenue model.
The revenue model is the backbone of your brand. It controls how you’ll generate at least a large chunk of your income, will alter your customer acquisition and churn, and have a lot of influence on your growth trajectory.
But it can be tricky to decide which model is right for you.
How to know which model is right?
We’ve created this in-depth quiz to set you on the path to discovering your ideal SaaS revenue model. The one that will meet your unique business needs.
These questions cover various aspects of your business including:
- your product’s main appeal
- your customer acquisition strategy
- churn management
- pricing complexity
- cost structure
- customer lifetime value (CLV)
- market competition
- scaling aspirations
- product usage patterns.
Once you’ve answered these questions, you’ll be able to see which SaaS revenue model aligns best with your responses. Whether it’s the Freemium Model, the Usage-Based Model, the Tiered Pricing Model, or the License-Based Model, each comes with its own set of advantages tailored to different business needs and goals.
We’ll go into those in a little more detail after the quiz. Let’s deal with your needs and situation first. 1: How would you describe the main appeal of your product?
A. mix of free features and some exciting premium add-ons.
B. Flexible usage- customers are free to use as much or as little as they want.
C. Tailored versions to fit the needs of each customer.
D. Traditional software that customers can own for a specific period.
2: How predictable and steady do you want your revenue stream to be?
A. Eh– I don’t mind a mix of steady subscription fees and upselling/cross-selling.
B. Unnecessary – I’m okay with fluctuations based on usage (as long as we can keep up with the changes!)
C. For the most part yes – I want the stability of tiered subscriptions but will allow limited variability between tiers.
D. Upfront FTW – I like payments at the top of the license period.
3: What’s your customer acquisition strategy?
A. Give away free features to draw customers in, then upgrade them with paid add-ons.
B. Bring in the customers who like to pay-as-you-go.
C. Make options available to everyone, from budget-conscious to high-end.
D. Sell one-offs to customers who will use our software for a long time.4: How do you plan to manage churn?
A. Tempt users with exciting premium features so they convert.
B. Ensure customers get their money’s worth.
C. Provide value no matter which tier a user’s on, but still encourage upgrades and renewals.
D. Deliver incredible value during a license period so they’ll stay and renew.
5: How complex do you want your pricing to get?
A. A little complex, with different pricing for the premium features.
B. It can be quite complex, with constant adjustments for
C. Complex with different prices for all the tiers.
D. I prefer the easiest route – a simple one-time payment.
6: What is your cost structure like?
A. Variable costs depending on premium features.
B. Highly variable costs depending on customer usage.
C. Variable costs tied to which tier has been chosen.
D. Mainly upfront
7: Do you consider customer lifetime value (CLV) important?
A. Important, but we’ll also consider our free users valuable too.
B. Not so much – we prioritize short-term usage more.
C. Important – our goals is to upgrade customers’ tiers over time.
D. Important – we want customers to renew their licenses no matter how long they are.
8: What’s your market competition like?
A. Medium – some competitors offering similar free and premium features.
B. Low – few competitors offer a pay-as-you-go model.
C. Varies – competitors offer different tiers but nothing is exactly like ours
D. Low – there aren’t a lot of competitors offering this type of license-based model.9: Do you consider the ability to scale quickly important?
A. Important – we like to attract as many premium users as possible to slowly convert them.
B. Not so much – we’re focused more on usage-based sustainable growth.
C. Quite important – we want to attract customers to all our tiers.
D. Not very important – we want stable growth through license renewals.
10: What’s your product’s usage pattern like?
A. Sporadic depending on user– some customers use it heavily, others use it every once in a while.
B. Variable – usage changes, depending on the customer’s needs.
C. Tier-dependent – usage varies by tier.
D. Long-term – customers use it over a long period.
Now, time to find out which SaaS revenue model is your perfect match according to the scores!
Mostly As: Your match is the Freemium Model.
Mostly Bs: Your match is the Usage-Based Model.
Mostly Cs: Your match is the Tiered Pricing Model.
Mostly Ds: Your match is the License-Based Model.
Remember, though, this quiz is not a one-size-fits-all solution. It’s a tool designed to provide insights and guide you towards the right path, but as a CEO you know but have to consider your unique business context.
Having said that, a more in-depth look at the models would help.
The Models
Freemium Model: This model gives away basic features for free, then charges for more premium services or features. It attracts a very large user base and over time converts some of this base into paying customers. The challenging part is not only choosing what to offer for free, converting those customers that are getting something for free, and predicting where your revenue will be in the future.
Usage-Based Model: The pay-as-you-go model charges customers based on how much they use the service or product. It’s good for SaaS businesses whose customers’ usage varies widely. Customers love paying for only what they sue – it is a strong trust-builder. However, this model makes revenue hard to reconcile and predict.
Tiered Pricing Model: This model is all about giving each customer what they want. There are different packages offering different features at different price points. It’s ideal if you have a wide base of customers with diverse needs and budgets. The trick is deciding what offerings should include what in each tier, then keeping track of cross-selling and upselling opportunities.
License-Based Model: This is the simplest of the models. Here, customers pay a one-time fee to own the software (or a license to use the software for a period of time. This model can give a huge revenue boost upfront, but puts pressure on a business to have a strong customer acquisition strategy because there aren’t a lot of chances for repeat purchases.
Each model has advantages and disadvantages, and the best one for your business also depends on the nature of your product, the market you’re in, the competition you have, and customer behavior.
Choosing the right SaaS revenue model is a huge task, but hey- you’re already up for the job. Careful consideration and some strategic thinking will point you in the right direction.
By understanding the strengths and weaknesses of each revenue model, you’re one step closer to maximizing your profitability and driving sustainable growth. So, let’s embark on this exciting journey to discover your ideal SaaS revenue model!
86% of consumers will leave a brand they trusted after two bad customer experiences.
– Emplifi
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