So, you’ve got a great product and have a market to tap into. You need to determine the best SaaS sales model to use!
Pricing a SaaS solution can be tricky because the product you offer isn’t tangible. This also means there are many different SaaS sales models available, giving you opportunities to try different sales and pricing strategies.
In this guide, we’ll explore some key elements of a SaaS sales model to help you determine the best one for your business.
What is a SaaS Sales Model?
A SaaS sales model refers to the business strategy that software companies use to offer their products as an online subscription. This is a pretty unique sales model compared to traditional sales, where a customer simply purchases a product upfront.
In this model, customers pay a regular fee, typically monthly or annually, to access and use the software hosted on remote servers rather than purchasing and installing it on their own computers or servers. SaaS sales models can get pretty interesting, as software products are not tangible. So, there are various ways you can get customers to purchase them.
The typical SaaS sales model has become increasingly popular for both software providers and customers due to its cost-effectiveness, ease of use, and flexibility.
Characteristics of a SaaS Sales Model
Pretty much every software solution offers the same kind of sales model. Although this changes slightly between different SaaS products, here are the basic elements of a SaaS sales model.
SaaS companies offer their software on a subscription basis, where customers pay a recurring fee for access to the software. This can provide a predictable and steady stream of revenue for the company. It also lowers the customer’s initial upfront purchase costs.
The software is hosted in the cloud, which means that customers can access it from anywhere with an internet connection. This eliminates the need for customers to install and maintain the software on their own hardware. It also means customers don’t actually “receive” anything when completing a purchase or entering into a subscription.
SaaS solutions are often designed to be easily scalable, allowing customers to add or reduce the number of users or features as needed. This flexibility makes it suitable for businesses of various sizes.
This is also one of the best features of the SaaS sales model for customers, as it makes it easy to only pay for what you need or use.
Some SaaS sales models follow a pay-as-you-go pricing strategy, where users pay for their usage, and not just for the features they can access. For example, many software solutions use some kind of token system, where a certain number of tokens gives you a specific amount of access to the software.
This can be a smart pricing strategy, as SaaS businesses can charge for the exact usage of their customers. It can also be convenient for customers, as they only pay for what they’re using.
Types of SaaS Sales Models
We’ve covered the basic elements of a SaaS sales model. However, when selecting the best SaaS sales model for your business, it’s important to understand the different approaches you can take.
Various types of SaaS sales models exist, each with its own pricing and subscription structure. The choice of which model to use often depends on the nature of the software, the target customer base, and business objectives.
Here are some common types of SaaS sales models to consider.
This is the most popular, and straightforward, SaaS sales model. In this model, customers pay a fixed fee every month to access the SaaS application. It provides a steady stream of recurring revenue for the SaaS provider.
Similar to the monthly subscription, customers pay for a full year upfront, often at a discounted rate compared to monthly pricing. This model can help improve cash flow and customer retention.
Freemium combines free and premium tiers. Customers can use a basic version of the software for free but are offered additional features, functionality, or support when they upgrade to a paid subscription. This can be a great way to rope in interested customers at the beginning of the SaaS sales cycle.
In this model, the SaaS provider offers multiple subscription tiers with varying levels of features, users, or resources. Customers can choose the tier that best suits their needs and budget.
SaaS companies charge customers based on their actual usage of the software. Common metrics for usage-based pricing include the number of API calls, data storage, or the number of transactions processed.
Customers are charged based on the number of users who access the SaaS application. Each user typically has their own login credentials and access rights. This pricing strategy makes it convenient for small businesses or large organizations to fairly pay for the same solution.
Similar to per-user pricing, it charges customers based on the number of seats or licenses they need. A seat might represent a specific user or device.
This SaaS sales model is designed for businesses that expect to scale rapidly. Customers start with a small subscription and pay more as they add users, features, or resources. This kind of flexibility is what makes SaaS sales models so appealing to customers.
Some SaaS providers offer customized pricing based on a customer’s unique needs and requirements. This can include negotiated contracts tailored to specific business situations.
Although less common in the SaaS world, some providers offer the option to make a one-time purchase of the software with no ongoing subscription fees. Updates and support might be offered separately.
What is the Best SaaS Sales Model for Your Business?
Now that you know what types of SaaS sales models are out there, how do you choose the best model for your business?
Here are a few important factors to consider when deciding this.
Understand Your Target Audience
Start by understanding the needs and preferences of your target customers. Consider factors like the size of their business, industry, budget constraints, and their willingness to pay for your solution. This will help you narrow down a few pricing options that best match their needs.
Evaluate Your Product or Service
Assess the nature of your SaaS offering. Is it a feature-rich application, a specialized tool, or a platform that can cater to various industries? The complexity and value of your product can influence your pricing model.
Research your competitors and how they price their SaaS products. Identify gaps in the market and opportunities for differentiation. You may choose a pricing model that sets you apart from the competition. However, you’ll also need to ensure that your pricing and sales model are competitive based on the other options.
Determine your revenue goals and growth targets. Different sales models may be more suitable for achieving specific financial objectives, such as maximizing recurring revenue or capturing a larger market share.
Customer Acquisition Strategy
Consider how you plan to acquire new customers.
Some pricing models, like freemium or usage-based pricing, can be effective for attracting a wide audience, while others may be more suitable for enterprise sales. Having a solid understanding of the SaaS sales journey before setting your pricing model is important.
Cash Flow Considerations
Evaluate your company’s cash flow needs. Annual or upfront payments can provide immediate revenue, while monthly subscriptions provide ongoing, predictable income.
Customer Lifetime Value (CLV)
Calculate the potential CLV of your customers. This helps you determine how much you can afford to spend on customer acquisition and support. This also helps you understand what SaaS sales model will help you maximize CLV and make the most of each customer.
Consider how easily your pricing model can adapt as your business grows. A scalable model should accommodate changes in customer base and usage.
You also need to consider scalability in the minds of your customers. Chances are, they will also want to adjust their pricing plan based on their usage habits and software needs.
Testing and Experimentation
Feel free to experiment with different pricing models, especially in the early stages. A/B testing and customer surveys can help you refine your approach.
It’s also a good idea to gather feedback from your customers and make sure that the SaaS sales model and pricing strategy you offer align with their interests.
Ultimately, there is no one-size-fits-all answer to the best SaaS sales model. You must adapt your pricing strategy to align with your business goals and the unique characteristics of your product and market.
Regularly monitor the performance of your pricing model and be prepared to adjust it as your business evolves and your customer base grows.
The best SaaS sales model must be closely aligned with your sales process. Optimizing your sales strategy is key to making the most out of the sales model you choose. Book a demo with Saleo to see how you can create more engaging SaaS sales demos to improve your sales results.