SaaS Billing & Pricing Models
SaaS pricing models typically bill clients in one of the following three ways: by the number of users, by the volume of resources consumed or by a combination of both (user quantity and resource consumption). These common SaaS pricing models, are further described below:
Pay-Per-User SaaS Pricing Model
Pay-Per-User is one of the more popular SaaS pricing strategies. Under this model, a separate cost is incurred for each user of a SaaS application. SaaS billing occurs on a periodic basis (usually monthly) for the number of registered users. Therefore, organizations who subscribe to this model need to pay close attention to how many users have been registered for each SaaS application their enterprise uses. Otherwise, clients may experience some difficulty in predicting their ongoing software costs. For example, companies often incur additional expenses for users who have left the company or transferred to another department within the organization,where they no longer need access to a given SaaS product. Organizations need to ensure that someone has the responsibility of terminating user accounts for those who no longer need access to a given SaaS product, to keep enterprise software expenses in check.
A variation of the Pay-Per-User SaaS pricing model is the Pay-Per-Multiple-User pricing model, where a separate cost is incurred for a specified number of users. For example, a SaaS application could be billed on a multiple user basis of 2 to 99 users, as the first tier of the pricing plan and between 100 and 250 users,as the second tier of the pricing plan, etc. Vendors who use this pricing strategy typically bundle an increasing number of features or types of functionality within each tier, in addition to allowing a greater number of users.
Unlimited Use SaaS Pricing Model
Another popular SaaS pricing model is unlimited use billing. When this pricing strategy is employed, clients can easily predict their ongoing software expenses, since the monthly amount they are billed generally remains the same from one billing cycle to the next, for an unlimited number of users. This pricing model’s primary advantages are cost containment and simplified billing for the client organization. This is a very popular pricing model for clients because many SaaS applications use pricing models that are simply too complex to be understood. In some ways, this model is similar to the private cloud model where usage is also unlimited with a fixed cost.
Pay-As-You-Go SaaS Pricing Model
Another pricing strategy used by SaaS vendors is the Pay-As-You-Go billing model, which typically charges for the number of users and the amount of resources (e.g. volume of storage space, CPU usage, etc.) being consumed during a given time period. This type of billing strategy is often found with PaaS (platform as a service) offerings, since this type of cloud based computing service could easily be abused by clients. The primary disadvantage to the client under this pricing model is the difficulty in predicting the ongoing software expenses for the organization. On the other hand, the Pay-As-You-Go pricing model can be beneficial for an organization, since they are only required to pay for the actual volume of resources consumed, instead of paying a flat rate for a bundle of services that they may not be able to fully use.