An exceptional enterprise subscription pricing strategy separates the winners from the losers in B2B SaaS. While giving your product away for free, pricing it low, or putting a premium on your product’s best features can all be effective pricing strategies, how do you know which one is right for your business?
That’s what we’ll cover in this article. We’ll discuss what an enterprise pricing model is, the 7 most effective enterprise pricing structures, and how to choose the right one for your business.
What Is an Enterprise Subscription Pricing Model?
An enterprise pricing model is a structure designed to help your company price your product appropriately for your market and business goals.
But before you slap a neon sticker on your product, remember that pricing is tricky business. (After all, Bob Barker didn’t host The Price is Right for 35 years because pricing is easy.) Adequately pricing your product means defining who your target audience is and what your sales team will say. It means pricing the longevity of your business, the salaries of your employees, and the value of your product. Pricing is taking all the hard work you’ve done building a business and putting it on display for your ideal customers.
So, which enterprise subscription pricing strategy works best? It depends on your business. There’s no easy-button solution for pricing. However, there are guidelines that can steer you in the right direction. Let’s look at 7 enterprise pricing strategies for SaaS companies.
The 7 Enterprise Pricing Strategies for SaaS
1. Penetration Pricing
Many companies need to burst on the scene with a product and price that has its own gravitational pull. This is especially true in stickier market places. Penetration pricing relies on lowering the cost of your product during the initial offering so you can take market share away from established companies.
2. Captive Pricing
In a captive structure, you price the main product at a discount (or even free-to-use)—then upsell your clients by adding nearly irreplaceable features. If you’ve ever used TurboTax, you’ve had first-hand experience with a captive pricing model. While the most basic version of this tax-preparation software is free, customers pay extra to file state taxes, get reports, and receive customer service.
What to read more? Get Data-Driven Pricing Strategies
3. Price Skimming
Price skimming is when you price your product at the highest point customers are willing to pay, then gradually lower it over time. SaaS businesses typically front-load the cost of development before bringing a complete product to market. Skimming the price is a great way to recoup development costs quickly and make prices competitive as others enter the market with a similar offering.
Price skimming is wholly reliant on the quality and uniqueness of the product coming to market. Surveying potential customers is an excellent way to identify their price limits. But be wary; not all that glitters is gold. When customers buy your shiny new product at a premium just to see the price flop six months later, it can raise questions.
4. Prestige Pricing
Prestige pricing means offering services at a premium price point. This strategy is about perception as much as it is about margins, and it can be a useful marketing tactic. If a product costs more, it must be worth more, right?
Take Lululemon, for example. They’ve tapped into a premium marketplace by charging $120 for a pair of joggers. If those joggers were $60, potential customers may assign them less value. The same goes for SaaS pricing. Some companies have big budgets! They just want the best solution, and they’re willing to pay whatever it takes to get it.
5. Free Trial Pricing
Free trial pricing allows customers to use your service for free within specific parameters. This method lets customers “test drive” your software and decide whether their organization will benefit. Many SaaS companies will frame this as a free demo or put a time limit on product usage.
Netflix ran a free trial for many years, offering 14 days of free content with an auto-renewal system. The idea? Make signing up enticing, and continuation frictionless.
6. Cost-Plus Pricing
This model, in simple terms, begins with operating costs (or Costs of Goods Sold—CoGS), adds in the customer acquisition cost (CAC), and tops off the price with the company’s preferred profit margin:
CAC + CoGS + desired margin = price
Margins can be pretty high in the SaaS industry, and cost-plus pricing brings those facts to light.
7. Value-Based Pricing
Finally, there’s value-based pricing: setting your prices based on the customer’s perceived value of your product or service. Translating customer value into a dollar amount is no easy feat. However, asking the following questions will give you a good start.
How much does the customer benefit financially?
Choosing the right price point for a value-based model involves knowing exactly how your product is valuable to them. Often this comes in the form of saving them money or making them money. Understanding your customer’s overall financial benefit is a good place to start when implementing value-based pricing.
Do you give your customers time back?
Does your product enable customers to accomplish more with less time or resources? Quantifying the time spent on tasks and the personnel required to perform them can help you determine fair pricing.
What does the market say?
What’s the next best competitor charging for the same product or service? Competitor research can give you a starting-point to help understand how customers will value your solution. However, value-based pricing doesn’t stop there. Consider how your product is different. How might that affect what your customers are willing to pay?
How to Choose Your Pricing Model & Strategy
Each type of enterprise pricing framework comes with a short list of pros and cons. What works best for your business might not work well for others. Pricing is a science. You must gather information, form a hypothesis, and test it in the open market to discover what works.
Research Your Competitors
Truly original services and offerings are exceedingly rare—even in a fast-paced technologic world. No matter what pricing model you plan to employ, figuring out what competitors are doing is an excellent start to pricing your product. Here’s how to get the scoop on your competitors:
- Make a list of successful companies in your industry
- Determine which pricing structure they’re using
- Rate their product against yours side-by-side
- Identify pain points in the market without solutions
Understand Your Target
Matching your pricing framework to your specific customer profile is essential. No matter how “ideal” your extensively-researched model is, you won’t win customers if that model isn’t built for them.
Who is your target audience on a granular level? Consider that there might be a few key players inside an organization making purchasing decisions. Figure out who they are.
What are their individual and collective pain points, and how does your product alleviate them?
Consider how your customers’ organizations work and how they make decisions. What does the conversation between their decision-makers entail? What features will they care about? What price can the business manager get approved from the CIO? How can your tool make the compliance officer’s job easier?
Choose Your Pricing Structure
At this point, your next step is to choose the pricing strategy which you believe best fits your product and market. Keep a feedback loop open and survey customers before you change anything. Once you get honest feedback, internally and externally, go back to the drawing board and make changes if necessary.
What Will Your Pricing Strategy Be?
Knowing how to strategically form your pricing structure is a must for SaaS companies looking to turn heads. But once you’ve settled on your business’s ideal pricing strategy, it’s time to get practical. Can you actually implement this strategy the way you want to?
Every SaaS business needs reliable subscription management, accounting, and data to understand consumer trends and run pricing experiments. Chargify can empower your business to implement any enterprise pricing model, from simple one-time charges to complex usage or quantity-based structures. Click here to get a free billing demo and find out if Chargify is right for your business.