SaaS Pricing Models In Flux
At Forrester’s recent IT Forum in Las Vegas, we conducted a roundtable with several leading software and services firms focused on SaaS around the topic of SaaS pricing trends. Key takeaways:
- SaaS pricing is evolving toward true usage-based models. Most early examples of SaaS price on a fairly simplistic per-user per-month basis, sometimes with add-on costs for “extras” like mobile, storage, or advanced modules. However, today many buyers seek pricing options that more closely map to value, such as usage-based or transaction-based models. At the same time, many SaaS vendors are becoming more sophisticated with billing and provisioning (either themselves or through specialist partners like Zuora, eVapt, MetraTech, and Aria), which means that they can profitably offer more flexible pricing models (eliminating effort that formerly required manual intervention).
- Many SaaS vendors provide transparency into pricing and contract terms. SaaS vendors have typically had transparent pricing, often listed on their Web sites and/or shared by user communities. Additionally, some SaaS vendors publish their privacy and security policies and sometimes standard contracts for anyone to see. One challenge for some buyers who are stuck in a traditional on-premises purchasing mindset, however, is that SaaS vendors typically have limited transparency into breakdown of pricing (splitting out software, hosting, and support, for example).
- “Freemium” still remains common but approaches vary. Many SaaS vendors continue to offer various types of free trials or free low-end editions to allow potential customers to try the product before buying and to capitalize on the word-of-mouth marketing that is common across SaaS. Free versions are typically time limited, functionality limited, or capped at a certain number of users. Some remain ad-funded, but this is less common for SaaS solutions targeted at larger enterprises.
Buying SaaS? Selling SaaS? Weigh in on your thoughts around SaaS pricing models.
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If I missed you at ITF Las Vegas, hope to see you soon at another upcoming Forrester event.