Five SaaS pricing strategies to avoid

February 15, 2017
SaaS pricing strategies

Image by ESB Professional / Shutterstock, Inc
Your business probably uses lots of cloud-based software. And your providers probably all claim to understand your wants and needs!

Yet despite how many SaaS products claim to be “specially designed for business users”, so many of them fail on one of the most basic elements: Their pricing strategy.

So before you choose your next SaaS product, do a bit of extra research. Here are five nasty SaaS pricing strategies that can seriously harm your growth.

Five SaaS pricing strategies that business users really hate

We interviewed a selection of people who use various cloud-based systems within their business, to find out the nasty pricing tricks they hate the most.

Here are five SaaS pricing strategies that savvy business users really dislike. Look out for these – they won’t always be clearly published on a vendor’s website:

  1. Free… unless you need it
  2. Huge barrier to entry
  3. Rigid contracts that punish change
  4. Sudden price hikes
  5. Long-term lock-ins

These examples are not always a big issue. And sometimes, vendors clearly explain them on their pricing page. If you understand the implications and still want to proceed, then great. But it still pays to learn what to look out for – so keep reading to become a smarter SaaS buyer.

1. Free… unless you need it

Some SaaS vendors offer their platform for free… to begin with. But if you don’t read their terms and conditions carefully, you might find that as soon as you start to rely on their product, things suddenly become very expensive.

“I hate it when SaaS companies lure you in with a ‘free’ product, but then smack you with a premium as soon as you exceed a certain number of users” says Jay, a product marketer for Kapture CRM.

“It’s not always clear that this is what will happen” he continues. “But by the time it does happen, the product is usually indispensable to your business. And that’s when they start to pull the strings!”

So if you don’t want to get caught with a surprising bill, what should you look out for?

“Look for SaaS providers who offer a free, time-based trial” says Jay. “For example, free for 30 days. It’s clear from the start that the product won’t be free forever, but you still get enough time to decide if the product is right for you before you start to pay. And before the software becomes business critical!”

2. Huge barrier to entry

On the other end of the spectrum, there are many vendors pricing smaller users out of the market completely, by making the initial cost of entry too high.

“A SaaS product may offer an initial price of $500 for the first user, and then $100 for each additional user” explains Jeff Kear, owner of Planning Pod. “Mid-to-large companies may be able to afford this without much thought, while small companies who still really need the product will feel major pain at this price point.”

“High pricing makes me feel excluded” adds Jeff, “like the SaaS company doesn’t appreciate smaller businesses.”

Why do SaaS companies do this? Probably because the cost of bringing a new customer on board is greater than the cost of adding extra users. But there are many providers out there who absorb the higher cost of entry, making their product affordable for smaller users.

If you’re a small or growing organisation, then look for SaaS vendors willing to offer a flat fee per user, without an inflated cost to get started.

3. Rigid contracts that punish change

Recently, one of our employees retired. We had prepared for this several weeks in advance, by hiring a replacement. And after finishing his training, our new starter was ready to jump online and start talking to real prospects!

With still a week left until the retirement party, our sales team temporarily grew by one. So we contacted our CRM software provider to buy a temporary extra licence… only to find out that we couldn’t. In fact, we learned that we’d have to buy a full 12-month licence, just to let our new guy access our CRM for five days.

HR Technology Leader & Consultant Tiffani Murray experienced a similar problem with a different SaaS provider.

“We knew a certain number of users would reach end dates by the time the contract went into place” she says. “Through negotiation and pushing back, we were able to get the vendor to adjust for what the true employee count would be under the timing of the new contract. However, had we not negotiated, I think we would have been charged for the number of employees in place at the time of the contract renegotiation.”

But although Tiffani shows us that it is possible to overcome flexibility barriers through negotiation, wouldn’t a better SaaS pricing strategy be to consider the reality of what happens within a business?

SaaS pricing strategies should be designed to accept the fact that companies are not always exactly the same from one day to the next. If SaaS providers want their customers to spend more money in the long-term, then they shouldn’t put obstacles in the way of their growth.

4. Sudden price hikes

It’s annoying when your mobile phone provider increases your bill by a few pounds a month. But what about when your SaaS provider hikes up your licence fee by several pounds, per employee, per month? Your monthly outgoings can become thousands of pounds more expensive!

When Salesforce increased the price of their Lightning Enterprise plan last year, UK customers had to find 40% extra to continue using their software. And although Salesforce was quick to explain that this cost covered many new features, it is likely that many customers were not expecting such a big change.

Besides, some customers sign up to use a product because they want the features on offer at that particular moment – not because they want to pay more money for more features in future.

Where possible, look for a supplier willing to fix their costs so that you know how to budget.

5. Long-term lock-in.

If you can get a really good discount and lock it in, then maybe a long-term contract is the best option. But if you can find an affordable, fixed price, without a long-term lock-in, then you have more flexibility for future.

Luckily, the nature of most SaaS solutions means that long-term lock-in contracts seem to be dying out for the most part. But it still pays to keep your eyes open.

SaaS pricing strategies should not be an obstacle to growth

At People®, we actually want to help you grow your business. This means giving you flexibility and room to breathe – without letting any silly pricing rules getting in the way.

Here’s how we do that:

  1. A free, time-based trial. Instead of waiting until you really need our product and then hitting you with a bill, we simply let you play around with the system as much as you like for 30 days. If, after this, you want to take up a paid subscription, you can.
  2. A flat fee for each user. You pay the same price per employee whether you have three employees or 300 employees. We refuse to price smaller companies out of the market.
  3. 10% flexibility to help you manage change. You can go over your employee limit by up to 10%, and we’ll never ask you to pay the difference. Even if you exceed the 10% mark, we won’t pull the plug – we’ll call you to find out if the change is permanent. In many cases, our customers are simply hiring new employees to replace leavers.
  4. We fix your price for life. The price you see when you sign up, is the price you’ll pay for however long you stay with us. When we add new features or improve our product, you’ll get it at no extra cost. The only time your pricing will change is if you actively choose to move to a different plan.
  5. We don’t tie you in to a long-term contract. You simply pay us each month. Or, if you want a discount, you can pay us for the full year up-front.

To find out more about our clear and transparent pricing, take a look at our pricing page now.

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