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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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When building an open source SaaS business, few decisions impact your growth trajectory and revenue potential as significantly as your pricing model. Many founders find themselves torn between the traditional per-user pricing approach and the increasingly popular usage-based pricing model. Which strategy will better serve your business goals while respecting the ethos of open source software?
The Pricing Dilemma for Open Source SaaS
Open source SaaS companies face a unique challenge: monetizing software while honoring the principles of openness and accessibility. Your pricing model must balance fair value capture with the community-driven nature of open source.
According to OpenView's 2022 SaaS Benchmarks report, companies with usage-based pricing models grow faster on average, with a 29% higher growth rate than those with strict per-seat models. However, what works for one product may not work for another.
Understanding Per-User Pricing
Per-user pricing (also called seat-based pricing) charges customers based on the number of users accessing your software.
Advantages of Per-User Pricing
- Predictable revenue: You know exactly how much each customer will pay as their team grows.
- Simple forecasting: As customers add users, your revenue increases proportionally.
- Easy to understand: Customers can easily calculate costs based on their team size.
- Lower monitoring costs: You don't need sophisticated usage tracking systems.
Disadvantages of Per-User Pricing
- Discourages adoption: Users may share accounts to avoid additional costs.
- Penalizes companies for growth: As organizations expand, costs increase regardless of actual value received.
- Less aligned with value: A power user and an occasional user cost the same.
MongoDB's former CRO, Cedric Pech, noted that "per-seat models can create friction in the sales process when customers fear being penalized for adding users who may not extract the full value of the product."
Understanding Usage-Based Pricing
Usage-based pricing ties costs to the consumption of specific resources or services, such as API calls, storage, processing power, or other measurable metrics.
Advantages of Usage-Based Pricing
- Value alignment: Customers pay for what they actually use and value.
- Encourages adoption: Low barrier to entry with costs scaling with usage.
- Growth potential: Revenue increases with customer success.
- Compatible with open source ethos: Pay for what you consume, not for access rights.
Disadvantages of Usage-Based Pricing
- Revenue unpredictability: Harder to forecast when revenue fluctuates with usage.
- Complexity in pricing: Determining the right usage metrics and rates can be challenging.
- Potential for bill shock: Customers may experience unexpected costs if usage spikes.
Hybrid Models: The Best of Both Worlds?
Many successful open source SaaS companies are implementing hybrid pricing models that combine elements of both approaches.
Elastic, for example, offers a resource-based model for their cloud offering, charging based on memory and storage, while also offering enterprise packages with different support levels.
Confluent, the company behind Apache Kafka, uses a hybrid model where basic access is per-user, but actual data streaming is charged based on usage.
Choosing Your SaaS Pricing Dimensions
When selecting your pricing dimensions, consider:
- Value metrics: What aspects of your product deliver the most value to customers?
- Usage patterns: How do customers typically interact with your software?
- Competitive landscape: How do similar products in your space charge?
- Customer segments: Different segments may respond better to different models.
- Growth objectives: Which model better supports your user acquisition and expansion goals?
Kyle Poyar, Partner at OpenView, suggests: "The best pricing models grow with your customers in a way that feels fair to both parties. Your pricing should scale with the value customers receive."
Implementation Considerations for Open Source SaaS
When implementing your chosen pricing model:
- Start simple: Begin with a straightforward approach you can evolve over time.
- Be transparent: Clearly communicate your pricing rationale to your community.
- Provide calculators: Help customers estimate costs under different scenarios.
- Set fair limits: Ensure free tiers are genuinely useful while premium features deliver clear additional value.
- Monitor and adapt: Regularly review how your pricing affects adoption, revenue, and customer satisfaction.
Making the Final Decision
There is no one-size-fits-all answer to whether per-user or usage-based pricing is better for your open source SaaS. The right choice depends on your specific product, market, and business goals.
Per-user pricing might be more suitable if:
- User access is the primary value driver
- Your product serves teams where collaboration is central
- Administrative simplicity is crucial
Usage-based pricing might work better if:
- Resource consumption varies widely among customers
- You want to lower barriers to adoption
- Your value proposition aligns with specific measurable usage
Many successful open source companies like HashiCorp, Gitlab, and Confluent have demonstrated that thoughtfully designed pricing models—whether per-user, usage-based, or hybrid—can create sustainable businesses while remaining true to open source values.
The most important factor is ensuring your pricing dimensions align with how customers derive value from your product. When customers feel they're paying fairly for the value received, both your business and your open source community can thrive together.