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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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In the SaaS world, choosing the right pricing strategy can make or break your business. Per-user pricing, also known as seat-based pricing, remains one of the most common pricing models—but is it right for your product? This guide breaks down everything you need to know about this popular pricing approach, from its fundamental definition to its pros and cons for modern software companies.
What is Per-User Pricing? A Clear Definition
Per-user pricing is a subscription model where customers pay based on the number of individual users (or "seats") accessing the software. Each user who needs access to the platform requires a separate license or subscription, and the total cost scales directly with user count.
The per-user pricing definition is straightforward: a fixed rate charged for each person who uses your software, regardless of how often they use it or which features they access. For example, if a company has 50 employees who need access to your CRM software at $20 per user per month, they'll pay $1,000 monthly.
How Seat-Based Pricing Works in Practice
Seat-based pricing typically follows one of these structures:
Named User Licensing
Each license is assigned to a specific individual, and only that person can use it. This is common in enterprise software where compliance and access control are important.
Concurrent User Licensing
A limited number of licenses are purchased, but they can be shared among a larger pool of potential users. Only a specified number of people can use the software simultaneously.
Role-Based User Pricing
Different pricing tiers based on user roles (admin users might cost more than standard users).
When Per-User Pricing Makes Sense
Per-user pricing works particularly well for:
- Collaboration tools like Slack, Microsoft Teams, or Asana where value increases with user adoption
- CRM systems like Salesforce where individual salespeople need dedicated access
- Project management software where team members need individual logins
- Software with clear per-user value where each additional user derives roughly equal value
According to a 2022 OpenView Partners report, approximately 38% of SaaS companies use some form of per-user pricing, making it the most common pricing strategy in the industry.
Advantages of Seat-Based Pricing
1. Predictable Revenue
Per-user pricing creates highly predictable revenue streams. As a customer's team grows, your revenue grows proportionally.
2. Easy to Understand
Both for your sales team and customers, per-user pricing is straightforward and transparent. There's no confusion about what customers are paying for.
3. Scalability
The model naturally scales with customer growth, allowing you to capture additional value as organizations expand their use of your product.
4. Simple to Implement
From both technical and operational standpoints, seat-based pricing is relatively straightforward to implement and manage.
Disadvantages of Seat-Based Pricing
1. Discourages Adoption
The most significant drawback is that per-user pricing can create financial disincentives for broader adoption within an organization. Customers may limit access to control costs.
2. May Not Align with Value
For many products, the value delivered doesn't scale linearly with the number of users. A company might get exponentially more value from your analytics platform regardless of how many people log in.
3. Account Sharing
Customers may resort to sharing accounts to avoid additional costs, creating security risks and giving you an inaccurate picture of product usage.
4. Competitive Pressure
As per-user pricing becomes more common, it's harder to differentiate your offering on price alone.
Alternatives to Per-User Pricing
While seat-based pricing works for many SaaS companies, alternatives include:
- Usage-based pricing: Charging based on consumption (API calls, storage, etc.)
- Tiered pricing: Fixed price for bundles of features
- Value-based pricing: Pricing based on the measurable business value delivered
- Outcome-based pricing: Charging based on customer outcomes achieved
Is Per-User Pricing Right for Your SaaS?
Consider these questions when evaluating if per-user pricing fits your business:
- Does each additional user bring similar value from your product?
- Is individual user identity important for your product's functionality?
- Is your target market accustomed to paying per user?
- Do your costs increase meaningfully with each new user?
If you answered yes to most of these questions, per-user pricing might be appropriate for your product.
Best Practices for Implementing Seat-Based Pricing
If you decide to adopt per-user pricing, consider these best practices:
- Offer volume discounts for larger user counts to encourage wider adoption
- Create different tiers based on feature access (basic, professional, enterprise)
- Consider role-based pricing if different user types derive significantly different value
- Implement clear user management tools to help customers control access and costs
- Track usage patterns to identify potential pricing improvements
Conclusion
Per-user pricing remains popular for good reason—it's simple, predictable, and scales with customer growth. However, as SaaS markets mature and competition increases, many companies are evolving beyond pure seat-based models to pricing strategies that better align with the value they deliver.
The most successful SaaS companies often employ hybrid approaches, combining per-user components with usage-based or value-based elements to create pricing that accurately reflects the value customers receive and encourages broader adoption.
Whether you choose per-user pricing or another model, remember that your pricing strategy should evolve alongside your product and market. The right approach today might not be right tomorrow, so continually evaluate how your pricing aligns with the value you provide.