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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 today's competitive mortgage technology landscape, choosing the right pricing strategy can make or break a SaaS provider's success. Usage-based pricing (UBP) has gained significant traction across the SaaS industry, but is it the right approach for mortgage lender software? Let's explore when this pricing model creates a win-win situation for both vendors and mortgage lenders—and when it might lead to unexpected challenges.
Understanding Usage-Based Pricing in Mortgage Tech
Usage-based pricing allows mortgage lenders to pay based on their actual consumption of a software service. Instead of fixed monthly subscriptions, lenders pay according to metrics like the number of loan applications processed, documents generated, or credit checks performed.
This consumption-based approach stands in contrast to traditional pricing models like flat-rate subscriptions or seat-based licensing that have historically dominated the mortgage lenders SaaS space.
When Usage-Based Pricing Works for Mortgage SaaS
1. Aligning with Mortgage Industry Cyclicality
The mortgage industry experiences significant volume fluctuations based on interest rate changes, housing market conditions, and seasonality. Usage-based pricing creates natural alignment with these business cycles.
"Our studies show mortgage lenders appreciate usage-based models during market contractions when loan volumes drop by 50% or more," says Mike Fratantoni, Chief Economist at the Mortgage Bankers Association. "When refinance volumes plummet, lenders aren't stuck paying for unused capacity."
2. Supporting Value-Based Pricing Principles
Usage-based models work exceptionally well when the pricing metric directly correlates with the value mortgage lenders receive. For example:
- Charging per closed loan rather than application (since only closed loans generate revenue)
- Pricing based on loan amount (reflecting the varying profit potential of different loan sizes)
- Scaling costs with actual document generation (connecting expenses to productive activity)
This approach embodies value-based pricing principles by ensuring costs scale proportionally with a lender's benefit.
3. Accommodating Various Enterprise Pricing Needs
Mortgage lending institutions range from small community banks to massive national lenders. Usage-based pricing provides natural scaling that fits enterprises of all sizes without requiring complex enterprise pricing negotiations for each client.
For growing lenders, this eliminates the painful "step-up" moments when they would otherwise need to jump to higher pricing tiers as they scale.
When Usage-Based Pricing Backfires for Mortgage Tech
1. Creating Budget Unpredictability
Financial institutions, including mortgage lenders, operate under strict budget constraints and SOX compliance requirements. Unpredictable software costs can create significant challenges for accounting departments and CFOs.
According to a 2022 survey by Digital Mortgage Alliance, 67% of lending operations managers cited "budget predictability" as a top-three priority when selecting technology vendors—a potential conflict with pure usage-based models.
2. Price Fence Problems and Discovery Limitations
In many mortgage software categories, unlimited exploration drives adoption. When users worry about costs increasing with each click, they may avoid discovering valuable features.
For example, pricing fence problems emerge when:
- Loan officers hesitate to run pre-qualification scenarios
- Underwriters limit document requests due to per-document fees
- Compliance teams restrict audit scope to manage costs
These artificial limitations can severely diminish the software's value proposition.
3. Encouraging Discounting During High-Volume Periods
Usage-based pricing without volume discounting tiers can lead to sticker shock during high-volume periods—precisely when mortgage lenders are most profitable and have alternatives.
"We've seen competitors offer aggressive discounting during refinance booms specifically to capture clients using pure usage-based pricing models," notes Sarah Johnson, Principal at Mortgage Tech Advisors. "Without proper volume tiers, vendors become vulnerable during these periods."
Finding the Right Balance: Hybrid Approaches
Most successful mortgage technology vendors are adopting hybrid approaches that combine the benefits of usage-based pricing while mitigating its downsides:
1. Base + Variable Model
A common approach involves setting a baseline subscription fee that covers core functionality, with usage-based components for specific high-value features or exceptional volume.
This provides budget predictability while still allowing costs to scale with usage—satisfying both finance departments and operational teams.
2. Usage Tiers with Soft Caps
Rather than pure per-unit pricing, established tiers with soft caps create predictability while maintaining the alignment with business volume. For example:
- 0-50 loans: $X per month
- 51-200 loans: $Y per month
- 201-500 loans: $Z per month
- Over 500 loans: Additional fee per loan
This approach creates natural volume discounting while maintaining budget predictability.
3. Annual True-Ups Based on Trailing Usage
Some mortgage SaaS providers are moving to annual contracts with true-up provisions based on actual usage. This approach:
- Satisfies the predictability needed for SOX compliance
- Allows for budget planning
- Still adjusts pricing based on actual consumption
- Avoids the monthly volatility of pure usage-based models
Implementation Best Practices
For mortgage technology vendors considering usage-based elements in their pricing strategy:
Select metrics directly tied to value: Choose pricing metrics that strongly correlate with the value lenders receive, not just convenient technical measurements.
Provide visibility and controls: Offer robust monitoring tools so clients can track usage and forecast expenses.
Include volume discounts: Recognize economies of scale with appropriate tiers that reward higher-volume customers.
Consider industry cycles: Design pricing that remains attractive during both boom and bust cycles in the mortgage industry.
Pilot before full rollout: Test new pricing models with a subset of customers to identify unforeseen challenges before full implementation.
Conclusion: Context Matters
There is no universal answer to whether usage-based pricing works for mortgage lenders SaaS. The right approach depends on specific factors including:
- Type of software solution (core processing vs. auxiliary tools)
- Customer size and sophistication
- Market conditions and competitive landscape
- Specific value drivers of your solution
The most successful vendors recognize that pricing strategy is not a one-time decision but an evolving element of their value proposition—one that requires regular reassessment as market conditions change.
By thoughtfully considering when usage-based pricing creates alignment versus friction, mortgage technology providers can develop pricing strategies that foster long-term partnerships rather than transactional relationships with lenders.