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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 complex landscape of SaaS pricing strategy, third-party administrators (TPAs) face a critical decision: which pricing metric will maximize both customer value and company revenue? Whether managing benefits, claims processing, or administrative services, TPAs must carefully evaluate their pricing approach to remain competitive while scaling profitably.
Let's explore the three main pricing models for TPA software solutions—per seat, per transaction, and per outcome—to determine which creates the most sustainable alignment between vendor success and customer value.
Understanding the TPA SaaS Landscape
Third-party administrators operate in a distinct niche, providing administrative services primarily in insurance, healthcare, and benefits sectors. The software that powers these operations must accommodate varying client sizes, processing volumes, and complexity levels.
According to a report by Mordor Intelligence, the global TPA market is projected to grow at a CAGR of 5.7% from 2021 to 2026, making the selection of an appropriate pricing metric increasingly crucial for competitive positioning.
Per-Seat Pricing: The Traditional Approach
Per-seat pricing (also known as user-based) represents the most straightforward pricing metric in the SaaS world. Clients pay based on the number of users accessing the system.
Advantages for TPA Software:
- Predictable revenue: Vendors can forecast revenue based on client organization size
- Simple to communicate: Clients easily understand what they're paying for
- Scalable with client growth: As clients add employees who need system access, revenue increases proportionally
Disadvantages:
- Discourages adoption: Clients may limit user access to control costs
- Disconnection from value: The number of users doesn't necessarily correlate with the value derived
- Competitive pressure: Enterprise pricing negotiations often lead to significant discounting as seat counts increase
According to OpenView Partners' 2022 SaaS Pricing Strategy Survey, only 31% of B2B SaaS companies now use per-seat as their primary pricing metric, down from 42% five years earlier—suggesting a market-wide shift away from this model.
Per-Transaction Pricing: The Usage-Based Alternative
Transaction-based pricing aligns costs with system utilization, charging based on the volume of claims processed, benefits administered, or other quantifiable transactions.
Advantages for TPA Software:
- Value alignment: Clients pay based on actual usage
- Scalability: Pricing scales with client business volumes
- Flexibility: Accommodates seasonal or periodic volume fluctuations
Disadvantages:
- Revenue unpredictability: Vendors may face fluctuating monthly revenue
- Implementation complexity: Requires robust tracking and billing systems
- Budget uncertainty: Clients may struggle to forecast expenses
Research from Paddle indicates that usage-based pricing models are growing at an average of 29.9% year-over-year, compared to 19.6% for companies without usage components—highlighting the model's increasing popularity.
Per-Outcome Pricing: The Value-Based Approach
Perhaps the most sophisticated model, outcome-based pricing ties fees to measurable client results, such as compliance rates, processing time improvements, or cost savings.
Advantages for TPA Software:
- Perfect value alignment: Directly ties cost to delivered value
- Differentiation: Creates strong competitive positioning
- Premium potential: Enables charging based on value rather than cost-to-serve
Disadvantages:
- Measurement challenges: Defining and tracking outcomes can be complex
- Extended sales cycles: Requires more sophisticated ROI calculations
- Implementation complexity: Often needs customized pricing for each client
According to Boston Consulting Group, companies that effectively implement value-based pricing can achieve 3-10% revenue increases within 12-24 months of adoption.
Finding the Right Mix: Hybrid Models
For most TPAs, a hybrid approach that combines elements from multiple pricing models often provides the best solution.
Example Hybrid Structures:
- Base + Usage: A foundational platform fee plus transaction-based pricing
- Tiered Transaction Pricing: Volume-based price fences that decrease per-unit costs as usage increases
- Outcome-Adjusted Transaction Pricing: Standard transaction fees with rebates or bonuses based on achieved outcomes
Gartner research suggests that by 2025, more than 60% of SaaS providers will employ some form of hybrid pricing model that includes usage-based components.
Implementation Considerations for TPAs
When selecting or transitioning to a new pricing metric, consider these factors:
- Client Segmentation: Different pricing models may work better for different client segments
- Data Availability: Ensure you can reliably track the metrics your pricing relies on
- Competitive Landscape: Understand how your pricing compares to alternatives
- Change Management: Plan for transitioning existing clients to new models
- Revenue Impact: Model the short and long-term revenue effects of pricing changes
Making the Decision: Which Model Works Best?
For most third-party administrators SaaS solutions, the most effective pricing approach will depend on specific context, but general guidelines emerge:
- Per-seat works best for: Platforms where user experience and individual productivity are the primary value drivers
- Per-transaction works best for: Processing-intensive platforms where volume directly correlates with both value and cost
- Per-outcome works best for: Sophisticated solutions delivering measurable business improvements
According to Zuora's Subscription Economy Index, companies employing usage-based or outcome-based metrics grow 1.5x faster than those using only fixed metrics like per-seat pricing.
Conclusion: Strategic Pricing as a Competitive Advantage
For third-party administrators SaaS providers, pricing isn't just about revenue—it's a strategic tool that influences adoption, utilization, and customer retention. The right pricing metric should align with how clients derive value from your solution.
While many TPAs are shifting toward transaction-based or hybrid pricing models, the optimal approach must consider your specific market position, client needs, and operational capabilities.
By carefully evaluating these factors and designing a pricing strategy that aligns incentives between vendor and client, TPA software providers can create sustainable competitive advantages while delivering clear, compelling value to their markets.
What pricing metrics has your organization found most effective? The ideal approach often evolves as your solution and market mature.