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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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Based on our saas pricing book, Price to Scale, customers tend to value predictability in their bills, but there isn’t a one‐size‐fits-all answer. Here’s a breakdown:
• Direct Answer:
Many customers appreciate a flat-rate, predictable pricing structure because it allows them to forecast their costs, making budgeting simpler. However, if your usage metrics are highly predictable and measurable, a carefully designed usage-based model can also work well—provided you clearly communicate how usage translates into costs.
• Supporting Book Insights:
Our book explains that one of the key criteria for selecting a pricing model is “Predictability” (see our section on the five metric criteria). Customers prefer consistency in what they are billed because unpredictable, fluctuating charges can make budgeting difficult for them and revenue forecasting challenging for you. However, if you have a hard metric that customers can understand (like a t-shirt sizing approach with clear boundaries), then a model with usage-based variability can be both acceptable and appealing.
• Gauging Potential Concerns:
To determine whether a usage-based model might scare off potential users, the book recommends:
- Evaluating if the usage metrics are easy to predict and measure. If the data is too volatile, potential customers might resist a model that can lead to unexpected charges.
- Testing the model with sales teams or through pilot programs. In our book, we discuss how a salesperson’s ability to explain and sell the value proposition of a pricing model is a critical indicator.
- Gathering customer feedback to see if they are accustomed to and comfortable with variable pricing. If customers express concerns during initial engagements or surveys, it may be a sign to either simplify the pricing model or add features that improve predictability (such as clear tiers or usage caps).
• Practical Application:
Assess your product’s usage patterns. If the metric is reliably measurable (like blocks of usage, similar to many cell-phone plans discussed in Price to Scale), you can structure your tiers with a “generous buffer” to mitigate concerns about unexpected costs. Conversely, if usage is less predictable, sticking with a flat rate or bundling usage into larger, less granular buckets might be preferable.
• Summary:
In essence, while predictable flat-rate pricing is often favored by customers for its stability, a usage-based model can work effectively if designed around a clear, measurable, and predictable metric. Testing the pricing structure through customer interactions and sales feedback is key to ensuring that customers won’t be scared off by variability.
This balanced approach, as outlined in Price to Scale, helps you align your pricing strategy with both operational forecasting and customer comfort.