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Estd 4.22.2023
Based on our saas pricing book, Price to Scale, the answer isn’t one-size-fits-all—it depends on both how predictable the client's usage is and their buying process. Here’s how you can think about it:
• Direct Answer
Enterprise clients might lean toward an all-inclusive, flat annual fee when they’re looking for predictable budgeting and simplicity. However, if their usage is more measurable and granular, a per-user or consumption-based model might be more attractive. In practice, many enterprises have a taste for both models when they can choose the one that best aligns with their operational needs and financial planning.
• Supporting Insights from Price to Scale
– Our book explains that pricing strategies fall on a spectrum: on one end, you have consumption-based or per-user pricing (“pay for what they use”), and on the other, a fixed-price model (often using t-shirt size buckets). In an enterprise context, the fixed-price (all-inclusive) option—often seen in Enterprise License Agreements—offers the flexibility to access all features and support without having to track individual usage or seats.
– The book also notes that if the metric is highly predictable and measurable, you can opt for granular pricing (like per-user). But when the measurement isn’t as clear or the usage less predictable, enterprises might prefer larger buckets or a flat fee to avoid fluctuations.
– Additionally, enterprise sales motions, which often involve more negotiation and customization, tend to favor models that provide certainty and simplicity during budgeting and contracting.
• How to Determine the Client’s Preference
• Evaluate Usage Predictability:
– If your usage metrics (e.g., user counts, transactions) are consistent and easily measurable, a per-user pricing model can work.
– If usage is more variable or hard to predict, a flat fee might simplify price setting and budgeting for the client.
• Understand Their Purchasing Process:
– Enterprise buying teams appreciate predictability. Ask directly how they approach budgeting: Do they prefer variable costs that scale with usage, or a fixed investment that covers all their needs?
– Consider running a pilot or engaging in client interviews to understand which model provides a clearer value proposition for their specific environment.
• Practical Application
– You could design dual pricing options during initial contract discussions and use feedback from early engagements to refine your offering.
– Analyze historical usage and purchasing behavior to better capture whether an all-inclusive option or granular consumption pricing meets your target clients’ needs.
• Summary
The key takeaway from our pricing strategy book is to align your pricing model with both the predictability of the usage metric and the client’s need for budgeting certainty. Whether to go with an all-inclusive flat fee or a per-user model should be determined by evaluating their usage patterns and direct feedback on buying preferences.
For further details, you might refer to the sections covering “Predictability” and “Selection of Key Pricing Variables” in Price to Scale.