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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, there isn’t a one‐size‐fits-all answer—it really depends on your product’s usage characteristics and your cost structure. Here are some key points from the book to help you decide:
• Granular Metering:
– Use this approach when your usage metric is highly predictable and measurable.
– It aligns very closely with your underlying cost structure, which is crucial if costs could become a pressure (for example, in cloud infrastructure scenarios where usage growth is rapid).
– This model allows for a more precise “pay-for-what-you-use” pricing structure.
• Generous Allowances with Overage Fees (the 3-Part Tariff approach):
– This model provides customers with a generous base amount (or “buffer”), making it easier for sales teams to get the pricing “generally right.”
– It’s particularly useful when the usage is less predictable or harder to measure precisely.
– The overage fees ensure that if customers exceed their allowance, you can capture additional value to offset any heightened costs or risks.
The book suggests evaluating factors such as predictability of usage, growth of the usage metric, and the correlation between the pricing metric and your actual costs. If the metric is more predictable, you might lean toward a more granular, linear model. However, if measurement is challenging or if you wish to provide a simplified buying experience with inherent flexibility, a generous allowance with overage fees may be more fitting.
In summary, the decision should be based on:
- The predictability and measurability of your usage metric.
- How closely your costs correlate with the usage you’re charging for.
- The sales and customer experience—balancing simplicity with cost risk.
By assessing these factors as outlined in Price to Scale, you can choose the model that best aligns with your business strategy and customer needs.