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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 the information gathered, I'll now provide you with a comprehensive answer about the pros and cons of user-based pricing:
Pros of User-Based Pricing
Predictability and Transparency: User-based pricing provides clear cost expectations for customers, making it easy to understand how much they'll pay as they scale.
Scalable Revenue Growth: As customers add more users, your revenue grows proportionally, creating a natural expansion path.
Simplicity in Sales Process: The straightforward nature of per-user pricing simplifies sales conversations and reduces friction in the buying process.
Alignment with Enterprise Sales Models: As evidenced by our work with enterprise clients, user-based pricing aligns well with high Average Selling Price (ASP) solution sales in enterprise environments.
Ease of Implementation: User counts are typically straightforward to track technically, making implementation and billing relatively simple.
Established Market Precedent: Many customers are already familiar with this model from other SaaS solutions, reducing education requirements.
Cons of User-Based Pricing
Value Misalignment: User-based pricing may not always correspond to the actual value delivered by your product, potentially undervaluing your solution.
Encourages User Limitation: Customers may artificially restrict access to minimize costs, limiting product adoption and potentially reducing long-term value.
Shelfware Issues: Our tier/package performance analysis often reveals "shelfware" problems with user-based models - where customers pay for seats they don't actively use, creating future renewal risk.
Competitive Disadvantage: In certain markets, competitors using value-based metrics may appear more attractive than rigid per-user pricing.
Limited Flexibility for Different User Types: Doesn't account naturally for varying usage levels among different user types, which can create pricing inefficiencies.
May Cap Revenue Potential: Revenue is bound by user count rather than value delivered or other metrics that might better capture your solution's impact.
Hybrid Approaches
Our pricing strategy work often leads us to recommend hybrid approaches. As highlighted in our case study with an IT Infrastructure Management Software company, we helped them create a combination pricing metric of users and company revenue rather than relying solely on user-based pricing.
This hybrid approach helps balance the simplicity of user-based pricing with better value alignment, particularly when supporting high-value enterprise sales motions.
Through our empirical pricing research methodology, we analyze your specific situation to determine whether pure user-based pricing or a hybrid approach would be more effective for your specific product, market, and growth objectives.