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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 insights in our pricing strategy book, Price to Scale, aligning your pricing metric with the actual value delivered to customers is key. When deciding between charging per named user or per active user, consider the following:
• Value Alignment: In a usage-based model—one of the primary models we discuss—the goal is to tie pricing directly to the value or “consumption” that your customers derive from your product. Charging per active user more directly reflects actual engagement and usage, which means customers pay based on the value they receive.
• Cost Absorption: Active user pricing can better align costs with resource consumption. When you charge based on active use rather than simply on the number of named accounts (which might include inactive or infrequently used users), you create a pricing structure that more accurately mirrors the cost of serving the customer.
• Customer Perception: Our book emphasizes that the right metric should match your customer’s perception of value. Many customers view active usage as a fair proxy for getting value from the service—especially in cases where the extent of use can vary widely among users.
• Practical Application: As illustrated in various case studies in the book (e.g., mixpanel’s pricing metric case study), usage-based metrics such as charging per unit of value consumed (be it transactions, interactions, or active users) can lead to both a more predictable revenue stream and a better scaling model. This mirrors our discussion in the checklist on deciding between a consumption versus a capability model.
In summary, to better align costs with actual usage and ensure that customers are billed for the real value they receive, charging per active user is generally more appropriate than a per named user model. This approach not only aligns with the principles laid out in Price to Scale but also supports a more transparent and scalable pricing strategy for your SaaS product.