One of the most compelling reasons to offer a Software-as-a-Service (SaaS) application is the flexibility in pricing. Since SaaS customers essentially lease their applications from their vendors as opposed to buying them, vendors can get creative with their pricing models. The primary consideration for the vendors is that the pricing model should be recurring in nature. It makes no sense to build a SaaS application and then charge annual licensing fees like legacy client/server software. It is my opinion that in a mid-sized business apps market, SaaS vendors should target the $500 – $1,500 per-customer per-month price range to make decent profits.
Here are some pricing model ideas:
- Monthly flat “service & hosting” fee – A flat monthly fee could be charged. Flat fees can be adjusted up or down based on the number of users.
- Usage based – A fee could be charged based on some usage criteria. For example, the vendor could track each record that is created within the system by a customer and then bill that customer based on total records created during a month.
- Feature based – With an “a-la-carte” system of adding and removing features/modules, vendors could assign a cost value to each module. Then, they could use determine how much to charge per-module, per-month.
- Free - Vendors can always take the free approach and make money through advertising. A good example of this model is mint.com.
These are the SaaS pricing models that I am most familiar with but I welcome additional ideas. Please feel free to submit comments!
