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The Value of Evolving to a Features-Based SaaS Pricing Model

November 10, 2016

The process of delivering Software-as-a-Service (SaaS (News - Alert)) is a relatively new concept in the overall technology sphere, but one that has been proving lucrative for many years. Some software developers and producers are now at the point where they are comfortably reaping revenue and value from their SaaS offerings and are ready to kick things up a notch and better meet customer demands.

Flexera, a company that helps software producers manage, optimize and monetize their solutions, discussed how to glean even more value from the SaaS delivery model in a recent blog post. One of the first things the company advises its own customers to do is ensure they are gleaning maximum value from SaaS solutions. This ensures end users are happy and will remain customers/subscribers.

The company discussed a recent query from a software producer interested in generating more value for its SaaS customers. The customer had been charging its own customers on a per-user or per-output basis and realized via customer feedback that they were actually over-pricing their solutions as a result. The company was only following a popular model dating back to the mid to late 2000s, when SaaS offerings began being priced on a per-seat basis. That slowly evolved to a consumption-based model, which is the popular SaaS pricing model today. Unfortunately, this model generates a disconnect with many end users, who believe they are being overcharged since they can’t match perceived value to the prices they are paying.

Flexera recommends its customers “feature-ize” their SaaS solutions to get around this problem. That means charging customers only for the specific features they use, ultimately generating and deriving value from the output of software rather than the software itself. This pricing model is much more in line with the way SaaS is being delivered today while also better meeting customer demands and expectations.

Achieving this shift to a “feature-ized” pricing model will certainly present a challenge for many SaaS companies, but will pay off in the long run. Software producers simply need to establish a usage meter for their offerings that reflects the value they are offering as well as their customers’ expectations and demands. Having a reliable and flexible software monetization solution on hand, like Flexera’s, will also go a long way toward making this type of pricing achievable.

Edited by Maurice Nagle
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