If there’s one thing I’ve learned from my years in SaaS, it’s that selecting the right pricing model can make or break your business. Whether you’re an early-stage startup with a limited customer base or an established player in the market, your pricing strategy isn’t just about slapping a number on your product. It’s about tying your price as close as possible to the value that your product delivers and capturing as much of that value as the market allows.

That’s easier said than done. What works for one company might fail for another, even within the same industry. That’s why understanding various pricing models—whether it’s your standard seat-based subscription, freemium models, tiered pricing, or usage-based pricing—is crucial. Your pricing has to reflect your product’s functionality, the specific needs of your customer base, and your broader business goals.

That’s why, In this guide, I’ll be walking you through the different pricing models I’ve seen prove successful for SaaS businesses across different verticals, growth stages, and everything in between.

Software pricing models: Definition and use cases

When we talk about pricing models, we’re really talking about the framework that aligns your business objectives with the value your customers perceive. 

At its core, a pricing model determines how you capture revenue in exchange for the product or service you provide. But here’s the key: it’s not just about the money. It’s about how you structure your pricing to reflect the value your product delivers while still appealing to your customer base and supporting your long-term growth.

Different pricing models serve different purposes depending on where your company is in its lifecycle. For a startup, the goal might be to capture as much market share as possible, which often means adopting more flexible, lower-cost pricing models like freemium or flat-rate pricing to lower the barrier to entry. In the early stages of software development, it’s less about immediate profitability and more about proving the value of your product to as many customers as possible. Your pricing strategy should reflect that, and the impact on margins should be reflected in your broader business goals.

As companies mature, the pricing model needs to evolve. For more established enterprises, a tiered pricing or usage-based structure with minimum commitments and up-front implementation fees might make more sense, allowing you to capture more value from customers by offering different levels of features or usage while providing certainty in capturing profitable ARR. As the market begins to broadly acknowledge the value of your products and services, your ability to capture value up front increases.

SaaS pricing models vs. traditional software pricing models

When we compare SaaS pricing models to traditional software pricing models, the difference is clear: flexibility and scalability are the hallmarks of the SaaS approach, while traditional models are typically more rigid.

Traditional software pricing models often relied on one-time fees or perpetual licenses paired with annual maintenance fees often required for ongoing usage of the product. In this model, customers pay a large, upfront cost for the software with an annual maintenance fee (typically 20% of license value) and own it indefinitely. While this creates an opportunity for customers to capitalize some expense and see a lower TCO over a 5+ year period, it does limit the ARR opportunity for the provider..

Now, contrast that with SaaS pricing models, where the product is offered as a service, often via subscription-based pricing or usage-based pricing. The key advantage here is the ability to create a more predictable, recurring revenue stream. Customers don’t pay upfront for ownership; instead, they pay regularly (monthly or annually) for access. This gives service providers more financial predictability and allows for closer engagement with customers over time.

The biggest benefit to SaaS pricing is its inherent scalability. It’s easier for SaaS companies to adjust their pricing strategy to accommodate customer needs as they evolve. For instance, a SaaS business could start with a freemium model to attract customers and then gradually convert them to paying customers through value-based upsell options. We’ve seen this play out successfully at Datadog and Snowflake—some of the earliest adopters of product-led growth.

However, or SaaS businesses deciding between these models, the choice will ultimately depend on your development process and business goals. If you’re building a short-term solution and want a quick influx of revenue, a traditional one-time fee model might make sense. 

Top software pricing strategies 

While pricing models dictate how customers are charged, pricing strategies are designed to guide which model to select and determine the ideal price point for your product or service. And by tailoring your pricing strategy to your customer needs and market positioning, you can choose the model that drives growth, maximizes value, and scales with your business.

Here are a few of the strategies you can choose from.

Price anchoring

One of the most effective pricing strategies I’ve seen in SaaS is price anchoring. The concept is simple: by placing a higher-priced option front and center, you make your other pricing tiers seem more affordable by comparison. This plays directly into customer psychology, creating a perception of value when they see the lower-priced options.

I’ve seen this strategy work time and again, especially when SaaS businesses position their most expensive plan as the first option on their pricing page. This high-priced reference point sets the “anchor,” and every other option that follows feels like a bargain in comparison. It’s not about getting everyone to choose the most expensive plan—it’s about making your mid-tier or second-highest option seem like a great deal…and if that most expensive plan is truly what they need, being able to clearly and defensibly articulate any discount offer can go a long way in presenting a “give” in new logo acquisition negotiations.

The lesson here is that price anchoring is about shaping perceptions. When customers are faced with a higher-priced option first, they’re more likely to justify the next plan as affordable or offering the best value. It’s not manipulative; it’s about providing context. By leading with a high-priced plan, you’re giving customers a benchmark to compare the others against, making their decision easier.

Charm pricing

Another subtle yet powerful pricing strategy is charm pricing—the simple act of ending your prices with the digit “9” (e.g., $49 instead of $50). This strategy leverages what’s known as the Left Digit Effect, a psychological phenomenon where customers focus more on the leftmost digit of a price and perceive it as significantly lower, even if the difference is just one dollar.

Let’s say you have a basic plan that’s priced at $50. Dropping that price to $49 seems almost negligible from a revenue perspective, but it creates a psychological trigger for customers. I’d recommend testing charm pricing on your entry-level or mid-tier plans. These are the price points where customers are the most price-sensitive, and they’ll be looking for the best value. By making that plan feel just a little more affordable, you’re more likely to convert those customers who are on the fence.

Decoy pricing

Decoy pricing is one of my favorite strategies because it’s a smart way to steer customers toward the option that provides the most value—for both the customer and your business. Here’s how it works: you introduce a middle pricing option that is intentionally less attractive, making your higher-tier, premium package look like a much better deal in comparison. Essentially, the decoy exists to make the more expensive or more valuable plan seem like the obvious choice.

A perfect example is when you offer three pricing tiers: Basic, Pro, and Pro Plus. Let’s also say the Pro plan is $199, but the Pro Plus plan is $249. The decoy plan, Pro, might offer only slightly more than the Basic plan, while the jump to Pro Plus unlocks significantly more features. Suddenly, that extra $50 feels like a steal to access the premium features, and customers are nudged toward the higher-tier option.

Price bundling

Price bundling is another effective strategy that can simplify your customers’ purchasing decisions while driving higher-value sales. The idea is simple: you offer multiple features or products at a discounted rate when purchased as a bundle rather than as individual items. This can enhance the perceived value of your product and encourage your customers to purchase additional add-ons or modules alongside your core subscription offering.

One of the biggest advantages of leveraging bundled pricing is that it reduces decision fatigue—i.e. instead of forcing your customers to pick and choose individual features—you present them with a single, all-in-one package that feels like a better deal. And from a business perspective, bundling allows you to increase your average contract value while making it easier to upsell customers to higher tiers.

Of course, the way you’re able to bundle your products and features will largely depend on your go-to-market strategy. If most of your customers are locked into sales-negotiated contracts, then you may already be bundling your offerings to meet your customers’ needs. But if you primarily rely on a product-led motion, then it’s worth discussing how you can “pre-bundle” certain offerings at scale during the customer onboarding process.

It’s important to consider impacts to revenue recognition and reporting when taking a bundling approach. Tools like Maxio will ensure consistent and accurate reporting and revenue recognition policies when bundling multiple products and services into a single price point.

Factors to consider when selecting a pricing model

Choosing the right pricing model can make or break your SaaS business. In my experience, the right pricing model influences everything: customer acquisition, churn, expansion, and your company’s long-term scalability.

A great pricing strategy not only generates revenue but also helps you retain customers by offering them the flexibility and value they need. Early on, your pricing might focus on acquiring as many users as possible, but as your business grows, the model should evolve to capture more value from your customer base.

That being said, you don’t want to be completely off the wall with how you present pricing compared to the rest of the market. Your customers need to have a good comparison point when similar products are in the market. Here are a few other factors you should consider when selecting your pricing model.

Customer Needs and Segmentation

Understanding your target market and how different segments perceive value is critical when selecting a pricing model. Customers have varying levels of willingness to pay, so your pricing needs to reflect that. 

When you are in an earlier stage, you can offer things like month-to-month agreements, freemium models, usage-based pricing, or value-based pricing that scale with the customer. Those are fantastic ways to build your base as a company entering the space. The more value you stream to customers through your products, the better your NRR and expansion bookings from existing customers will play out – without costly direct selling.

However, as a general rule, you should segment your customer base based on usage patterns or their specific business needs, offering different pricing tiers that align with the value each segment gets from your product. For example, at Maxio, we use our metrics and analytics tools to study and compare product usage across different customer cohorts.

Competitive landscape

Many conversations around pricing are based on internal factors like long-term profitability and your average customer acquisition cost, but your pricing should also be in line with your competitors.

For instance, If you’re in a high-growth phase and it’s a highly competitive market, you might want to price low and take the approach of seeding the market. But when you’re a proven player, you should focus more on maximizing the value you get out of each customer rather than just capturing as many customers as possible. Or, if you’re trying to enter a new market, you should consider benchmarking your pricing against others in your space to ensure your pricing is competitive.

Product differentiation

If your product has unique or premium features, you can leverage that to justify higher price points. This is the case for many vertical SaaS tools whose production differentiation allows them to charge premium pricing tiers to their customers. Of course, this isn’t the case for all SaaS companies. But in the case that your offering is significantly more valuable than your competitors or solves a niche problem, you should adjust your pricing accordingly. Consider an internal analysis where you take an intellectually honest view of your own product vs. your competitors’ and plot them on a grid comparing perceived value delivered to clients vs. price point. Ideally, the landscape should follow a trend line, and you should aim to price in a way that does not deviate too far from that line.

Data-driven insights

It probably goes without saying, but metrics like your customer feedback, churn, and usage data also give you plenty of information on how to fine-tune your pricing strategy. If one pricing plan isn’t converting well or a certain tier is more popular than others, you should run pricing experiments to see how any changes to your plans impact these metrics. 

If you’re running a large product-led motion that serves thousands of users, you should be able to do this at scale. Unfortunately, not all SaaS companies can run the risk of conducting these experiments without upsetting their customers. If this is you, I’d recommend you pinpoint the drivers of expansion and contraction in your business, whether it be certain industries or products, and decide how to proceed from there.

Challenges of legacy contracts

Legacy contracts can become a burden as your business evolves. In my experience, when you inherit a customer base or have a legacy pricing model, you have some tough decisions to make. You either need to work through regular pricing escalations or decide if it’s worth renegotiating those contracts. Escalation clauses can help bring legacy contracts in line with current market rates, but in some cases, more drastic action might be necessary. Do not take the decision of “breaking glass” on existing customers lightly – if you seek to renegotiate, you should be ready for churn.

Common pricing models for software companies

When selecting a pricing strategy, you can choose from several well-established pricing models that cater to different customer needs, business types, and scalability goals. 

For example, flat-rate pricing offers simplicity with a single price regardless of user count or usage, while usage-based pricing adjusts according to customer consumption, and each model provides a strong starting point for determining the right approach for your customer base.

Here are some of the most common pricing models you can implement within a SaaS business.

1. Flat-rate pricing

Charging a flat rate is a simple and common pricing strategy used by SaaS and software firms where every customer pays a set fee for access without considering how much they use the product’s features. For instance, a company may charge $100 monthly for using their software without additional options for extra modules or usage-based pricing.

The key advantage is the predictability it offers for both the company and its customers when it comes to budget planning due to the steady pricing structure in place. However, the significant drawback of the fixed pricing model is the lack of flexibility, as each customer pays the same rate without consideration for their individual usage patterns or requirements. Sure, this strategy works well for businesses with a consistent product and customer base, but it could overlook your ability to capture additional revenue in the process. With flat-rate pricing, you are optimizing for simplicity and fast sales cycles at the cost of leaving dollars on the table in cases where customers realize outsized value.

2. Usage-based pricing

Usage-based pricing, or consumption-based pricing, is a flexible pricing model where customers are charged based on their actual usage of the software—whether that’s the number of transactions, API calls, or data consumed. This model allows businesses to align their pricing with the value customers extract from the product, making it ideal for companies with a customer base that varies in how much they use the service.

The beauty of consumption-based pricing is that it allows you to prove your worth and minimize customer risk. You’re not necessarily locking yourself into a bad deal upfront, and you’re leaving room to capture more value as usage grows. I’d say this model is particularly effective for cloud services, infrastructure platforms, and API-driven products, where usage levels can differ significantly between customers.

However, there are some challenges with this model. Predicting revenue can be more complex, as it fluctuates with customer usage, which is often difficult to forecast. Another key issue is making sure your customers fully understand the billing structure, as confusion over charges can lead to customer dissatisfaction or churn. Consider introducing either a base fee component or minimum fee to smooth out billing and create more predictability for both yourself and your customers. We take a similar base fee approach with some offerings here at Maxio to provide this level of visibility to all parties.

That said, neither of these challenges should stop you from adopting usage-based pricing. With tools like Maxio, you can easily implement a usage-based model, track customer usage, and set up revenue and forecasting models tied to product usage across your customer cohorts and individual product lines—everything you need to capture the full value of your SaaS.

Maxio’s base + usage pricing model (Source)

3. Tiered pricing

Tiered pricing is another great option for SaaS businesses that want to serve diverse customer segments. With this model, you can offer multiple pricing tiers featuring different capabilities, usage limits, or feature sets.

For example, Slack and HubSpot incorporate tiers based on factors like features, user counts, storage space, and more. Slack’s lowest tier focuses on basic messaging, while higher tiers add functionality like advanced security, unlimited integrations, and expanded storage. And here at Maxio, we also implement a tiered pricing model that allows us to better serve customers all across our total addressable market.

4. Freemium pricing

Freemium pricing is another widely-used pricing model where you offer a basic version of your software for free, with the option for users to upgrade to a paid plan for access to advanced features or additional functionality.

Curious if freemium pricing is right for your SaaS product?

At Maxio, we’ve wondered the same thing, and it’s one of the reasons we introduced our own 30-day freemium sandbox option. When you see an opportunity to create a new offering that is low risk to the customer but also low cost and low friction to you, you definitely should do it. That’s why we introduced the sandbox—it’s low-risk for us but opens up a new market for pre-revenue accounts. This same approach can allow you to build your customer base with minimal risk while still offering a path for upsell opportunities once your users are ready for more advanced features.

However, one of the challenges of freemium pricing lies in managing the balance between free and paid users. There’s always the risk that a significant portion of free users may never convert to paid plans, and the cost of supporting a large free user base can become substantial over time. That’s why offering just enough functionality in the free tier to engage users, without giving away too much is critical for this pricing model to work. Make sure you have a strong understanding of your unit cost economics before launching a freemium motion to ensure you aren’t unknowingly launching a loss-leader.

5. Per-user pricing

“But Alan, what if we want to charge by the user?” If so, you may want to implement a per-user pricing model.

Under this model, customers are charged based on the number of users who access the software. This model is particularly common among SaaS companies that cater to businesses focused on collaboration or team-based tools, making it ideal for companies that scale based on team size. For every additional team member added to the account, the cost increases, allowing the pricing to grow alongside the customer base.

This model works well because it offers predictable revenue growth, however, a slight variation of this is per-active-user pricing, where customers are only charged for the users who actively use the software during a billing period. This can be particularly appealing for companies with fluctuating user engagement, as it provides more flexibility. For example, a business may pay for 100 users in a per-user pricing model but only pay for 75 active users in a per-active-user model, if not everyone logs in regularly.

However, there’s a downside to per-user pricing—it can sometimes discourage customers from adding more users due to the increasing costs, which may limit growth within an account. To combat this, companies must ensure their product’s value scales with team size, making the added cost feel justified. Consider stair-stepped volume-based discounting that reduces per-seat costs as user count increases while maintaining ARR growth, or introducing lower cost license types such as “view only” to meet customer use cases that do not capture the full value of your solution.

6. Value-based pricing

Value-based pricing is a pricing model where the price of a SaaS product is determined by the perceived value it provides to the customer rather than by the cost of production or usage. This model is particularly effective for companies offering highly specialized or high-impact solutions, where customers are willing to pay more because of the significant value the software brings to their business.

One of the greatest advantages of a value-based pricing strategy is that it allows businesses to maximize their revenue by aligning their pricing directly with customer outcomes. But this isn’t a new concept in the SaaS community. In his book Value as a Service, Rob Bernshteyn even introduces this concept of businesses moving beyond just delivering a service to providing measurable, quantifiable value to customers. 

However, the challenge with value-based pricing lies in accurately measuring and communicating that value to different segments of your customer base. Not every customer will value the same features equally. And beyond that, it’s incredibly difficult to charge users based on these ‘outcomes’ unless you have a dedicated SaaS billing platform like Maxio.

7. Cost-based pricing

A cost-based pricing model is where you set the price of your software based on production, development, and operational costs, with a markup to ensure profit. This method guarantees predictable margins and is simple to understand. However, I’d strongly advise you to adjust your pricing to focus on capturing value rather than just covering costs. Otherwise, you run the risk of undervaluing your SaaS solely based on a rough calculation of your margins. I recommend limiting cost-based pricing to direct labor (e.g. hours of implementation services), third-party product sales, hardware, or other lower gross margin offerings.

Implementing the right pricing model: Best practices for SaaS companies

If you’re going to implement a new pricing model, you need to do it right. That means following best practices. Here’s what I would do before implementing a new pricing strategy within any SaaS business.

Align your pricing strategy with your business goals

Your pricing strategy should be directly aligned with your overall business objectives. Whether you’re focused on growth, customer acquisition, or long-term profitability, your pricing has to support these goals—otherwise, you’re leaving money on the table or missing opportunities.

For me, pricing is about tying your price as closely as possible to the value you’re delivering to your customers. But how much value you capture depends on where your business is in its lifecycle and what you’re trying to achieve.

If your goal is market penetration, pricing low to capture market share might be the best strategy, even if you’re not focused on profitability in the short term.  On the other hand, for more established businesses, long-term profitability becomes the main focus. You’ve built a solid customer base, and now it’s about maximizing the value of each customer. This often means introducing premium pricing or tiered pricing that reflects the true value of your product.

Iterate and continuously test your pricing models

When it comes to pricing, one of the biggest mistakes you can make is thinking it’s a set-it-and-forget-it strategy. 

Pricing is dynamic, and to get it right, you need to continuously test and refine your approach. The goal from day one shouldn’t be to find the exact scalable model—it’s to get accounts. Then, once you’re winning customers, figure out how to scale by aligning with how your customers prefer to buy and how you capture value from your product.

I’ve seen companies experiment with different pricing models—whether it’s freemium, usage-based, or tiered pricing—and then refine them based on customer feedback and market conditions. Only once you find your product-market fit should you work towards standardizing a scalable model. But even then, it’s important to keep testing.

One of the best ways to optimize pricing is through A/B testing. You can run experiments by offering different pricing plans to different segments of your customer base and seeing which converts better. For example, at Maxio, we allow our users to offer their customers multiple currency options, product tiers, and scalable usage-based pricing packages, even when they’re subscribed to the same product, making it easy to conduct A/B testing.

Also, it sounds elementary, but it’s worth saying explicitly – listen to your sellers! Implementing internal processes akin to a deal desk or pricing council can create an avenue for sharing real-world, in the field insights. The front line is always the best place to go for real-time feedback.

Leverage automation and tools in pricing implementation

One of the biggest advantages we have today is the ability to leverage automation—the more you automate, the more you can focus on optimizing the customer experience and refining your pricing models.

That’s why, at Maxio, we’ve built automation features specifically designed for SaaS companies to streamline processes like subscription management, revenue and expense recognition, and SaaS metrics reporting. These tools help you stay on top of how your pricing is performing, where adjustments might be needed, and allow you to focus more on delivering value and less on the logistics of managing your pricing structures.

Choosing the best pricing model for your software

So there you have it. That’s everything you need to know about software pricing models in a nutshell. But if I were to sum up my biggest takeaways from this guide, It’d be this:

• Your pricing should tie as closely as possible to the value you’re delivering.
• You don’t want to be completely off the wall with how you’re presenting pricing compared to the rest of the market.
• Your goal from day one shouldn’t be to find the exact scalable model—it’s to get accounts and figure out what works.

Stick to these three core pricing tenants, and you’ll be golden.

That said, it’s difficult to execute these without the right SaaS billing tools at your disposal. If you’re curious how 2,000+ other SaaS companies are using tools like Maxio to set their pricing and grow year-over-year, I recommend you check out our 2024 B2B Growth Report.

Or, if you’re ready to implement a profitable pricing model in your SaaS business today, sign up for a free trial to get started.