How does SaaS pricing work?

SaaS pricing typically operates through subscription models where customers pay recurring fees for access to software hosted in the cloud. The most common approaches include per-user pricing, tiered plans, and usage-based billing. These models prioritize predictable revenue for the provider and flexibility for the customer. For example, a per-user model charges based on the number of active accounts, while tiered plans offer different feature sets at varying price points. Usage-based models tie costs directly to consumption, such as API calls or data storage. The goal is to align pricing with the value customers receive while ensuring scalability for the business.

Specific pricing structures often depend on the product’s use case. Per-user models, like those used by Slack or Microsoft 365, work well for collaboration tools where each account represents a distinct user. Tiered pricing, seen in platforms like GitHub, segments customers into tiers (e.g., Free, Team, Enterprise) with escalating features and limits. Usage-based models, such as AWS or Twilio, charge for measurable actions like compute hours or SMS messages. Some services combine models: Zoom uses per-host pricing for meetings but adds usage fees for extra cloud storage. Developers building SaaS products must implement tracking for these variables—like user counts, API call volumes, or storage metrics—to enable accurate billing.

When choosing a pricing model, factors include the product’s cost structure, target audience, and competitive landscape. For example, a service with high infrastructure costs (like video streaming) might favor usage-based pricing to pass costs directly to heavy users. Freemium models, used by tools like Dropbox, attract users with free tiers but monetize through upgrades for advanced features. Developers should also consider technical overhead: tiered plans require feature-gating logic, while usage-based systems need robust metering. A/B testing pricing tiers or analyzing customer segmentation data can help refine the approach. Ultimately, the model should balance simplicity for users with sustainability for the business, avoiding overly complex structures that confuse buyers or strain engineering resources.