The Pitfalls of Per User Pricing in SaaS Are Very Real | Modest Development

The Pitfalls of Per User Pricing in SaaS Are Very Real

One of the hallmarks of the Modest software model is allowing unlimited users. We believe that this is the best approach to software-as-a-service (SaaS) pricing. But let’s be real. There are plenty of software developers that still rely on the per user pricing model. That’s fine. To each their own, as they say.

We have chosen to avoid the per-user model because of its inherent pitfalls. We think unlimited users is a better way to go. Allow us to explain why. If you disagree, that’s okay. There is plenty of room for all sorts of pricing models in SaaS.

Pitfall #1: Free to Paid Sticker Shock

Imagine a business management software package offering a free trial to entice new customers to get on board. The free trial is pretty attractive, but it will not last forever. Unfortunately, transitioning from free to paid can result in considerable sticker shock – especially with the per user pricing model.

Some developers charge for each individual user. Others charge for groups. In other words, there is one fee for up to ten users, a higher fee for 11-25 users, and still higher fees at larger increments. A company with a significant number of employees could be shocked at receipt of the first month’s bill. That is not good.

Pitfall #2: Users Aren’t Always Static

There is also the matter of short-term users. To be blunt, users are not always static. The number of active users could change from month to month for a variety of reasons. That only muddies the water and makes understanding billing that much more difficult.

Per-user pricing doesn’t always work well for businesses that bring in seasonal workers. It does not work so well in industries with higher turnover rates. Whenever users are not static over long periods of time, per user pricing faces the risk of becoming unnecessarily complicated.

Pitfall #3: It Can Limit Growth

The first two pitfalls pertain to SaaS clients. The next one, limiting growth, applies to software developers. The per user pricing model can limit growth by scaring clients away. On the other hand, flat rate pricing often seems more attractive for the simple fact that clients always know what they will pay from one month to the next, one quarter to the next, etc.

One could argue that a client’s growth should lead to new hiring which, in turn, should mean more users. That would contribute to a developer’s growth via more users generating more revenue. But unfortunately, clients tend to see the bottom-line price. As their subscription rates rise, they get fidgety. They start looking around for new software if rates get too high. The developer’s growth could be stunted if too many clients jump ship.

Pitfall #4: Tying Pricing to Features

It is not uncommon for SaaS providers to offer multiple tiers in their per user pricing schemes. In order to encourage customers to sign up for a higher tier, they tie pricing to features. The more you pay, the more features you get. That doesn’t sit well with us.

We suspect it doesn’t sit well with customers, either. Why? Because of the tendency among software developers to withhold the most crucial features unless customers are willing to sign up for the top tier.

Per user pricing has its place. In fact, some software companies thrive on it. But when it comes to custom software for small businesses, we believe allowing customers unlimited users is the better way to go. Our goal is to build software that works for clients instead of requiring them to adapt to our business model. Contact us today for your custom software solution.

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