In this article, we look at the different payment models offered by providers. We also show which SaaS payment model is right for your company.
Instead of the classic one-time purchase and local installation of traditional software, SaaS providers rely on a flexible SaaS payment model such as pay-per-use, freemium, or subscriptions. That’s a lot of complicated terminologies, and it’s easy to get confused. In the case of SaaS management, however, it is particularly important to be clear about the terms of the tariff in order to fully exploit the potential for increasing efficiency and saving costs through SaaS.
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The freemium model is a common entry-level or trial model. Here, the user does not pay any fees, but the tool’s functions are limited to the scope that corresponds to only a basic application. For example, only a certain, small number of free user profiles or transactions are provided per billing period. This variant is usually suitable for testing the tool for the company’s requirements in order to subsequently switch to a more feature-rich, fee-based tariff.
For the user:
• No monetary costs
• Rough testing for application possibilities possible
• Attracts more potential customers
• Increased customer willingness to switch to paid models
• If applicable, companies deliberately use the free versions permanently, without the intention of paying for the tool
In the usage-based model, the user is charged a fixed fee per unit of usage. On the one hand, usage units can be of a temporal nature, i.e., the user pays for the actual duration of use of the software. On the other hand, usage units can be factual in nature. This means that the user incurs costs per transaction, e.g., when downloading a file or sending a message.
For the user:
• Accessible for companies with low budget
• Saves costs when the service is used only on a small scale
• No hidden costs
• No contractual commitment
• Easy to change providers
• Allows flexible testing of the software
• No individual price adjustments possible
• Difficult to estimate future use and associated costs in advance
• Due to the high number of users, the tool achieves a higher level of awareness
• More precise determination of actual usage behavior possible
• Customer retention difficult
• More difficult to recoup development costs
Subscriptions are plans where the user pays a fixed, recurring usage fee for a SaaS tool. It does not matter how intensively the user actually uses the application. Rather, the rates are based on the contract term, the number of employees in the company, the number of user licenses actually purchased, or the tool’s range of functions.
Combinations of different influencing factors are also conceivable. For example, many SaaS providers sell “enterprise” subscriptions for companies with a very large number of employees who want to use all the available functions of the tool across departments. In addition, individualized conditions are often offered by agreement.
For the user:
• Prices are negotiable
• Costs can be estimated in advance
• Practical if the tool is used for a longer period of time
• Long-term testing and use enabled
• Costs are incurred regularly, regardless of whether the tool has been used or not
• High waste potential
• No processes required to accurately capture usage trends
• Long-term profits when customers remain loyal
• Inhibition threshold of potential customers to enter into long-term contracts
In principle, the SaaS concept is advantageous for both large and small companies due to its flexibility and agility compared to classic one-time purchase software. However, especially for smaller and medium-sized companies, the cost-efficient tariff models are an enormous advantage. Notwithstanding this advantage, it is important to consider the intricacies of the various licensing options and tailor them to the company or user profile:
Company features:
•Large/medium-sized company
• High IT budget
Requirements for the tool:
• Daily use in all departments
• Over 500 user profiles
• Focus on cost reduction and efficiency increase
Solution:
• Due to intensive use, a subscription makes the most sense. The company should obtain an individual offer if possible
Company features:
• Medium-sized company
• Medium IT budget
Requirements for the tool:
• Irregular use in a few departments
• 20 user profiles
• Focus on increasing efficiency
Solution:
• Because of the sporadic use and the demand for high efficiency, the pay-per-use model is the most suitable
Company features:
• Small company
• Rather low IT budget
Requirements for the tool:
• Regular use
• 10 user profiles
• Focus on cost reduction
Solution:
• Due to the low budget and prioritization of cost reduction, the freemium model is the most appropriate
Apart from the freemium model, all other scalable and fee-based licensing models have a decisive disadvantage. As company capacities increase, the number of employees or users of SaaS applications grows, and work processes become more complicated, the actual use of SaaS becomes more and more opaque.
Against the background of the associated high costs, this phenomenon can be the company’s undoing as soon as unnecessary SaaS costs are incurred on a regular basis. Provided SaaS payment models are not chosen to suit individual employee user behavior and there are entirely unused licenses, these work against the cost efficiency that SaaS promises companies.
Small and medium-sized companies with limited budgets in particular need to be aware of the challenge of managing SaaS and take appropriate action. On the one hand, all SaaS licenses can be managed manually, which, however, means enormous investments in terms of time and labor. On the other hand, all purchased licenses can be clearly displayed in the saasmetrix dashboard and automatically analyzed for efficiency potential. This analyzes individual user behavior in order to provide suggestions for suitable licensing models.
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