In the recent Channel Mechanics webinar,Channel Sales for SaaS Solutions, John McArdle, VP Sales with Channel Mechanics and Nehul Goradia, Co-Founder Enabler ONE, shared their experience of SaaS pricing models, and how they can be successfully applied to both new business and renewals in the channel. From the panel discussion, we put together some Top Tips for SaaS Pricing Models for the Channel.
1. Understand the Difference Between SaaS and Hosted/On-Prem Pricing Models
There are lots of On-prem solution providers getting into SaaS. However, it’s imperative that they understand the difference between pure SaaS (true born-in-the-cloud) and a hosted offering. Why? Because it impacts greatly on commercial T&Cs and pricing models according to Nehul Goradia. “When we look at true SaaS – whether it’s multi-tenant, multi-entity, self-provisioning or billing-driven – we’re looking at volume. We’re not looking at 20-30 customers being on-boarded a year: we’re looking at hundreds and potentially thousands of customers being on-boarded. There are tons of players globally who fall in that space, compared to those who provide a single instance hosted offering and then call it SaaS, and then provide annual licensing or a subscription-driven model. There is a big gap between the two, which impacts the commercials and pricing mechanism”.
The SaaS selling motion has to change, because the customer buying motions for SaaS are not the same as for Hosted or On-prem offerings.
2. There is No “One-Size-Fits-All” Approach to SaaS Pricing Models
From a pure SaaS solution standpoint, how the customer consumes the service will certainly influence and perhaps even define the pricing model. For example, if you offer a Collaboration tool suite, you might set pricing based upon a per transaction model. Or indeed a consumption-based model which might include how many minutes used per month, or per quarter. In sectors such as FinTech for example, its increasingly common to see transaction fee-based pricing models. Here the user receives a charge based on their transactions, which are generally recurring in nature. To make it simpler for the end customer, and for total transparency, it’s becoming more popular to eliminate setup fees and just incorporate them within your transaction pricing models.
Nehul Goradia referenced Channel Mechanics itself as one of the best examples of a vendor operating a pure SaaS pricing. Their channel automation platform is module-driven for a recurring monthly SaaS fee. Users can select from a menu of 25 different channel programs and only pay for what they need. There are no license fees or hidden transaction fees.
3. Ensure you Know How Your Buyers Want to Buy!
There are certain aspects of service that customers demand, regardless of whether it’s an on-prem or SaaS Solution.
– Price transparency and visibility of what the pricing model will be – not just today, but into the future.
– Predictability of future fees and costs over the next one to three years
– Flexibility: If 2020 has thought us anything, it is the importance of flexibility. Companies now want to know that if their business circumstances change, is the pricing flexible?
Even more importantly, they want a platform that adopts a ‘pay as we grow’ model. Customers want to invest, and they want their vendors or suppliers to work with them like true business partners. They want vendors to understand their business context and growth stage so their philosophy often starts with, “please don’t give me your premium price plan today but allow me to scale as you scale”. As such, SaaS vendors are offerings a range of tiered pricing models: for example, a starter pack for start-ups/scale-ups with a minimum viable offering they need, an SMB pack with the most valuable and frequently used capabilities, and an Enterprise pack which has the widest range of capabilities.
4. Show Customer Empathy – Understand their Business Landscape
If you are a specialist provider, your partners, essentially your customers, expect you to know their domain. You should be able to price accordingly to the sort of business they’re operating. A good example here is FinTech; if you’re servicing the credit union sector, by default, you should know that’s typically a not-for-profit sector, or they are working with very low margins. Therefore you should not be charging the same platform rates you’re charging to a Tier-One commercial bank. That’s the type of pricing partnership that customers are now looking for from pure SaaS vendors.