Pricing Strategy

# Pricing Models — Deep Dive

Comprehensive reference for SaaS pricing models with real-world examples and when to use each.

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## Model 1: Per-Seat / Per-User

**How it works:** Price is multiplied by the number of users who access the product.

**Best for:**
- Collaboration tools where more users = more value
- CRMs where every sales rep needs access
- Tools where the organization is the buyer and seats map to headcount

**Examples:** Salesforce ($25-300/seat/mo), Linear ($8/seat/mo), Figma ($12/seat/mo), Notion ($8/seat/mo)

**Expansion mechanics:** Automatic as companies hire. No upsell conversation needed — new hire gets a seat, revenue grows.

**Failure modes:**
- Single-power-user tools (one person does all the work, team just views results) → seat pricing punishes the customer for your product's design
- Tools used by contractors or external stakeholders → billing becomes a negotiation
- Products where sharing credentials is easy and enforcement is hard

**Seat pricing variants:**

| Variant | Description | Example |
|---------|-------------|---------|
| Named seat | Specific user assigned to each license | Salesforce |
| Concurrent seat | N users can be logged in simultaneously | Legacy enterprise software |
| Creator/viewer split | Creators pay, viewers free or low-cost | Figma, Miro |
| Minimum seat count | Plan requires minimum X seats | Most enterprise deals |

**Tip:** Creator/viewer pricing is powerful for B2B tools where one team creates and dozens consume. It drives virality (free viewers) while capturing revenue from actual users.

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## Model 2: Usage-Based (Consumption)

**How it works:** Customer pays for what they use — API calls, storage, compute, messages sent, emails delivered.

**Best for:**
- Infrastructure and developer tools
- AI/ML tools where compute cost scales with usage
- Communication platforms (email, SMS, video)
- Products where usage is highly variable across customers

**Examples:** Stripe (2.9% + $0.30/transaction), Twilio ($0.0075/SMS), AWS (varies), OpenAI ($0.002-0.06/1K tokens)

**Expansion mechanics:** Natural — as customer grows, their usage grows, revenue grows without any action. Best CAC:LTV dynamics in SaaS.

**Failure modes:**
- Unpredictable bills → customers cap usage to avoid overages → you've engineered your own ceiling
- High churn during market downturns → when usage drops, revenue drops
- Hard to forecast for both you and the customer

**Usage pricing variants:**

| Variant | Description | Example |
|---------|-------------|---------|
| Pure consumption | Pay only for what you use | AWS Lambda |
| Prepaid credits | Buy credits, consume at your pace | OpenAI, Resend |
| Committed use + overage | Flat fee with usage ceiling, then per-unit | Stripe, Twilio volume |
| Tiered usage | Lower per-unit price at higher volumes | Mailchimp email tiers |

**Hybrid approach:** Most mature usage-based companies add a platform fee (small flat monthly charge) to ensure revenue floor and reduce churn from low-usage months.

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## Model 3: Feature-Based (Tiered Flat Fee)

**How it works:** Different bundles of features at different flat price points. The Good-Better-Best model.

**Best for:**
- Products with clear feature differentiation between customer segments
- Markets where predictable spend matters (CFOs love this)
- SMB-to-enterprise products where enterprise features are genuinely different

**Examples:** HubSpot (Starter/Professional/Enterprise), Intercom (Starter/Pro/Premium), most SaaS

**Expansion mechanics:** Requires upsell motion — customer has to outgrow a tier and move up. Less automatic than usage-based but more predictable.

**Failure modes:**
- Feature tiers that don't match actual customer needs → customers cluster in one tier, none move
- Enterprise features that aren't compelling enough to justify the jump → stuck mid-market
- Too many tiers → analysis paralysis

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## Model 4: Flat Fee

**How it works:** One price, everything included, unlimited use.

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