All SaaS pricing is pretty much the same
At least for our latest set of ~130 B2B SaaS growth leaders
Not so fast with “seat pricing is dead”
Everyone knows seat-based (per user) SaaS pricing.
It’s the model that started them all, and it’s intuitive and simple. I am a person, and thus I pay to use this software, for a given price for - there’s your seat-based model. That’s all there really is to it.
Seat models have recently gotten their fair share of denigration from the usage-based pricing (UBP) crowd.
Most of the criticisms are well-reasoned. Seat-based pricing works best where users get differentiated individual value from the SaaS product; for other types of use cases (for example, a database), it can be a governor on usage growth.
Seat-based models aren’t often aligned to the critical metric that defines how a customer captures value from using a given piece of software.
What’s interesting to me is that, while that all may be true, many of the highest-growth B2B SaaS companies are still using per-seat pricing models.
We recently added ~130 of those companies to our XaaS Pricing database. This group includes a mix of early-stage, venture, and established B2B SaaS providers across a broad swath of categories.
Of those 130 vendors, roughly 60% use a seat-based pricing model, or a a hybrid model that prices based on seats plus a usage-based overage factor.
Many of those vendors deploy a seat-based pricing model with 3 to 5 usage-defined product tiers. This strategy enables them to price per user, which is well understood by customers, while also driving upsell and retention by migrating accounts to higher-level plans based on usage. Seat-based pricing is also simple and minimizes complexity, which resonates well with SaaS buyers.
Despite the buzz about UBP, PLG, and the corresponding calls for the death of per user pricing, that’s not quite how things are bearing out in practice. Seat-based pricing will remain a viable growth model for many B2B SaaS vendors across categories and lifecycle stages.
So how are seats priced in SaaS?
Given the staying power of per-seat pricing, we decided to take a deeper dive into the actual price points charged for seats.
For the subset of our recently-added 130 vendors that charge based on seats, we built a comparison of overall average per seat pricing (across all tiers) for annual term subscriptions. The results:
For the 56 vendors outlined above, average seat-based pricing ranges in total from $4 to $480 per user, per month. The high end ($100+ per user) consists largely of outliers supporting a specific market (mostly course content platforms such as Skillshare, Plato, Udemy, and Coursera).
Strip away that group, and the vast majority of players have an average price than runs from $10 to $40 per user.
This seems to hold true regardless of the category or product. Regardless of the value I might get as a realtor using dotloop or a designer using Figma, I’m paying the same average price of $25 per seat.
Everyone is in the same relative range.
When you broaden this out, this range actually holds true for our subscription-based non-work lives as well.
The average household today spends $273 on subscription services, and many of most popular subscription services are priced in the $10 to $40 per user range outlined for B2B SaaS above (source: Instamotor - note that exact prices may be a bit outdated):
So why is that? Why is all B2B SaaS priced in the same relative range? And why does that range match general subscription ranges for B2C services?
Pricing to market comps, not to value
This data tells me that B2B SaaS vendors are still mostly building pricing models based on competitive and proxy market comparisons, and not pricing to value delivered by their products.
It seems also that our B2C subscription experiences have set an overall context on willingness-to-pay for recurring subscription services, and that experience is defining our expected price ranges for B2B SaaS products that are seat-based as well.
The rise of usage-based tiers for seat-based models is a step in the right direction. It brings per user pricing and total cost of ownership closer to actual usage.
But actual price points are still based on category and market expectations of what a per-seat price should be for a subscription product.
This isn’t necessarily a bad thing, by the way.
Market and competitive comparisons are an essential foundation to setting a pricing strategy. Tracking markets and peers on an ongoing basis is critical to understanding competitive positioning. Pricing strategy should be unique and user/customer defined, but it’s always going to be informed by the market, particularly when all categories are becoming increasingly crowded.
If that’s true, the question becomes - how do we wedge value-based pricing and/or other means of differentiation into this market-accepted model?
The slow walk to value-based pricing
Usage-based tiers are a first step that most using per-seat models are taking.
More and more, I think we’ll see hybrid pricing models deployed by B2B SaaS vendors that are pricing primarily by seats. These models will have a foundational per user charge, and then overage charges based on usage.
Many are using this type of model already. New Relic is a good example, and often cited as a case study in effective usage based pricing.
But for many B2B SaaS vendors, even those that have achieved unicorn status, per-seat pricing is still a viable (and often expected) model today, and will remain so in the near-term.
Given that reality, vendors are best served to use this knowledge in practice to build the best per-seat models available.
Accept that per-seat pricing rules in certain markets, and dig deep to really understand what other players are doing to make the model work.
Avoid “me too” approaches and price skimming, price to the value position in the market, and reinforce that positioning through a coordinated messaging strategy.
Clarify use cases and customer personas on the pricing page, and price to the needs of those customers.
Gather data from customers to truly understand when the time is right to shift to a hybrid model, and trial new models with specific types of customers.
Now all that said - do I go cancel Netflix to buy Grammarly?
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