B2B SaaS Pricing Models - Flat Rate Pricing
The flat-rate pricing model is premised on the need to provide users with the maximum benefits that they can obtain from a product by accessing all its features. The model considers the fact that customer loyalty can be greatly enhanced because of the increased value and full benefits that users get to enjoy.
Flat Rate Pricing
THE PSYCHOLOGY BEHIND FLAT RATE PRICING
- The flat-rate pricing model is among the simplest and most understood SaaS pricing models. A SaaS company provides a product, details the set of features that users can benefit from the service, and then the company sets a single price for the service.
- The pricing model compares much to software licensing with the only difference being the recurring monthly subscription fees that users have to pay.
- The psychology behind this model is to ensure that customers don’t feel locked out from accessing some features while they are paying for the product. The ability of a SaaS company to provide full benefits of a product to its users helps to increase the value metric of the product which ultimately enhances increased brand awareness and customer loyalty.
- However, for effective onboarding of users, it is important to make sure that users understand all the features provided by the product and the benefits that they stand to accrue after purchasing the package.
- Additionally, the flat-rate pricing model emphasizes value by removing all the barriers that may hinder a user from accessing certain functionalities. The model works best in enabling the user to derive the optimal benefits of subscribing to a product.
- The flat-rate model sets apart the experience of paying from the experience of consuming. The mentality of the model affects how users feel when they are paying for the product because the separation of the payment transaction and the consumption affects the users’ perception of the cost of consumption.
- Ideally, when users pay for a product, they incur a cost that they desire to recoup. The cost is recouped when the users receive a corresponding benefit which could be a gain or a loss. However, the flat-rate model strives to ensure that the consumption provides a gain because of its ability to remove all the limits that hinder users from enjoying the full benefits of the product.
- The corresponding benefits of accessing the full benefits of the product without any limits provide a consumption experience of a cognitive gain that enhances the satisfaction of the users. This makes the users to perceive the monthly costs as an investment.
- Ultimately, the consumption experience becomes worthwhile and induces the users to continue making payments for the service in the future without contemplating that they are losing any money.
PROS OF FLAT RATE PRICING
- The pricing model is easier to sell- Offering a single product at a specified single price makes it possible for SaaS businesses to focus all its marketing efforts on a clearly defined offer which makes selling the product easier.
- It is easier to communicate the pricing model- SaaS pricing models can become complicated and confusing to potential customers. However, a single flat rate pricing is easier to understand thus enhancing the product’s appeal among potential customers
CONS OF FLAT RATE PRICING
- It is difficult to align the pricing of the model with value metric- If the product targets small and medium-sized businesses, and the SaaS company decide on using a SMB-friendly pricing strategy, the company is very likely to lose out on potential revenue if a large business enterprise decided to adopt the product.
- The pricing model only provides a single shot at securing customers- Since all the features are provided by one plan, customers do not have any other options and, therefore, it is either they love the product or not.
EXAMPLES OF SAAS COMPANIES THAT USE THE FLAT RATE PRICING MODEL
- Examples of companies that use the flat-rate pricing model include BaseCamp and CartHook
- Before 2016, BaseCamp used a per feature pricing model that comprised three tiers including $19 per month for the basic plan, $39 per month for the business plan and $59 per month for the enterprise plan.
- In 2016, with the introduction of BaseCamp Version 3, the company revised its pricing for its plans to include $29 per month for the basic plan, $79 per month for the business plan, and $3,000 billed per year for the enterprise plan. During that year, the company announced that it won’t be catering to any special demands from large enterprises. Soon after the announcement, the company dropped the $3,000 per year tier, as well as the $29 per month tier, and increased the price of the remaining tier to $99 per month.
- By making the decision to drop two customer groups, the company was able to focus and streamline its development efforts to just a single tier that had minimal maintenance demands.
- Besides, if the company had chosen to maintain the basic tier of $29 per month, it would constantly face threat and growth obstacles from competitors that provided cheaper products or freemium versions such as Trello, Asana or Slack. On the other hand, if the company had chosen to retain the $3,000 tier, it would face the threat of having a special interest customer group that would feel that it was entitled to special privileges such as dedicated features.
- The decision to implement a flat rate price of $99 proved worthwhile because while its competitors have cheaper prices, the products of the competitors need to be supplemented with other SaaS products in order to provide the same functionality as BaseCamp thus making them more costly in the long-run.
- Additionally, by dedicating its service to a single customer group at a fixed flat rate, the company was able to immensely cut its software development cost, reduce its customer support expenses, and consequently increase its profit margin.
- CartHook charges a flat rate of $500 for its e-commerce plugin.
- CartHook’s single flat-rate pricing model has been responsible for impacting the growth of the company because the company can focus more attention on product improvement and service delivery.
- Additionally, the company uses the model to primarily target large enterprises that have complex needs and thus, do not feel the pain of paying an expensive monthly fee. The pricing was psychologically set high so that the company would weed out users who are price-sensitive leaving the company with a focused customer group that it can efficiently serve.
- The pricing model has also been responsible for enabling the company to maximize its impact by providing the highest level of service possible. This is beneficial to the users because they are accorded dedicated services that can help them to quickly spur growth in their business.
- The model has also proved beneficial in the company’s marketing strategy because it can effectively reach out to potential customers and provide them with a clear understanding of what they stand to benefit by subscribing to the product.
In order to determine the psychology behind the flat-rate pricing model, we had to get creative and explore how the pricing model can impact the mentality of users. We critically examined how the pricing model affect the consumption experience of users while ensuring that the users receive the full benefits of the product offered without getting dissatisfied. We also researched on the implication of the pricing model on the perception of the spending habits of consumers and its impact on the cost-over-benefits among consumers. This strategy enables us to determine the psychology behind the flat-rate pricing model.