What is feature-based pricing?
With feature-based pricing, the price of one version of a product or service is based on the features that come with that version. This method lets businesses offer various features at various prices, giving various customer groups options and freedom in their purchases.
Using the feature-based price model, a product or service is broken down into different features, giving each set of features a value. Then, customers can pick the deal that best fits their needs without paying too much for features they don’t need.
Products usually have three to five types of features:
- Freemium: This means that your product only has the most basic features. The goal is to get some people to pay for it.
- Essential: This is your first paid level, and it’s meant to cover the most essential functions.
- Middle: This level, which is sometimes called “Pro,” “Team,” or “Business,” has more tools for teams or advanced users.
- Advanced: All of the benefits from the previous levels, plus extra security protocols, more storage, and higher user limits for bigger businesses.
- Enterprise: This is a quote-based plan for users with particular needs, like custom implementation or dedicated support.
With tiered prices, you can serve more customers, protect against price-sensitive ones, and clarify your value to different types of customers. The next step is feature-based pricing, which lets you charge more for certain functions and traits of your product or service.
Synonyms
- Feature-based SaaS pricing
- Feature-based subscription pricing
- Feature-tier pricing
Feature-based pricing solves the issues with SaaS pricing.
There are usually different levels of pricing in the SaaS business plan. The software can be scaled up or down and stored in the cloud. For example, adding extra protection or building a custom architecture for enterprise customers is possible. It is also possible to lock or limit certain features for customers who only need their primary function.
But in general, SaaS prices are hard to understand. What makes it easier is feature-based pricing, which looks like this:
Offers an option for customers who care about price
Price sensitivity is one of the hardest things for your sales team to overcome during the SaaS sales process. The truth is that most of the people you can sell to either can’t afford or don’t need your whole product.
Divining your products into groups based on features makes it more accessible for people with less complex needs to join. They’ll finally upgrade their subscription and add new users if their businesses grow. Put another way, giving value to smaller customers also sets you up to make more money from growth in the future.
It helps you place your goods more accurately.
Your thing has already found its place, whether you know it or not. Your proximity to the bullseye determines how well it will connect with your target market.
When you match your pricing choices with different service levels and use cases, you give yourself more chances to meet your prospects where they are. As a bonus, you can also use the pricing page to stress how valuable each feature is.
Extras to custom services and solutions
It’s hard to figure out how much enterprise SaaS costs. It can be challenging for your sales and development teams to sell complicated products to customers whose wants and expectations are very different from their own.
You’ll be in a good position for business talks if you break down the relative value of each feature. There will, of course, be prices that change, like those for building and maintaining. But it’s much easier to make quotes for your most important customers when you can talk about every feature you offer.
Advantages of Pricing Based on Features
Some of the biggest problems with SaaS pricing can be fixed with feature-based pricing. It also has a few other perks.
Better ways to get and keep customers
With different price levels, you can catch people who don’t need or can’t afford everything your product offers. People will stick with your freebie product and move up to the paid version if they like the core features but aren’t ready for anything else yet. Some people will use your goods in the end.
When your sales team can match a customer’s use case with a particular set of features, it will be easier for them to move deals through the process and turn freemium users into paid users. It helps them explain your product’s value proposition better and makes it easier to deal with objections about price.
More say over how you make money from different people
Each of the 20 features in your product may be important to different types of customers in different ways. With feature-based pricing, you can set prices based on how much each item is worth to different groups.
Is it possible that you’re selling tools for managing projects? Access to APIs and the ability to make apps are uncrucial to small businesses. They only need an easy way to work together and see what they need to do.
But bigger businesses will need to connect their software to many different tools and make automation that works with how they do things. If you keep these benefits in your higher tiers, you can still offer small businesses competitive prices while making the most money from your more significant customers.
A pricing approach that is easier to scale
It gets harder to manage tiered plans as your business and customer base grow. You can change prices for specific features or add new tiers as needed with feature-based pricing models, which are more flexible and easier to handle. As market trends, customer wants, and changes in demand happen, you can keep your prices the same without completely changing them.
Feedback is needed all the time for product growth
Customers will tell you what’s important about your product as they choose which features they want over others. You can improve each price level over time by adding the extra features that work best for each type of customer.
This information also tells you behind the scenes which features to add next. Getting this customer information saves your company a lot of money on research and development.
How to Handle the Difficulty of Pricing Based on Features
It can be hard to know where to begin when you have a lot of features to offer. At times, software companies seem to pick the features that go with each level of their products “at random.”
They don’t, though.
To make sure that each tier has the right features, do the following:
Look at what customers say and how they use it.
To determine how valuable a feature is to its current users, the first thing that comes to mind is their engagement.
You can see which features your customers use the most and what they do with them by looking at the clickstream and event stream data that SaaS apps collect. That information will help you determine which features aren’t helpful to your subscribers or take up too much server room.
Next, you should ask your customers how they use the goods. Ask them about the tools and processes they use every day at work.
Keep the most essential UI parts.
You can leave the core functions off the table. Anything that would make your app less useful if you got rid of it fits in all tiers.
Here are some examples:
- People who use CRM must be able to create accounts and handle them. • People who subscribe to email marketing must be able to use the campaign builder and creative assistant.
Nothing in every tier should be the “star” of any of them. It’s essential to ensure that no customer feels cheated by your prices when you price features based on their usefulness and value.
Evaluate its worth.
Look at how much each feature costs, how much value it adds to the product, and how unique it is. Features that are hard to make give the customer a lot of value and are only available on your product should be considered high-value features.
Take a look at your rivals.
Many products are out there, so you need to know what makes yours unique. You’ll need to add some extra features and perks to your pricing plans.
So, let’s say you’re selling a SaaS for managing projects and tasks. You might want to restrict the number of projects that people on your free plan can begin.
But if you look at Trello, Asana, ClickUp, Notion, and most other tools, you’ll see that they don’t limit that. By putting that restriction on your offering, you’re killing yourself. No one will sign up for it.
Place the rest of the features where they fit.
You won’t believe how easy this is. Most of the features you’ll have to limit in each new level of your product will fall into one of these groups:
- Branding: Remove your branding from everything (e.g., emails sent with your app) except for the free version.
- Usage-based components: Increase the limits for CRM contacts, additional seats, email sends, or whatever your specific product offers as customers move up tiers.
- Storage: Increase storage with each tier. Your highest tier should be either unlimited or close to it.
- Reporting and analytics: reserve these for mid-tier and up. (If you’re a reporting-focused product, this step may not apply.)
- Forecasting and modeling—usually, this is a premium or enterprise feature.
- Automation and AI: If automation is your product, offer it in each tier. Either way, increase the complexity and flexibility of rules and triggers with each successive level.
- Customization options: Offer customization options for layouts, designs, branding, and rules-based configuration (e.g., pricing rules in CPQ or access control in DAM) as customers move up tiers.
- API access belongs to the highest tier.
- Integrations: Always include integrations (e.g., data sources) in each tier, but reserve the more sophisticated ones for mid-tier and up.
- Service or support levels: customer service response time can vary by plan. Freemium users usually don’t have much (if any) support, while high-level users get dedicated account managers.
How to Set Up a Pricing Model Based on Features
Customers can be sold feature-based product tiers in several different ways. You’ll likely use more than one of these if not all.
Free Try It
Most of the time, a feature-based pricing plan is used with a free trial. People interested in your product can try it out and quickly see what it can do by signing up for a free trial. This is an excellent way to turn leads into paid customers because they see how valuable your product is.
Model of Freemium
Along with a free trial, the freemium plan lets users keep using the free level for as long as they want. This gives them a chance to get to know your product and its features before (if ever) switching to a paid plan for more features.
When you use freemium, remember that every customer is valuable, even if they don’t buy anything. Potential investors will be interested in you if you have a lot of users. They can also help you sell your product by referring their friends and family.
Tiered Pricing Based on Features
When you have different subscription plans with different amounts of features and functionality, this is called feature-based tiered pricing. Customers can then pick the best plan that fits their wants and budget. Additionally, it lets you target various groups of people based on the benefits they would be willing to pay extra for.
Pricing by User
One popular way to price SaaS products based on their use is with per-user pricing, also called seat-based pricing. This model charges customers based on how many people can use the product or certain aspects. This could be an excellent way to change your prices as your customer base and number of people grow.
Choice of Add-Ons
Adding optional extras can help you sell more to customers and get a higher lasting value for them. It’s also a way to give one group of customers extra value without making your regular product tiers too hard to understand. Add-ons can be extra features, links, or services not part of the base subscription plan.
Bundled Prices
People like bundled pricing, even with subscription plans. When you bundle several goods or services and sell them at a discount, this is called product bundling. You can make your product seem more valuable this way and encourage customers to use your product’s features more than your competitors.
Trends in Technology for Price-Based Features
Pricing software powered by AI
A pricing engine is AI-powered software that helps businesses look at data, set prices, and improve pricing plans. It uses computers to determine the best price for a good or service in real-time, considering market demand, competition, customer behavior, and the time of year.
Dynamic pricing is another feature of pricing engines. This means prices change automatically based on current market situations and customer behavior.
Platforms for usage-based billing
Usage-based billing is a way to handle subscriptions that includes digital usage meters. They connect directly to your SaaS to keep track of app usage data and automatically bill customers for any extra use that goes over their plan limits.
Set up, price, and quote (CPQ)
CPQ software automates the sales process by making it easier to handle quotes (and send them), set prices, and make proposals. Your sales team will find it easier to make quotes and offers when they know which features and price levels customers have chosen.
Machine learning to make things more personal
Using machine learning to make sales and customer encounters more personalized when using a customer data platform or an analytics tool is possible. Over time, as you track how people use the software, it gets better at figuring out what features each customer wants and how much they’re willing to pay for them. This helps you get leads, sell more, and target customers with more tailored price plans.
