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Does this tiered SAAS pricing model offend you?

5 points by fido ↗ HN
I'm about to launch a niche support app that will be sold on a per user basis. I've been thinking a lot about pricing today, since that is the only code remaining for my MVP. A lot of SAAS offerings charge based on user/agent tiers, and I'd love to know how people generally feel about this.

For example:

$50 - up to 3 users

$100 - up to 10 users

$200 - up to 25 users etc

I see a lot of companies doing this (Highrise, Chargify, etc). In the above example, the per user cost is all over the map. 1 user is $50/user...3 users is about $17/user... 4 users is $25/user...etc etc.

My gut tells me that the fairest route would be to simply charge per agent. I think it would also be ok to keep the first tier...so $50 for 3 users, then $X per additional user (where $x is less than $17).

Or... do companies prefer to pay on tiers so they can easily gauge their monthly expenses?

Does anybody have any thoughts? experiences?

10 comments

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cperciva
My gut tells me that the price should be an analytic function of the number of users or resources used, with an everywhere-positive first derivative and an everywhere-nonpositive second derivative.

Then again, my service has pricing in picodollars, so I'm clearly crazy.

fido
I really like the way you view this, and I think the picodollar pricing on tarsnap is fantastic. I just don't know if I have the guts/resources to attempt this!:)

My product requires deep integration inside of other people's software - ecommerce, saas, etc. The majority of customer support will be on the front-end. I'm a two man shop and not able to handle a large support load of customers who haven't paid real money.

Do you encounter this at all?

cperciva
I have unusually competent users, so the support load for Tarsnap isn't very high. I have a deliberate policy of providing the same level of support to everybody even if I know they're only spending a few cents per month -- not just because it's what I would want if I was a customer, but also because I've seen many many instances of "you provide really good support for Tarsnap, now I feel I can go ahead and upload all the rest of my data" turning very small customers into very big customers.
exline
It depends on the the service. I use freshbooks, and their plans are roughly based on number of customers you have. I don't mind paying more the more customers I have, because it means I'm making more money. I don't mind spending money when I'm making money.

One thought is that the bigger your customer is, the more they can afford to pay for the service. You don't want to leave to much money on the table. Its pretty normal for people to undercharge for their services. Do you have any feel for if you are going to get more 1-3, 4-10, 11-25 users?

The things I don't like about tiered services, is that there is a big price jump when you move between tiers. Moving from 3 to 4 users in your example doubles the cost to the service. I'd make more gradual tiers rather than big jumps.

johnnytee
I'm curious about this as well and was going to submit this question to HN. I'm debating between charging say per $5 per user or like you say a tiered approach:

$7 - 1

$12 - 5

$22 - 20

$40 - 20

$90 - 50

$150 - 100

On one hand a flat fee per users seems to be the simplest approach where as the tiered system implies a deal with more users.

I'm leaning towards the tiered method. Everyone loves to feel like they are getting a deal. I know I do and when I put myself in the buyers shoes I think this is what I'd like to see.

fido
Yes this does seem to be a popular choice. From a business standpoint, I like that the extra revenue flows in at the front end of the tier.

With this model, how will you do upgrades/downgrades? Would you prorate the portion of the month on the old plan + the prorated portion of the new plan? Then, continue charging on the new plan the following month?

johnnytee
I'm using Spreedly.com as my payment processor. They prorate and either credit or charge the account based on upgrade or downgrading. I've tried my own billing before it was a major pain in the ass.
ameyamk
I have similar question as well. I am building hosted telephony app, and the question is whether to charge base fee + telephony charges or bundle minutes into the plan. eg. $9 for basic plan + 5 cents a minute $15 for advanced plan + 3 cents a minute

OR

$15 with 500 Minutes $30 With 2000 Minutes etc.

what are general assumptions? What factors should I consider before making final decision?

fido
Hey my app is actually a telephony app too! I didn't mention the per minute stuff in my post because I have to charge for the minutes regardless.

In your second example, what would you do with a user who only used 100 minutes? Will you rollover their unused minutes or is it "use it or lose it"?

ameyamk
I have not decided that yet either. Rollover does seem better option.