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What is Enterprise SaaS Pricing?
Enterprise SaaS pricing refers to the sophisticated process of establishing a price for an advanced version of a SaaS product, built to serve the largest companies. It accounts for large firms’ purchasing power and intricate customization needs while also ensuring the vendor’s sustainability and profitability.
Compared to traditional SaaS pricing, enterprise pricing is:
- Quote-based. Usually, the enterprise version of a product doesn’t have a flat-rate price. Instead, the vendor quotes each customer individually based on its specific needs and requirements.
- Higher in value. Enterprise customers spend a lot more. They need advanced features, integrations, reporting, and customizations available exclusively in the enterprise version. And, they need to deploy their systems across multiple business units (nationally and, often, internationally).
- More complex. On average, an enterprise SaaS sale takes 8 months to close. They involve as many as a dozen decision-makers, including top-level executives. Thanks to their quote-based nature and number of influencers, they require multiple rounds of contract negotiation and approval.
- More human-to-human (H2H). Unlike traditional SaaS sales which primarily happen online or with 1-2 sellers working a deal, enterprise sales require a lot of live interactions between the vendor’s and customer’s teams. This means more demos, trials, events, and workshops to make sure the product fits exactly into the customer’s environment.
- Tailored to customer needs. Additional services like onboarding, implementation, building IT infrastructure, custom-coded tools, and ongoing support require SaaS companies to calculate profitability in more ways than one. They have to address the costs of retaining personnel to meet these needs.
The process of setting prices for enterprise contracts addresses those challenges. Some elements of enterprise SaaS pricing are predetermined by the organization. Others require careful deliberation from the vendor’s pricing team.
- B2B SaaS pricing
- Enterprise subscription pricing
- Enterprise software pricing models
- SaaS pricing models
- SaaS pricing strategy
Importance of Developing a Strategic Plan for Enterprise SaaS Pricing
When selling to enterprise companies, there will always be a personalized element. But, that doesn’t mean vendors should apply a haphazard approach to pricing.
Having a solid plan means you’ll know how to handle negotiations when they arise. You can simulate scenarios, build processes for identifying risks and establish your value proposition. Then, you won’t run the risk of underselling or overpricing your product.
Ensures Understanding of Your Customer Base
Potential customers generally expect some variation from one customer to the next. What they don’t want is confusion every time they start a new billing cycle. They want to know what they’re getting, how much they’re paying for it, and whether it reflects the value they’re getting.
A well-defined enterprise pricing structure meets individual requirements and maintains consistency. It helps customers understand the value they receive in exchange for their investment. Most importantly, it builds trust between you and your customers.
Helps Control Costs of Customizations and Support
Pricing enterprise SaaS becomes more complex once you consider anything hands-on (e.g., vendor support, implementation). You could end up losing money on customers that require an unexpectedly large amount of assistance. On the other hand, too many restrictions on customization can frustrate potential clients into dropping out.
A well-designed pricing strategy can strike a balance between these two extremes. And, by relaying your enterprise pricing strategy to your sales team, you’re enabling them to close customers whose requirements fit within those parameters.
Optimizes Cost-to-Value Ratio
Pricing decisions can make or break your company’s bottom line. If you price too low, your revenue won’t cover the cost of delivering services. If you price too high, customers might leave (or simply think it’s overpriced). In both cases, you’re losing money.
A well-thought-out pricing strategy enables you to find the sweet spot that satisfies customer needs and your profitability requirements.
Lowers Customer Acquisition Costs
If you take too long to make pricing decisions, you’ll never close a deal. And making the wrong decisions means you’ll spend a lot longer negotiating and you’ll close fewer of your target customers.
You’re already spending a lot more to close enterprise deals.
- Top-salary sales team members are tasked with closing just a few deals per quarter.
- Other higher-level deal desk personnel are generally involved
- Full-fledged demos, RFPs, and pilots are the norm.
- Nurturing relationships with enterprise customers costs a lot more.
Even a small percentage reduction (say, 5-10%) in sales cycle time equates to several weeks shaved off the entire process. In addition to increased productivity from your team (i.e., more time to work on other deals), closing a sale faster means less money spent to close it.
Increases Revenue Growth
With a well-defined enterprise pricing strategy, you can balance the initial investment with a higher lifetime value.
Most immediately, a system for appropriately pricing enterprise SaaS contracts shortens the sales process. That means you’ll grow revenue faster simply by closing more deals within a given period.
But the ability to price and sell your product to enterprise customers has untold benefits in other areas, too. You can bring on the appropriate personnel to onboard customers and implement systems, resulting in faster time to value. That means your customers have a higher chance of expanding their product usage when they get real value from it.
7 Pricing Models for Enterprise SaaS
The most important 2 pieces of the enterprise SaaS pricing puzzle are the software monetization model and unit economics. To achieve price optimization at the enterprise level, organizations need a multi-layered approach.
When making pricing decisions, enterprise SaaS vendors incorporate some or all of the following pricing models:
The freemium pricing model is one of the most well-known among SaaS companies. With freemium, the basic software offering is free, with limited functionality. Customers can upgrade to a paid version for increased features and capabilities. It’s effective in attracting customers and gaining brand recognition.
For your enterprise customers, it’s an opportunity to familiarize themselves with your interface and test it on a small group of users before investing in the whole thing. If you’re selling enterprise contracts, this could be the difference in them converting a few months down the line and signing up for a competitor that offers it.
Flat-Rate Pricing Model
Flat-rate pricing is the basis for all pricing, even at the enterprise level. Customers want basic, understandable, and predictable monthly bills. When you’re pricing an enterprise SaaS solution, this is the first component to worry about. You’ll use it to standardize a baseline and include more complex pricing models on top of that.
Companies typically determine their flat rates by customer segment. Chances are, you’ll have plenty of buyers with similar attributes.
- Annual revenue
- Number of business units
First, establish a minimum price for enterprise contracts. Then, standardize the approach based on those attributes and create baselines that you can adjust — e.g., minimum $10,000/month, companies with over 1000 users will automatically pay an additional $1000/month, over 10 operating locations is an additional $2000/month, and so on.
Feature-Based Pricing Model
Next, you’ll have to itemize all your standout features and service offerings.
- API integrations
- Hands-on customer onboarding
- Implementation and deployment
- Optimal uptime guarantees
- Advanced customization options
- Dedicated account manager
- Dedicated IT support
Some of these you might want to bake into your flat rate instead of charging an additional fee. Many SaaS companies offer dedicated support and account management for “free” but pass the additional cost onto the customer in their flat rate pricing.
For custom integrations, bespoke tools, and any personnel required to deploy your solution within a customer’s infrastructure? Charge a separate fee.
Per Active User Pricing Model
Seat-based pricing is a form of usage-based pricing. In this model, you’ll charge customers based on the number of active users — not just those who have access to your platform.
When determining enterprise SaaS pricing, you’ll typically have a number of users already allowed in your flat rate. You’ll use the per-user model for anything beyond that, and you’ll communicate the additional cost of additional users in your proposal.
For example, you might allow up to 100 users at a default price, but every additional user after that would be added at a $10 per user, per month rate.
Usage-Based Pricing Model
Almost every software company incorporates usage-based pricing to some degree.
This could be:
- Pure usage-based pricing like the pay-as-you-go model
- Flat rates per additional active user on the system
- Tiered-pricing, where customers pay based on the number of users or usage levels (e.g., storage space)
- Value-based pricing, where customers only pay for what they use, but there’s negotiation involved in determining a rate
When determining how much to quote an enterprise-level prospect, their usage is one of the most important factors. The sales team will consider how many active users they’ll have, how often they’ll use the software, and what features are most important to them.
Tiered Pricing Model
With the tiered pricing model, customers pay for different levels of service.
- A basic plan with limited features at a low price point
- A mid-level plan with more capabilities and a higher monthly cost
- An advanced plan with all features included and a higher price point
- An enterprise plan with API integrations, customizations, and advanced support at a variable, quote-based (but generally much higher) price
Within your enterprise pricing model, you might also have multiple pricing tiers. For instance, to serve to completely different customer segments, you may offer specific feature pricing and include different services by default.
Value-Based Pricing Model
Since customers will have a say in the final price of your contract, value-based pricing plays a huge role once you get to the negotiation stage.
At the enterprise level, you’ll have to determine a fair rate for your basic services and customizations then negotiate with customers based on their specific needs.
- A government agency might want all data stored locally
- A Fortune 500 company may insist on training sessions for its teams
- An international organization might need multiple currency options
- A non-profit could look for discounted pricing since it’s a charitable organization
You’ll likely already have separate packages (i.e., tiers), starting flat rates for many of these services, and you’ll negotiate from there. The goal is to strike a balance between your prospect’s perceived value of the product and your profit margin.
Best Practices for Determining the Right SaaS Pricing Model
If you asked 100 companies how exactly they figured out their product pricing, you’d get 100 different answers. Enterprise SaaS pricing is an inexact science that doesn’t always follow any one approach.
There are, however, a few best practices every organization follows when it comes to determining the right pricing model.
1. Start by analyzing your market.
Most SaaS companies keep their enterprise pricing models a secret, but you can still gather information about your market by looking at public pricing pages and conducting competitive research. This will give you an idea of what other companies in your industry are charging for similar products.
You can sometimes find data on sites like G2 Crowd or Capterra, as well. Since current and past customers share their experiences, you’ll get a better sense of what they liked and disliked about different pricing models. You’ll also get a ballpark estimate of what they cost (although this mostly works for the largest companies, like Salesforce).
2. Understand your customers’ purchasing power and needs.
When setting enterprise SaaS pricing, it’s essential to understand what your target customers can afford and what features are most important to them. Conduct market research, surveys, and reach out to current buyers directly to gain insights into what they’re willing to pay for and their pain points.
When evaluating your target customers, there are a few things to consider:
- Enterprises have deeper pockets, but more rigid budgets and approval processes.
- They have a higher threshold for risk, but also expect a more substantial return on investment.
- Customizations they need are only profitable for your business if you can standardize them and offer them to others.
If you aren’t sure what to offer, start with the services you already have the infrastructure for and go from there.
3. Consult with your enterprise sales team.
Your sales reps and AEs are on the front lines, engaging with potential customers every day. They have a good sense of what prospects are looking for and how much they’re willing to spend.
When you’re setting or refining your enterprise SaaS pricing strategy, it’s a good idea to set up a meeting with your sales team.
Ask them about:
- objections do they hear most often
- features do prospects ask about the most
- their budgets and pricing expectations
- what prospects say others are quoting them
- the main differences between what mid-market and enterprise-level buyers are looking for
Also ask them what similarities there are within each customer segment. You could potentially bundle certain features and services together to create tailored packages to meet these specific needs.
4. Specify your enterprise product’s value proposition.
What makes your product stand out from the competition? What unique features or services do you offer that customers are willing to pay a premium for?
Create a list of your product’s value propositions, and use it as a guide when deciding on an enterprise pricing model. Then, find ways to capitalize on the specific selling points that set your product apart from others in the market.
5. Test different pricing models.
You should never A/B test pricing. That’ll only frustrate customers who end up paying more for the same product.
But, one advantage of enterprise SaaS pricing over your basic packages is none of your customers will know exactly what the other spends, why they spend it, or what goes into it.
So, you have more wiggle room when it comes ot experimenting with different pricing models.
Leveraging CPQ and Subscription Management Software to Implement Enterprise SaaS Pricing
Because of its inherent complexity, modern enterprise SaaS pricing is really only possible with the help of software
CPQ software is instrumental in managing pricing during the sales process. Sales teams use it to efficiently customize solutions, set prices, and generate professional quotes (all according to predefined pricing and customization parameters). When it’s time to send it to the deal desk for approval, automated approval workflows speed up the quoting process even more.Like CPQ, enterprise-grade subscription management software offers support for multiple pricing and billing models, including usage-based and metered billing and pricing tiers. It takes care of your customers’ invoicing and billing details automatically, and bills them exactly when they prefer. That way, you don’t have to worry as much about dunning or the back office headaches of dealing with accounts receivable.
People Also Ask
What is the SaaS business model for B2B?
The B2B SaaS business model is a unique recurring revenue model that incorporates multiple types of pricing strategies. These include flat-rate, usage-based, tiered, and value-based pricing. To sell to businesses rather than individual customers, B2B SaaS business also requires a more complex sales process and specialized infrastructure for managing pricing and subscriptions.
What is the magic number in SaaS?
The SaaS magic number is a popular formula that measures sales efficiency. It subtracts the current quarter’s revenue from the last quarter’s revenue and divides it by the total sales and marketing expenses from the previous quarter.
If the magic number is less than .5, the company shouldn’t invest more in sales and marketing. If it’s less than .75, they should evaluate. If it’s greater than .75, they’re running efficient sales and marketing operations and can invest more in those areas.