If you want my team to help with your SEO & Content, click here.
👋 I hope you enjoy reading this post
If you want my team to help with your eCommerce SEO campaigns, click here.
Feature-based pricing, a popular SaaS pricing model, allows companies to set prices based on features and functionality. This approach is often used alongside tiered pricing, where more features come at a higher cost.
Feature-based pricing may sound fancy, but this model shares similarities with traditional pricing. Think about the last thing you bought. It's likely that the item's price corresponded to how many features it had. Well, it's the same concept for SaaS and can be effective for managing and selling feature-rich products.
There are tons of benefits to implementing feature-based pricing in the business model of your SaaS. Notably, by tying the price of your product or service to the specific features and functionalities it offers, you can provide greater transparency and value to your customers.
👍 Easy for customers to understand
Feature-based pricing is straightforward. Customers are able to easily wrap their minds around higher costs. It also makes for easy customization, as customers can upgrade when they need additional features.
Just make sure you keep in mind that this approach requires flexibility and seamless service upgrades.
👍 Upselling feels right for customers
Upselling is a natural progression for customers. Initially, they may opt for a more affordable option with limited features.
However, once they experience the benefits of your services, you can suggest upgrades that align with their needs for premium features. In fact, customers often upgrade on their own when they realize the need for added functionality.
👍 Option to trial basic features
In the SaaS industry, it's common for customers to pay a lower fee for a basic subscription.
Feature-based pricing is ideal for cautious customers who want access top features but with limited functionality.
👍 Compatible with other pricing models
Strategically pairing feature-based pricing with other pricing models like tiered, bundling, or usage-based pricing can unlock additional benefits for companies.
👍 Setting customer expectations is a simple task
Feature-based pricing allows you to offer different features at different prices and clearly state what users get with each option.
This way, customers won't be confused about what they're paying for, as they choose their plan based on the features they want. With this pricing model, make sure to clearly communicate the available features at each cost.
👍 Use resources strategically
Segmenting resources and tracking performance metrics based on customer feature usage allows for better allocation and analysis. In certain cases, certain features may require more effort to deliver.
For example, if 500 customers utilize essential features while only ten use premium features, it may not be practical to allocate excessive resources to the latter. Using segmentation can help optimize the core revenue stream.
👍 Charge based on complexity in a fair manner
By implementing feature-based pricing, you can incorporate high-maintenance or training-intensive functionalities into your premium package.
Customers interested in these additional features can upgrade, so you won't sacrifice revenue by offering expensive services at lower price points.
This is particularly valuable when considering flat-rate pricing strategies, as it prevents all customers from accessing costly features regardless of their usage.
Drawbacks of feature based pricing
Some of the drawbacks of feature-based pricing include the potential for complexity in determining the value of each feature, as well as the challenge of accurately pricing the features based on their perceived value to customers.
👎 Upgrades are difficult to manage
Managing upgrades can become a headache, but it's crucial for the success of feature-based pricing. Making upgrades easy for customers is essential. Otherwise, those who buy a cheaper package may be forced to look for other services, resulting in a poor customer experience.
To avoid this, it's important to consider potential changes to subscriptions and ensure that upgrades are straightforward. This way, customers can access premium features without any hassle.
👎 Determining your basic plan is a balancing act
Finding the right balance for your basic plan can be tough. Offering premium features at lower prices isn't always feasible.
However, it's crucial to make sure your basic plan still has enough appeal to attract and keep customers. One possible solution is to introduce limited usage of top features on the basic plan.
👎 Unnecessary features may break the bank
Unnecessary features can be costly. Offering endless upgrades and developing new functionality can divert teams' attention and incur additional expense.
To avoid this, it is advisable to allocate resources according to revenue streams.
👎 Customers can easily become confused by having too many choices
More choices isn't always better. In fact, too many can actually overwhelm and confuse customers, causing decision paralysis. Adding unnecessary features to higher-tier options may not align with a customer's needs and preferences.
👎 Customers feel excluded from premium features
Customers often feel frustrated and excluded from premium features, which can lead to resentment.
To combat this, make sure that even at lower levels, your product offers enough functionality to effectively solve some of your customer's main problems.
👎 Perceived value can be compromised
Segmenting features into different packages without compromising perceived value can be challenging. This issue often arises when premium features are used as lead magnets in marketing but aren't offered in lower or mid-priced tiers. You don't want to make promises that won't be delivered.
Wix, a well-known website builder, uses a feature-based pricing model that offers five tiers of plans. These plans cater to both individual and business use and each come with their own set of distinct features.
With each tier, customers receive additional features such as a website domain, storage space, a professional logo, and customer care. For instance, a beginner freelance writer may only require the basic website plan. However, as their writing business expands, they may want to upgrade to access more advanced features.
Tips to implement a featured-based pricing strategy for your SaaS
Companies should not adopt feature-based pricing without careful consideration. Here is a concise guide to help you navigate a successful implementation.
💡 Gain a better grasp of your features
Companies often overlook certain aspects of their product as they focus on the most critical features. However, it's crucial to have a well-rounded view. When implementing your pricing strategy, take the time to define every feature your company provides and assess their perceived value. This exercise can be eye-opening and uncover unique selling points that will differentiate your prices.
💡 Combine feature-based pricing with other pricing strategies
To optimize your pricing strategy, consider combining feature-based pricing with other approaches. As mentioned before, a hybrid model works best for this. Take into account the features that hold the most value for your customers, and develop a strategy that aligns with their needs.
💡 Master revenue distribution and postponements
Efficiently managing revenue distribution and postponements is crucial for optimal performance. Automating revenue recognition and allocating revenue to features can be complex, but investing in a strong billing solution enables you to do this efficiently and obtain accurate insights for margin analysis.
Explore our guides below to learn more about advanced subscription billing models.
Demand-based pricing is a strategic approach that involves setting the price of a product or service based on consumer demand. The objective is to maximize sales and profits by charging customers an amount they are willing to pay.
Skimming is a pricing strategy where you initially set your SaaS prices higher than usual, then gradually lower them over time. The idea is to attract a smaller target market first and generate initial revenue.
Captive pricing, also known as captive product pricing, is a pricing strategy where a "core" product is offered at a lower price, but additional products required to fully use the core product are charged separately.