Feature-based pricing, a popular SaaS pricing model, allows companies to set prices based on the level of functionality provided. This approach is often used alongside tiered pricing, where more features come at a higher cost.

While seen as innovative by some, feature-based pricing shares similarities with traditional pricing. Typically, higher prices correspond to more features in the products and services we pay for. If you think about any purchase you've made, you'll notice that features often influence the cost.

Other SaaS pricing models to look into:

- Freemium pricing
- Tiered pricing
- Usage based pricing
- Per-user pricing
- Per active user pricing
- Flat-rate pricing

Benefits of feature based pricing

There are numerous benefits to implementing feature-based pricing in the business model of your SaaS. 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

Customers easily comprehend feature-based pricing strategies and the reasons for a higher cost. It also facilitates easy customization, as customers can upgrade when they need additional features.

However, this approach necessitates flexibility and seamless upgrades.

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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 our services, we 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 to some of our 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, it's important to effectively communicate the available features at each cost.

Better segmentation of resources

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, ensuring that you don'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 be challenging, 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.

👉 Also read: Scaling your SaaS the right way

Balancing your basic plan may be challenging

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 can create high operating costs

Unnecessary features can be costly. Offering endless upgrades and developing new functionality can divert teams' attention and incur additional expenses.

To avoid this, it is advisable to allocate resources according to revenue streams.

Customers can easily become confused by having too many choices

Excessive choices can overwhelm and confuse customers, causing decision paralysis. Adding unnecessary features to higher-tier options may not align with a customer's needs and preferences.

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Customers feel excluded from premium features

Customers often feel frustrated and excluded from premium features, which can lead to resentment.

To prevent this, make sure that even at the 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.

Examples of SaaS using feature-based pricing 

Quickbooks

QuickBooks is a software that helps small businesses to keep track of their finances. It allows you to manage sales, expenses, and transactions.

The price of the software depends on the level of functionality you choose. The starter plan includes basic features such as income tracking and sales tax management.

As you upgrade, you can access additional features like bill management, user management, and time tracking. The cost increases as you move up to higher tiers with more advanced features.

Wix

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.

1. Gain a better grasp of your features

Companies often overlook their people as they focus on their software or product's critical features. However, both aspects are crucial for success. 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.

👉 Also read: How to prevent SaaS churn?

2. 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.

👉 Also read: What’s a good retention rate for SaaS?

3. Efficiently handle 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.

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