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The SaaS Revenue Model Zoo: Survival of the Fittest

By 8th November 2023November 14th, 2023No Comments

In the wild world of Software as a Service (SaaS), the more diverse the revenue model choice, the better.  

Of course, it can be tough to choose. There’s a lot riding on which way your company goes with its pricing.   

Yet, many SaaS CEOs and founders struggle to choose the best revenue model because when it goes wrong, BOOM. Unpredictable revenue. Scaling difficulties. Customer churn. Pricing confusion. 

That’s why it helps to think about SaaS revenue models in a more basic way – with something we all understand. Like zoo animals. Because believe it or not, they have a lot in common.  

So we’re here to talk you through the zoo to give you the insights you need to pick the SaaS revenue model that will best suit your business. 

So let’s look at this unruly lot of SaaS revenue model examples, along with their pros and cons.  

A close-up photo of an intense looking lion who stares dramatically in the distance.

The Lion (Freemium Model)

Top of the food chain in the SaaS world is the Freemium revenue model example. It’s loud and attention getting. It lures in its customer prey with free services, hoping to pounce and convert them into paying customers.  

Pros: 

  • Excellent Customer Acquisition: Attracts a large user base and boosts brand recognition. 
  • Product Testing: Because users try the product before buying, it boosts the chances of customer satisfaction and gives valuable data on what works and what doesn’t. 

Cons: 

  • Challenging to Convert: All of us are happy to take something for nothing. It’s only good marketing that convinces us it’s worth paying for.  
  • Revenue Uncertainty: Because so many users are on the free tier, accurately predicting revenue, budgeting and forecasting can be close to impossible. 

The Chameleon (Usage-based Model)

The chameleon can adapting to the environment, just like the usage-based revenue model example which charges customers based on usage. 

Pros: 

  • Fair Pricing: Customers prefer to pay only for what they use, which ups customer loyalty.  
  • Scalability: When usage increases, so does the revenue. It makes scalability each. 

Cons: 

  • Revenue Variability: Revenue changes making predicability difficult. 
  • Usage Limitation: Instead of buying more, customers might limit their usage.  

 

A massive African elephant looking to its side as the sun sets at the edge of a forest.

The Elephant (Flat-rate Model)

Elephants are reliable and steady (unless they’re in a Disney movie), just like the flat-rate revenue model example. This is a one-size fits all.  

Pros: 

  • Predictability: Fixed rates are great for steady revenue and financial forecasting. 
  • Simplicity: Customers  find it easy to understand and budget for because there aren’t any nasty surprises. 

Cons: 

  • Lack of Flexibility: Like with clothes, one size never fits all. Some potential customers might bail when they see no flexibility.  
  • Scaling Challenges: Scaling is hard because customers hit a ceiling in usage. This can limit revenue and growth.  

The Dolphin (Tiered Pricing Model)

Dolphins love to perform tricks for fishy treats. That’s like the Tiered revenue model example – it rewards customer commitment with more value. 

Pros: 

  • Flexible Options: Tiers meet a range of customer needs which boosts market reach. 
  • Revenue Growth: The higher the commitment from customers, the more inbound revenue. 

Cons: 

  • Complexity: Tiers can confuse customers who avoid complexity, which risks decision paralysis.  
  • Pricing Challenges: Only a good understanding of customer needs and value perception can create attractive pricing.  

 

A fabulous photo of a cheetah standing in brown grasses, looking at something in the distance.

The Cheetah (Per User Pricing Model) 

Ahhhh, the cheetah—fast, sleek, and focused (and we love its print). It’s like the Per User Pricing revenue model example, where companies are focused on charging based on the number of users in a group.   

Pros: 

  • Revenue Scalability: When customers grow, your revenue grows too. 
  • Alignment with Value: Customers are willing to pay more as they get more value (more users) from your product.  

Cons: 

  • User Limitation: There’s a risk of customers limit the number of users to save money.  
  • Pricing Disputes: Customers might leverage larger teams for discounts or go to a competitor with better pricing.  

Survival Tactics 

There’s a lot of pressure on choosing the right SaaS revenue model. After all, you want to thrive, not just survive! 

Here are some crucial questions to help you choose the best revenue model: 

  1. Who is your target customer? Which would your customer personas be happiest about? 
  2. What is the value proposition of your product? What’s the draw- usage-based, feature-based, user-centric? Or is it an all-in-one solution?  
  3. How does your target customer prefer to pay? Do they want predictability and ease? Do they want premium features? Or maybe just flexibility?  
  4. How scalable is your product? Does your product scale with your customer’s usage? 
  5. Is your product complex? Does it have lots of features that can be packaged differently, like in tiers? 
  6. What do you want your market positioning to be? Do you want a huge base, like in freemium or tiered models? Or are you all about high-value customers, who are more attracted to flat-rate and per-user models? 
  7. What is the cost structure of your business? Is it a flat-rate, usage-based, or per-user? 
  8. What pricing models are your competitors using? What’s the competitive landscape? What are their customers saying?  
  9. What is your customer acquisition strategy? If you prefer viral marketing, freemium can work well. If you use traditional sales, flat-rate or tiered model will probably be a better fit.  
A hand holding up a sign that says "choice": with different arrows pointing in different directions.

Conclusion 

And there you have it—a stroll through the zoo of SaaS revenue model examples.  

Except for no screaming babies, smelly cages, or kids who want to stop in the gift shop in this zoo. Hooray!   

The point is that you have a lot of choice. Your SaaS company is unique, and so is the revenue model that will work best.  

Whichever animal you choose, remember to stay on your feet and agile. Circumstances change, products change, and so do goals for the future.  

The revenue model that’s best now might have to change in a few years.  

After all, in the SaaS Revenue Model Zoo, the fittest survivors are companies who not only stay true to who they are, but who adapt and innovate.  

Here’s to your survival, success, and lots of revenue coming in!  

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