11 pricing models for your products when you need an upgrade

If you’ve been in the industry long enough, you know pricing is a strategic dance between capturing value and attracting customers. In SaaS, where innovation is the norm, your pricing model can be the linchpin of your success. 

But how do you know when it's time for a change? And what are the options out there?

In this article, we’ll explore eleven pricing models for products to help you choose. That’s not all, however. 

We’ll cover:

• What a pricing model actually is
• An in-depth look at each of the pricing models for products 
• How Orb helps companies upgrade their pricing models
• When it’s a good call to change your pricing model

Let’s begin.

What is a pricing model?

A pricing model is the way you package and present the cost of your product or service to your customers. It's the structure you use to determine how much they'll pay and how that payment will be made.

The way this usually plays out is a SaaS business will launch a product and then decide how to put a price tag on it. Questions tend to be: Do we go for a one-time fee, a monthly subscription, or something else entirely? That's where pricing models come into play.

The challenge is that pricing models for products need to adapt. Scaling businesses often find themselves in a situation where their pricing model isn't cutting it anymore — potentially due to rising COGS or, inversely, potential revenue being left on the table

This is particularly true for software companies, where breakthrough innovations are more frequent.

Because of this, choosing the right pricing model can be the difference between thriving and merely staying afloat. It's about finding that sweet spot. The one where your customers perceive value, and your business generates sustainable revenue.

11 types of pricing models for products & when to switch 

If your current pricing models for products aren't delivering the desired results, it’s time to explore other avenues. Here's a breakdown of eleven pricing models, including insights into when switching to each one might be the right move:

1. Usage-based model

In a usage-based model, customers are billed based on their actual consumption of your product or service. This model aligns costs directly with usage. Because of this, it’s a smart choice for businesses where customer needs and consumption patterns vary.

When to switch 

Consider switching if your current pricing model struggles to cover costs due to fluctuating usage. If your customers hesitate to commit to fixed plans, usage-based pricing offers a solution. 

It allows you to stabilize revenue by ensuring customers pay for what they use, promoting a sense of fairness. It's a win-win. Your business captures value proportionate to usage. Meanwhile, customers avoid paying for unused features or services. 

Using Orb, a usage-based billing platform, is ideal to provide even greater adaptability to customer needs. Contrary to other options, Orb helps guarantee your billing is accurate — every time. Usage tracking is the key feature that lets you do this. 

2. Tiered pricing

Tiered pricing involves creating multiple packages with varying features and price points. This strategy acknowledges that your customer base isn't homogenous. In other words, different customers have different needs and budgets.

When to switch 

You should switch if your current one-size-fits-all pricing model leaves money on the table. If you also fail to attract a broader range of customers, tiered pricing might be your answer.

It lets you cater to different segments, from price-sensitive users to those seeking premium features. This means you can monetize your customer base more effectively. You’re maximizing revenue while offering choices that resonate with changing customer needs.

3. Freemium model

The freemium model offers a basic version of your product for free. The catch is you’re charging for premium features or an enhanced experience. It's a strategic approach to customer acquisition. You’re leveraging the allure of “free” to draw in users and show your product's value.

When to switch  

Consider switching to a freemium model if you’re grappling with high customer acquisition costs. If you’re also struggling to expand your user base, pricing models for products like the freemium model could be the solution. 

The freemium experience is a lead generation tool, allowing users to experience your product firsthand and build trust. Once they recognize the value, you can upsell them to paid plans, unlocking extra features or removing limitations. This model works well for companies that need to balance user growth with long-term monetization.

4. Subscription model

The subscription model involves charging customers a recurring fee for access to your product. Usually, this happens monthly or annually. It's considered the bedrock of many SaaS businesses since it offers predictability to your revenue stream.

When to switch   

You’ll likely have to switch if your current revenue model is unpredictable. Moving to a subscription model can offer much-needed stability. This is especially true if these issues are making financial forecasting and planning a challenge. 

It provides a consistent and recurring revenue flow. This allows you to invest confidently in growth and innovation. This model is suitable for software companies providing ongoing services or regular updates. It greatly helps in fostering customer loyalty and engagement.

5. Per-user pricing

Per-user pricing involves charging customers based on the number of users accessing your product. This model is inherently scalable. This means it ensures that your revenue grows with your customer base.

When to switch   

You should switch models if your current one isn't keeping pace with the growth of your customers' needs. In such cases, per-user pricing can offer a more equitable solution. 

It helps guarantee that larger customers contribute proportionally more to your revenue. This alignment helps cover the increased costs. Especially those associated with serving a larger user base. 

6. Per-feature pricing

Per-feature pricing empowers customers to pay only for the specific features they use. It fosters a sense of control and value. This is particularly appealing for those who don't need the full suite of offerings.

When to switch    

Make the switch if your current pricing model bundles features that many customers don't use. Consider per-feature pricing if you’re worried about this leading to dissatisfaction and churn. 

It streamlines your offering, letting customers tailor their purchases to their needs. This model can boost customer satisfaction and retention. This model is particularly useful if you offer a diverse range of features with different levels of demand.

7. Value-based pricing

Value-based pricing sets prices based on the perceived value your product delivers. It transcends production costs, focusing on capturing the true worth your offering provides.

When to switch    

You should change pricing models if your pricing model undervalues your product's benefits. Consider a value-based approach to ensure your model resonates with customers' perceived value. 

It requires a deep understanding of your target market and the problems your product solves. When executed effectively, it allows you to command premium prices. This, in turn, helps maximize revenue while reinforcing your brand's value proposition.

8. Flat-rate pricing

Flat-rate pricing offers a single price for all customers, regardless of usage or features. Its simplicity can be appealing to customers. The challenge is you’ll need to ensure cost predictability within your business.

When to switch    

Switch if your current pricing structure is overly complex or if it’s also causing customer confusion and hindering sales. 

It simplifies billing and eliminates decision fatigue, potentially boosting conversions. However, it's crucial to guarantee your costs are relatively fixed and predictable. This will help you to avoid losses due to variations in customer usage.

9. Cost-plus pricing

Cost-plus pricing involves determining your product's cost and adding a markup to determine the selling price. It's a simple and transparent method that guarantees a profit margin on each sale.

When to switch    

Consider changing if your costs are escalating and your pricing model struggles with turning a profit. If this is your scenario, cost-plus pricing can offer a safeguard.

It aids in guaranteeing that your prices cover your expenses and leaves room for profit. This helps protect your margins in times of rising costs. However, this model may be less suitable for software products, where value often outweighs production costs. 

10. Dynamic pricing

Dynamic pricing allows you to change prices in response to market conditions. These could be anything from demand fluctuations to seasonality and competitor activity. It's a data-driven approach that aims to optimize revenue by adjusting prices in real time.

When to switch    

Consider switching if your product experiences significant demand fluctuations. Here, dynamic pricing can be a powerful tool.

It enables you to capture more value during peak periods and remain competitive during lulls. The issue is it requires sophisticated algorithms and careful implementation. Otherwise, customer alienation or accusations of price gouging may become common.

11. Pay-what-you-want model

The pay-what-you-want model puts the pricing power in the hands of the customer. It lets them decide how much they'll pay. While it can generate buzz and foster a sense of goodwill, it also carries inherent risks.

When to switch    

This model is best suited for specific, limited-time scenarios. Think of situations where customer engagement and feedback are paramount. One example could be during a new product launch or beta testing phase. 

What’s the good part? It can create excitement and encourage trial. The not-so-good? You’ll need to be extra mindful of potential underpricing and revenue loss. Proceed with caution and set clear expectations to ensure this model aligns with your overall business goals.

How Orb’s usage-based billing helps SaaS companies upgrade their pricing models

In the software industry, clinging to rigid pricing models for products can stifle growth and profitability. Companies often find themselves at a crossroads when their pricing structure fails to cover costs and scale.

This is where Orb's usage-based billing platform steps in. It offers a dynamic solution that lets software companies adapt and thrive through pricing.

Orb's real-time billing platform is a versatile tool that integrates billing and analytics. It helps turn your metadata into a single source of truth for all your teams. 

Orb can accommodate a variety of pricing models, including tiered and dynamic pricing.

Let's explore how Orb can specifically help you elevate your pricing strategy:

• Usage-based billing: Orb is ideal for businesses with changing usage patterns. It's also good for those offering products with varying levels of consumption. Orb's usage-based billing provides the flexibility and the ability to charge customers based on their actual usage. 
  
  Orb's metering infrastructure guarantees accurate billing every time. It connects product usage data with billing out of the box. This eliminates the need for separate analytics tools. It provides a clear view of what's happening within your billing system.

• Tiered pricing structures: Orb's platform enables businesses to implement tiered pricing structures effortlessly. This allows you to cater to different customer segments with distinct features and price points. 
  
  This approach to pricing unlocks new revenue streams and maximizes the value captured from your customer base. Orb's intuitive web app lets you experiment with different price changes in real time. You can even compare scenarios against historical data for finer insights. 

• Dynamic pricing strategies: Orb empowers businesses to embrace dynamic pricing strategies. When we say these are dynamic, we mean they can be adjusted in real time based on demand and seasonality. This allows you to optimize revenue during peak periods and remain competitive. 

Orb lets you change your pricing on the fly. You can also experiment with volume discounts, dimensional pricing, and prepaid credits. You can even pre-schedule changes, backdate migrations, and manage different plan versions. The best part? All can be done from a unified, simple UI. Companies gain more than just flexible pricing by using Orb's usage-based billing platform.

Orb goes beyond these core pricing models. The platform offers a suite of features designed to enhance your billing operations and management.

Its invoicing capabilities provide clarity for both you and your customers. You’ll have real-time visual data and the ability to customize invoices to meet specific needs. 

Orb also streamlines revenue recognition and simplifies compliance with accounting standards. It even offers detailed reporting to ensure you have a single source of truth for all your revenue data.

By using Orb's usage-based billing platform, companies gain more than just flexible pricing. They get a solution that enhances accuracy, clarity, and control over their billing operations. 

A detailed look at when to consider switching your pricing model

We've already touched upon specific scenarios where a change in pricing model might be beneficial, but let's dive deeper. Evaluating your current pricing strategy is key rather than waiting for a crisis to force your hand.

Here are some key signs that it might be time for a change:

• Stagnant revenue: If your revenue growth has plateaued, it could mean your pricing model isn't capturing the full value of your product. It's time to analyze whether your prices are aligned with the market and customer expectations.
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• High churn rate: If customers are leaving in droves, it's a red flag that something's amiss. Your pricing model might be a contributing factor. Dig deeper into customer feedback and usage patterns to understand their motivations.
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• Mismatched costs and revenue: If your costs rise faster than your revenue, your pricing model might not be sustainable. It's crucial to regularly assess your cost structure and make sure your prices cover expenses while leaving room for profit.

Beyond these warning signs, it's also crucial to see how well your pricing aligns with other key factors:

• Customer usage and demand: Are your customers using all of the features you offer, or are they gravitating towards specific ones? Is there an unmet demand for certain functionalities or services? Understanding customer behavior can guide you toward a more tailored pricing model.
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• Perceived value: Does your pricing reflect the actual value your product or service delivers to customers? If customers perceive your offering as overpriced, it's time to reassess your pricing strategy. Conversely, you might leave money on the table if they see it as a bargain.

To ensure your pricing model remains effective, consider conducting a thorough review every 12 to 18 months. This review should encompass factors such as:

• Market trends: Has the competitive landscape changed? Have new pricing models emerged in your industry?
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• Customer feedback: What are your customers saying about your pricing? Are they satisfied with the value they receive?
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• Business goals: Have your objectives evolved? Are you looking to prioritize growth, profitability, or a combination?

On that last point, keep in mind that rapid growth often requires reinvesting profits. However, it is possible to achieve moderate growth while maintaining minimal profitability by optimizing costs and making strategic investments. 

According to Investopedia, companies that prioritize long-term growth, rather than explosive short-term expansion, can keep a healthy balance between the two.

You can quickly identify opportunities to improve your pricing model by evaluating these factors. Doing so ensures it remains a catalyst for success rather than an obstacle to growth.

Next steps

We've explored a range of pricing models for products, each with unique advantages and ideal use cases. We've also looked at crucial signs that indicate it's time for a pricing upgrade. Now, it's time to take action and unlock your business's full revenue potential.

Orb stands out as the ideal usage-based billing platform. Why? It helps you navigate this transition seamlessly. Whether you're looking to adopt a usage-based, tiered, or dynamic pricing model, Orb provides the level of control you need.

Don't let an outdated pricing model hold you back. Sign up for a free demo today. Discover how you can optimize your pricing strategy for maximum growth and profitability.