In the evolving Software as a Service (SaaS) world, businesses have shifted from a one-size-fits-all pricing model to more personalized, flexible pricing strategies that align with customers' specific needs and usage patterns. The central element driving this transformation is 'entitlements'—a powerful tool that helps businesses manage usage-based pricing and ensure compliance effectively.
But what exactly is entitlement management, and how can businesses leverage it to drive revenue?
What is Entitlement Management?
In the simplest terms, entitlement management refers to the control and enforcement of access rights to digital resources or services.
In a SaaS context, it's the mechanism that defines what features or services a customer is entitled to, based on their subscription plan. For example, the number of active users, data storage limits, access to premium features, and more.
Read about the different ways you can create your entitlements here.
The Challenges of Entitlement Management
One of the significant challenges of entitlement management is the dynamic nature of SaaS offerings. Services and features evolve continuously, making it crucial for businesses to adapt their pricing and entitlement strategies effectively.
Historically, businesses have hard-coded entitlement logic into their software. However, this practice can lead to inflexibility and difficulties in implementing changes as business strategies evolve.
Now, let's explore some challenges of entitlement management using an example of a video conferencing platform:
1. Complexity
As your platform evolves and you introduce new features and plans, tracking and managing who has access to what can become increasingly complex. You need to ensure that the system managing entitlements can keep up with the changes and doesn't become a bottleneck.
2. Scalability
What works for a hundred customers may not work for a thousand or a million. As your customer base grows, you need an entitlement management system that can handle the increased load and complexity while maintaining accuracy and performance.
3. Flexibility
The market demands are constantly changing. Suppose a competitor suddenly offers a feature that you don't have in your plans. Your entitlement management system should allow for the rapid introduction of this new feature to your existing plans to keep up with the competition.
4. Automation
Relying on manual processes to manage entitlements is not only inefficient but also prone to error. For instance, a customer could unintentionally be granted access to premium features due to a mistake, leading to revenue leakage.
5. Integration
Your entitlement management system needs to work in harmony with other systems. For instance, when a customer upgrades from the free to the premium plan, the billing system needs to reflect the change immediately. The same goes for the customer support system, which should have real-time access to a customer's entitlements to offer accurate support.
The Solution: A Comprehensive Entitlement Management Feature
To solve these issues, a comprehensive entitlement management system like Togai's 'Entitlements' has emerged. It offers businesses the power to set usage limits, map features to plans, and align entitlements with their pricing strategies in a single, user-friendly platform.
Entitlements in Action: A Simplified Use Case
Consider a video conferencing platform like Zoom. Its plans are often differentiated based on meeting duration and the number of participants. Using 'Entitlements,' such a platform can effectively manage plan usage.
For example, if a meeting on a free plan extends beyond the set 40-minute limit, the system can automatically trigger a notification. This alert prompts users to consider upgrading for uninterrupted service, aligning pricing with actual customer usage, and enhancing the overall user experience.
Driving Revenue with Entitlement Management
Proper entitlement management drives revenue. It gives businesses the flexibility to adjust pricing strategies swiftly, ensuring they remain competitive and in tune with changing market conditions.
Bundling features, capping usage, and proactively alerting customers when they approach their limits offer upselling and cross-selling opportunities. These strategies can lead to improved customer retention, lower churn rates, and increased average revenue per user (ARPU).
Imagine you are operating a video conferencing platform, much like Zoom. Let's see how effective entitlement management can play a significant role in driving revenue.
1. Customized Offerings:
You offer various packages, from a free tier that allows 40-minute meetings with a limited number of participants to premium packages that provide unlimited meeting time and additional features like cloud recording. By offering a range of plans catering to different user needs, you attract a wider customer base, thus boosting your revenue
2. Upselling and Cross-Selling:
Let's say a customer using the free tier frequently hits the 40-minute limit on their meetings. This is an opportunity to upsell them to a premium package. Alternatively, a business account may only be utilizing one feature of a multi-feature add-on. You could cross-sell by suggesting other useful features included in their package, enhancing their experience and making them more likely to continue their subscription.
3. Reducing Churn:
If a customer frequently exceeds their usage limits, they might feel frustrated and undervalued, which can lead to churn. By ensuring customers stay within their entitlements and notifying them when they're about to exceed their usage, you can help manage their expectations and foster customer satisfaction.
4. Greater Visibility and Control:
With a clear view of usage patterns across different packages, you can make data-driven decisions about your offerings. For instance, if you notice that many customers on the free plan are regularly hitting their usage limit, you might introduce an intermediate plan between the free and premium tiers, thus driving more conversions and revenue.
5. Streamlined Operations:
Managing entitlements manually can be a daunting task, especially with a growing customer base. By automating the process, you free up your team to focus on more strategic tasks, indirectly boosting revenue by improving efficiency.
Interested in entitlement software that can do everything for you? Check out Togai’s entitlement functionality here.
Ensuring Compliance Through Entitlement Management
Beyond generating revenue, effective entitlement management also ensures compliance. It can protect against service abuse or overuse, which can have severe cost implications.
By setting usage limits and tracking usage in real-time, businesses can ensure that customers stay within their plan limits, preventing revenue loss and fostering transparency and trust with customers.
Conclusion
Entitlement management is an integral part of modern SaaS businesses. With its power to enable dynamic, usage-based pricing, it has the potential for revenue growth, compliance assurance, and customer experience enhancement. By incorporating comprehensive tools like Togai's 'Entitlements,' businesses can effectively tackle the challenges of entitlement management and seize the opportunities it offers.
The future of SaaS pricing is here. Businesses that master entitlement management will find themselves well-positioned to thrive in this ever-evolving digital marketplace.
