Feature-based pricing is a SaaS pricing model predominantly used by SaaS companies to price their offerings based on various functionality levels.
A common approach is to pair feature-based pricing with tiered pricing to expand the number of features and subsequently increase the price. By doing so, companies can offer various features priced at different levels, thereby enabling more choice and flexibility for customers.
Here are some use cases of how feature-based pricing works in some of the industries:
- Premium coffee machines with exclusive features like multiple grinder settings, milk frothers, and customization.
- Laptop prices based on faster processor speed, longer battery life, and additional storage space.
- Magazine subscriptions charge extra for access to archives, digital copies, and discounts on related services.
- Cloud storage services that offer storage space, data encryption, and versioning at various prices.
- Software companies offer various versions of their software at different prices. Each version comes with a various set of features.
Advantages of Feature-based Pricing
Feature-based pricing is beneficial because it:
- Charges customers based only on the features they use, thereby making it a friendly, affordable option.
- Allows customers to seamlessly scale their feature usage to align with their growth trajectory.
- Enables customers to clearly understand what they are paying for as they access more advanced features.
- Provides valuable insights for product development and improvement.
- Allows clients to customize plans based on specific features that best fit their needs.
- Integrates seamlessly with other pricing models like free trials or tiered pricing.
- Generates more revenue by allowing clients to upgrade as their requirements increase.
- Refines resource allocation by highlighting the features that are most used.
- Enables rapid adaptation to align with evolving market landscapes and customer preferences.
- Increases the customer base as more people realize the value of additional features.
Disadvantages of Feature-based Pricing
- Complexities in upgrading often lead to unsatisfactory customer experiences and cause churn.
- Striking the right balance with the basic plan is crucial, or it may not be attractive if all the features are diluted.
- The pursuit of unnecessary features can misallocate resources and increase costs in enhancing upper tiers.
- Too many options can overwhelm, confuse, and mislead the customers, ultimately hampering their decision.
- Customers who have subscribed to lower-tier packages may feel dissatisfied due to the unavailability of essential premium features which they are excluded from.
- Feature-based pricing requires a lot of groundwork and market research to explore your target audience and devise your features.
- Lack of access to certain add-on features may prevent customers from upgrading, impacting your revenue.
- Maintaining a balance between offering core features at lower prices and more valuable features at higher tiers is a delicate task, especially considering future service upgrades.
Yes, it is challenging to successfully implement feature-based pricing. However, it is not an impossible task. Given below is a three-pointer guide to help you understand the critical components for a successful implementation.
3 Ways to Unravel the Complexity of Feature-Based Pricing
1. Understand your product features.
When implementing a pricing strategy, take time to define every feature and assess its perceived value. This exercise can help uncover unique selling points that differentiate prices.
2. Merge with other pricing strategies.
Every successful feature-based pricing is backed by a hybrid model or any other pricing model. That’s the only way to ensure maximum revenue and a large customer base. Develop a strategy that makes sense for your audience by considering the appropriate models.
3. Manage revenue distribution and postponement.
Revenue allocation, distribution, and postponement are complex processes, which is why a robust billing solution is necessary to get things done without any hassle. Using software also opens you to accurate insights for margin analysis.
So, how do you, as a business, implement the feature-based pricing model?
When it comes to selling feature-based product tiers to potential customers, there are a multitude of strategies that can be employed. In fact, a combination of the following techniques will likely be utilized to optimize sales and generate interest in the various product tiers on offer.
Feature-Based Pricing: Ways to Make it Work for Your Business
1. Free Trial
A free trial offers limited time for the prospective customer to try the product and test the features firsthand before purchasing it. This method can effectively convert leads into paying customers by letting them experience the product's full value.
2. Freemium Model
The Freemium (Free + Premium) model is similar to the free trial, but allows the customer to try the product for an unlimited period.
3. Value-based, per-feature model
This model combines value-based and feature-based models to charge customers based on the product's value.
4. Feature-based tier pricing
Feature-based tiered pricing involves offering multiple subscription plans with varying features and functionality, allowing customers to select the plan that best suits their needs and budget.
5. Bundled pricing
Bundled pricing is where customers can purchase a set of features at a discounted price or opt for a subscription to access multiple features continuously.
6. Optional add-ons
Providing customers the option to purchase additional features can boost their lifetime value and lead to upselling opportunities.
To summarize, per-feature pricing is a flexible, practical, and efficient approach for SaaS companies to align with customer needs and market trends. The model has incredible scope for scalability and insights into feature popularity. However, feature-based pricing is not without its challenges. Businesses need to master the knack of balancing their offerings across tiers while upgrading without sacrificing revenue.
