The current pricing strategy of TimeSaved is based on 10 cents per worker per hour model. TimeSaved is testing this pricing strategy currently on some of its customers to see how this pilot project turns out to be. The reason why TimeSaved chose this pricing strategy over its version1 pricing model Exhibit 1 is that the customers of TimeSaved want to pay less for employing more workers. For example, based on 10 cents per worker per hour for about 37 hours/week, Time saved expects to earn $37,000 for the month.
TimeSaved has forecasted to retain 70 percent of the workers who will continue to use the app. That will make the annual revenue from a customer between $300,000-$400,000. TimeSaved is looking for customers who can pay between $100,000 to $150,000 upfront money.According to PwC reports, the following components are taken into consideration while deciding the pricing strategy for software B2B products:1) Packaging: Adjust pricing based on the product package (e.
g., small business, enterprise, etc.)2) Regional pricing: Regional variations to prices depending upon the regional hierarchy, (e.g.
, EMEA vs US)3) Customer/Market segmentation: Price adjustment based on customer and market segment4) Loyalty discounts: Discounts provided based on customers historical spend5) Volume discounts: Discounts provided based on quantity purchased at the point of transaction6) Payment and credit adjustments: Price premiums to provide nonstandard billing options (e.g., quarterly vs monthly) or extended credit terms (e.g.
, net 180 vs net 45)7) Usage type adjustments: Variations to price based on license type (e.g., subscription vs pay-per-use)8) Promotions: Pricing lever to promote a product for a limited time in a region9) Upgrades/Cross grades: Pricing lever to provide discounts for customer to upgrade to newer version or license higher end products10) Channel discounts: Discounts based on partner type (e.g., standard channel vs. specialized partner) Further, this paper describes that how competitive is the pricing model of TimeSaved compared to its competitive B2B softwares.
The version 1 pricing model of TimeSaved Exhibit 1 charged higher price as compared to its competitors based on the metric of number of active workers. Failing to capture the true value of a product does more harm than just minimize or eliminate profits. TimeSaved had four prices of $99, $499, $999, and $5000 per month based on the increasing number of features.
For $999/month or the ‘Brand’ pricing model, 100 active workers were allowed. On the other hand, the competitors such as ‘STAFFUP’ had a pricing of $249/month for 100 active job positions independent of the number of active workers, and ‘TempBuddy’ charges $240/month/user independent of the number of workers the staffing agency (the user here) employs. The setup costs of competitors on an industry average is $3500-$5000 and it can go up to $20,000. TimeSaved has its setup cost ranging between $0-$20,000, thereby adhering to the market standards in terms of setup cost. TimeSaved has now updated its pricing strategy by taking the pricing metric of ‘per workers per hour’. It matters a lot whether TimeSaved is addressing the metric which matters the most for the customer. We will be conducting interviews with staffing agencies for in-depth understanding of the metrics or rather their needs which matter the most for them.
Also, it is important that TimeSaved keeps updating its pricing strategy metrics based on the changing needs of its customers. Further, TimeSaved will be selling its own SDK (Siftware Development Kit) for the first time around new year. The pricing metrics of SDKs and SaaS B2B products was described earlier above. The most commonly used pricing models are described further:1) Flat rate pricing: Here you offer a single product, a single set of features, and a single price.
The pros are that it is easier to sell and communicate. The cons are that it is not personalized or targeted to different users.2) Usage based pricing: Also known as the Pay As You Go model, this type of pricing strategy directly relates the cost of a SaaS product to its usage: if you use more of the service, your bill goes up; use less, and your spend decreases. In practice, this pricing strategy is most common within infrastructure- and platform-related software companies (like Amazon Web Services), where companies are charged based on the number of API requests, transactions processed, or gigabytes of data used. Its pros are that price scales alongside usage, and it reduces barriers to use since there are no big upfront costs involved.
Its cons are that it is harder to predict revenue and customer costs with this pricing model.3) Tiered pricing model: Flat rate and usage-based pricing are relatively uncommon in mainstream SaaS, and it’s tiered pricing which is the de facto model used by most companies. At its heart, tiered pricing allows companies to offer multiple “packages”, with different combinations of features offered at different price points.
For example, SaaS content marketing company HubSpot employ tiered pricing to great effect: each tier is designed around the needs (and budget) of a different type of potential customer, ranging from “those new to Inbound marketing” to “professional marketers” and “marketing teams”. Its pros are that when your customer outgrows their current package, there’s a direct route to the next price point. Also, with a single package, you have one shot to resonate with your target customer; with tiered pricing, you can tailor packages to suit multiple buyer personas.
The main cons are that choices can quickly become overwhelming and trying to decide between ten price tiers is a rapid route to an abandoned sale. Also, there exists ‘the heavy user risk’ which means that if top tier users regularly exceed their allocated service usage, you have no recourse for collecting extra revenue to compensate.4) Per user pricing: The key variable in this model is the number of users added to the account, and the per use price is the same, whether you’re a single user or a team of 100.
The pros of this model are that its simplicity to understand, and SaaS companies are reliant on the recurring revenue model, and per user pricing makes it easy to calculate and forecast each month’s revenue generation. The cons are that by charging per user, you provide a reason to avoid adding new users to the tool. This also provides an incentive to cheat, and wherever possible, share a single login between multiple team members.5) Per active user pricing: One variant of the per user pricing model is active user pricing. Many SaaS companies (particularly those targeting the enterprise) encourage yearly billing cycles.
This can mean that a new customer could pay for hundreds of employees, up-front – without any guarantee that those employees would actually use the software. Per active user pricing tackles this problem head-on, encouraging customers to sign-up as many users as possible, with the safeguard that only active users will actually be billed for. Slack uses this pricing model. The main con is that when cash is tight and team sizes are small then this model does not provide much extra incentive. 6) Per feature pricing: The primary differentiator between Evernote’s Basic, Plus and Premium packages is the different range of features on offer, with new functionality “unlocked” with each upgrade.
Per feature pricing offers a clear and obvious motivation for upgrading: you unlock extra functionality. However, with this model how will the company know that which features its users will want. Getting the balance wrong can discourage adoption, as crucial features end up in overpriced tiers, or the bulk of your product’s benefit ends up in your cheapest package.7) Freemium business model: It is commonly used to grab market share or undercut competitors in a number of industries.
In one version of this model appropriate for SaaS vendors, customers can use a full version of the software at no charge for a select time period, after which they have to pay to retain access. In another version, customers can get a free scaled-down version of the software with key functionalities disabled but have to pay to upgrade to the full-featured version. To maximize the effectiveness of ‘freemiums’, the SaaS provider must define clear boundaries between the free and paid software (e.g., usage, features, time, applicable segments), provide an easy path to becoming a paying customer, and track routinely on conversion rates.