Your Guide to Subscription Based Software Pricing Models
Many businesses first took notice of subscription-based software pricing models when Microsoft first transitioned the pricing of their online products such as Office 365. Since then, most software providers have made the move to subscriptions and companies are learning how to manage the benefits, challenges, and costs of the new normal. In this quick guide, we’re going to look at the most common subscription-based software pricing models and the different features each model offers.
Flat-rate pricing models are the simplest but the least common type of software subscription available. Software offered to all users at a flat rate provide the same features and benefits to every subscriber. Most flat-rate software subscriptions can be billed to the customer monthly or annually.
Benefits of flat-rate software subscriptions:
- Easy payment management
- No management of users
- No upgrades necessary
Challenges of flat-rate software subscriptions:
- Small companies pay for more than they need
- No options to upgrade for additional features
- No options to downgrade features to save money
Usage-based pricing is an extremely popular pricing model for software subscriptions. Under a usage-based model, customers are charged based upon how much their company uses the software. Therefore, the price of the subscription can fluctuate on a monthly or annual basis.
Benefits of usage-based software subscriptions:
- Companies don’t overpay for software
- Easy contract agreements
- No big upfront costs
Challenges of usage-based software subscriptions:
- Difficult to budget for
- Difficult to customize
- Creates fear of over-use
Per-user pricing is an efficient subscription pricing model that many software companies offer. With per-user pricing, companies are charged based upon the number of users they have on the system. The price for per-user pricing changes every time the subscription is renewed based upon the number of users a company needs.
Benefits of per-user software subscriptions:
- Companies only pay for employees who use the software
- Options to upgrade or downgrade the number of users as needed
- Understandable pricing options
Challenges of per-user software subscriptions:
- No option to upgrade features or benefits
- Difficult to quickly alter subscription
- Must pay for users who infrequently access the software
Tiered pricing offers multiple levels of prices for software subscriptions based on the features and benefits each tier offers. Many software solutions offer tiered pricing because it is the most customizable pricing model and preferred by many customers. Users can change the tier of their subscription as needed to meet the needs of their business.
Benefits of tiered pricing software subscriptions:
- Extremely customizable
- Straightforward solution
- Less money wasted on unnecessary features and benefits
Challenges of tiered pricing software subscriptions:
- Easy to over-purchase benefits
- Overwhelming choices
- Companies pay the same for one user or twenty users
Understand the Software Your Company Needs
With so many software options and software subscriptions available on the market, it’s easy to become overwhelmed. To make a smart software purchase, it is important to first understand what software your business needs. An IT management company can audit your current strategies and provide you with a plan that outlines the best software solutions available to you.
E2C is an IT management company that specializes in doing business right. Before we make any recommendations, we get to know your company and what it needs to succeed. Contact us today for a consultation.
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