SaaS pricing models

SaaS pricing models are the different ways in which software rented over the internet is charged: by each user, by how much the software is used, or by each result it delivers. SaaS, or software as a service, is software that a customer rents by subscription instead of buying it. The pricing model decides what the customer counts, and pays for, each month.

Here is how the three main models work. In per-seat pricing, the customer pays a fixed fee for each user. A seat is one user's licence. A company with 50 salespeople pays for 50 seats, whether each person logs in daily or once a month. In usage-based pricing, the customer pays for what was used, such as each message sent, each gigabyte stored or each document read. The bill changes every month, and the software must count every use, which is called metering. In outcome-based pricing, the customer pays only for a result, such as each customer problem solved or each invoice processed without errors. Many companies combine models, for example a base fee plus a charge for any use above a limit. Some also offer a free plan with fewer features, which is called freemium.

Why is the model changing now? Per-seat pricing made sense when every user was a person. AI agents now do work that people once did. If an AI agent handles the work of ten support staff, the customer needs ten fewer seats. So a software maker that charges by the seat would earn less as its product gets better. So a growing number of makers of AI software now charge for the work done instead.

Take, for example, a bank's customer care centre. It has long paid its contact centre software maker a monthly fee for each of its 400 agents.

Consider a messaging service or an AI model that is charged by use. Usage-based billing counts every message or every request, and the customer's bill rises and falls with its own business.

Say an online shop uses an AI customer service agent. The shop pays a fixed amount for each conversation that the agent resolves fully, and nothing for the conversations that it hands to a person.

How are pricing models different from subscription billing? The pricing model is the business decision of what to charge for. Subscription billing is the software that carries out that decision every month: it works out each customer's charge, sends the invoice and collects the payment. Outcome-based pricing makes billing harder, because both sides must first agree on what counts as a result.