What is SaaS Pricing Based on?

Software as a Service (SaaS) is a method of information technology delivery that allows companies to purchase access to complex computer technology without having to invest in hardware and infrastructure. As computer systems become more tightly integrated into business operations, it has become a necessity rather than a luxury. SaaS pricing is primarily driven by four factors: market demand, support required, system availability and the module or modules purchased.

As with all commodities, market demand has a huge effect on product pricing. For example, an accounting software package that meets the needs of the target client group might become very popular. The cost of providing the service might not have increased, but the price might increase to reflect the increased demand.

SaaS pricing usually is a negotiated item that is based on the unique combination of services and support required by the client. It is common for a potential client to start with a small contract to test how SaaS works and the challenges of integrating this type of software with other services. The SaaS pricing for a trial project or proof of concept is often quite aggressive and is designed to encourage the client to see the value of software as a service.

The level of support required depends on the type of software purchased and the relevance to the business operations. For example, accounting software requires support during standard office hours, but manufacturing control products must be supported continually. SaaS pricing contracts often stipulate the hours of support provided and the cost for any additional support required outside those hours.

System availability requirements are a primary factor in SaaS pricing. The more hours of access required, the higher the total contract price. A cost and benefit analysis might reveal that SaaS is cost-effective because of the high costs of creating and supporting a continuously operating information technology department.

When comparing SaaS pricing models, a business should look at the actual product offering. Many companies offer two options: individual modules or software packages. Modular based pricing is ideal for small to medium-size companies that are looking to augment existing systems or test the concept. The pricing might appear to be higher than a software package, but it is important to realize the hidden costs associated with software pricing.

SaaS pricing contracts will cover the cost to access the system, a specific number of support hours and perhaps some hours of implementation and training. Many companies find that these hours are not sufficient to meet their needs, and additional hours of consultant time might be necessary to implement a production-level system. These hours represent a significant additional cost that must be considered.