SaaS startups consider pricing based on usage
Cos are finding it hard to sell software with licence-based models now
The software-as-a-service (SaaS) market is seeing a disruption as startups in the space are experimentingwithnewpricingmodels, prompted by longer sales cycles, customers seeking more value amid shrinking budgets and the availability of AI solutions, industry experts Mint spoke with said.
As businesses get more cautious and slash spending in the current sluggish market, they are pushing SaaS startups for larger discounts or value through bundling of solutions, experts said. And these startups are figuring out ways to cater to the demands of their tight-fisted clients.
Traditional licensing, which involves the customer purchasing software once and keeping it forever, sometimes paying a yearly maintenance fee, and seat-based pricing, where the cost of a product or service is based on the number of users that will have access to it have been the commonly-used pricing models across the industry.
“What we are generally seeing is most businesses have become quite stringent about renewals and there is some pushback in terms of pricing and discounts,” said Rashid Khan, co-founder and chief product officer, Yellow.ai, a US-based customer service automation platform.
Khan said that Yellow.ai has traditionally been on consumption-based pricing where enterprises pay for what they consume at the end of the month. “With AI coming in, consumption-based pricing would become the norm. It’s super hard to sell with licence-based models now because a lot of the cost associated with AI is very elastic. Every company today which is getting into offering some kind of AI solution is getting into consumption-based pricing.”
Umesh Sachdev, CEO and co-founder of
SaaS unicorn Uniphore agreed that pricing may change with AI. “We have a subscription-based pricing model of our AI-powered products and technologies. AI is one area of software spend that has the potential and room for pricing to go up due to the profound benefits this technology is delivering to enterprises around the world.”
The SaaS ecosystem in India and globally has been facing growth and funding challenges
TRADITIONAL licensing was either for the lifetime with yearly maintenance or seat-based pricing
AI has the potential and room for pricing to go up due to the profound benefits it delivers enterprises cutting costs. So what people are starting to do now is, let me not charge you by number of employees or number of seats, let me charge you on consumption. That is what we are seeing happen in many of our other companies also.”
“We’ve also implemented a newer pricing, which is based on volume of contracts,” said Shashank Bijapur, CEO and co-founder, SpotDraft. The company continues with the seat-based pricing model. “Both of them are consumption-based in the sense that the more the seats, the more you pay. But the unit of consumption is people and workflows versus the unit of record that is there in the new model.”
Khan added that Yellow.ai is also experimenting with value-based pricing. “Valuebased pricing involves setting prices based on the perceived value of our product or service to the customer, rather than just considering production costs or market prices. This approach ensures that pricing aligns with what customers are willing to pay for the outcomes they receive. ”
The company, he said, is trying to work this out with select North America-based customers.
THE SaaS ecosystem in India and globally has been facing growth and funding issues post covid
after the pandemic that fuelled the digital economy ended.
Hemant Mohapatra, partner at venture capital firm Lightspeed India Partners, also agreed that the new pricing model increasingly being seen is consumption-based, as against the per-seat rate charged by tech companies. “When you price per seat, if people leave the company, the seat goes away, and then your ACV (average contract volume) comes down and people are getting fired a lot more now because everybody's