I found a great post today that might help entrepreneurs and business line managers figure out how to roll with SaaS or PaaS business models.

Link: Multi-axis Pricing: a key tool for increasing SaaS revenue

Written by David Skok, David is a five time serial entrepreneur turned VC, at Matrix Partners.

Scalable pricing is a powerful tool to grow revenue in a SaaS or software business. It allows you to capture more of the revenue that your customers are willing to pay, without putting off smaller customers that are not able to pay high prices. It also provides a great way to continue to grow revenue from your existing customers. This post looks at how to create scalable pricing using multiple pricing axes, and discusses the different types of axes that can be used.

Many SaaS startups begin life with one product that has a simple pricing model. They might have initially only one version of the product to keep their lives simple, and use a single flat price for that version. To make that product as attractive as possible to a wide range of potential customers, it is not uncommon to see the founders set the price low, so price sensitive users are not put off. This is a smart strategy, as in the early days it is far more important to get lots of customers, than to it is to optimize profitability per customer.

However as time progresses, they may hear comments like:

“I would have been happy paying far more for your product as it provides such great value to me”
“I didn’t consider your product as it was too cheap, and didn’t look like a credible option to handle our more advanced needs”
“I only needed a subset of your functionality, and your product was too expensive”
These comments indicate that there are a variety of different user types in the market, with differing levels of value they can extract from use of your product, and as a result, differing willingness to pay. All of the above point to the limitations of a simple pricing scheme.

READ MORE HERE