Software pricing models

Here are the most common pricing models:

• Transactional
• Subscription
• Pay per use

Transactional

This is the straightforward "pay once and the product is yours" model, with drawbacks for software products. The problem with it is that we tend to update the product to make it work with the changing world it interacts with, fix the issues, and generally improve it. Doing so continuously while charging once per customer is challenging.

People combat this problem by charging for an upgrade to a new major version, but then you are incentivized to release new major version too often.

Never ever offer lifetime upgrades. Trust me on this.

Subscription

Subscription model (monthly/annual payments) is very well suited for SaaS. Its main benefit is that your income is compounding - your income grows exponentially unless churn gets out of hand. Unfortunately, in the beginning income grows very slowly as individual payments are low. Use annual payments to improve cashflow.

Transactional model can be combined with subscription for a support and upgrades (maintenance). This works well.

Pay per use

This model is gaining momentum. It is very easy to onboard users due to the fact that the initial usage is low and therefore affordable.

You can have a free plan allowing for some usage quota, getting customers to commit with no friction. After your users cross that quota they will almost certainly upgrade, considering they already invested the time and have their data in your system.

You can charge per user, data, server, etc. Success of your users is directly impacts your bottom line - you grow with your users.