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9 Advantages of Performance-Based Pricing

Most software as a service (SaaS) solutions for businesses offer fixed monthly packages. Based on seats, logins or reduced feature sets, you have to decide upfront which package you choose for a long time. No matter which size your business has: this is nearly impossible in all cases. You’ll always have some trade-offs with subscription based SaaS models.

On the contrary are performance-based pricing models. In the following you find 9 advantages of non-subscription but performance-based software as a service pricing models.

Advantage 1: No Feature Limitation

Performance-based software as a service solutions usually don’t have any feature limitation. As you don’t decide for any packages, you can always use the whole feature set, no matter how big your business is. Therefore also small businesses with little monthly budgets profit by a full-blown solution. In subscription models they always have to live with limited features in small packages.

A good example are live chat software as a services. When you choose the smallest package, most of the solutions only offer one chat language. But e.g. in the e-commerce area, also small online shops have to offer multiple languages, which is supported by most e-commerce systems out-of-the-box. So these shops are forced to decide to use a bigger package with a higher monthly price, although they maybe don’t have the money to pay a nearly doubled package price.

Advantage 2: Unlimited Integration Time

Many subscription services for businesses offer a limited testing phase, which can also be used as integration time. Yes, there are very small business out there, which can integrate, test and decide for a solution in 2 weeks. But in reality, this is just a bargaining chip from the software as a service companies forcing the possible clients to switch to their paid model.

Tools with performance-based pricing don’t have a fixed testing time or integration timeframe. You are always free to decide when to really start to use the service. Additionally, during the integration time, you don’t need to pay anything or only a very small amount to the service provider, because you just don’t have any traffic on the solution.

Advantage 3: Real Freedom to Decide When to Start

One of the advantages of services with performance-based pricing is the freedom to decide when you want to start. As described in advantage 2, your test and integration timeframe is not limited. This gives you real freedom and less pressure regarding the ideal starting time of your integration. You don’t have to talk to sales people of subscription services, who are mostly working through pressure. Just plan your resources as you need to and start whenever you have a free time slot or when it makes most sense for your business.

Advantage 4: Pause Anytime

  • Your budgets are frozen?
  • You don’t have any money left at the end of the business year?
  • You need your money for another seasonal marketing activities?

No matter for a service with performance-based pricing: just pause the service anytime you have to. Of course you will lose the additional revenue generated through the performance-based service then, but you also instantly won’t pay anything anymore. This gives you great flexibility to switch your budgets whenever you need to.

Advantage 5: Pay for Performance Only

If you have no fixed monthly fees for a subscription model, but use a performance-based software as a service, then you e.g. only pay, if the service:

  • Actively displays additional features on your website
  • Generates more revenue for you
  • Increases the traffic on your website
  • Improves the conversion rate
  • Boosts your average cart value in an online shop

There are many more pricing bases out there. But the common denominator is always: you pay for performance only. If the solution is generating no revenue, clicks or additional traffic for you, then you don’t have to pay anything. This gives you the freedom to really test the solution with your live customers instead just testing it on test and staging systems with no traffic, because of limited packages.

Advantage 6: Performance Guarantees

Some performance-based providers also offer performance guarantees. This can have a huge impact on your decisions, no matter which size your business is. Think of the following cases:

1. You Have Lots of Integration Effort

But you don’t really know the impact on your revenue from the software as a service solution. With subscription-based models you have a doubled risk of failing. Next to the high integration costs you have to trust, that the solution will reach your goals by subscribing e.g. for one year upfront. With a performance-based pricing model, you anytime have an exit scenario. If you recognize during the integration, that it is not working for you, just stop using it. If you recognize this after the launch, just stop using it.

The advantage: with a performance guarantee you can calculate your risk upfront. What you could lose is the integration costs, but you are still free to decide to stop the usage anytime you want to in contrary to a monthly subscription model.

2. You Start With a Plug & Play Solution and Try It Out

Try the solution with a Plug & Play integration and really start using the solution in your live system. No testing by developer teams or huge upfront integration costs. Maybe you don’t have the perfect design or the 100 % integration at first, but in combination with a performance guarantee you nearly don’t have any risk at all.

In both examples, a performance guarantee can make your decision easier. Of course, most of the SaaS out there won’t give you a complete chargeback, if you don’t reach your goals. But a performance guarantee helps to focus on your goals and to really measure your KPIs.

Advantage 7: Have Your KPIs In Mind

One maybe underestimated advantage: you must have your key performance indicators in mind when you use a performance-based service. Simply, because they measure specific KPIs and bill you based on these KPIs. This is a win-win-situation: you are also forced to constantly have your KPIs in mind, and you’ll improve your KPIs to get the best out of the service and then, also out of your business.

Advantage 8: No Contract Lifetimes

Especially for small or mid-sized businesses, this can be a killer argument. In subscription models you always have contract lifetimes. No matter, if it is only one month or even one year, you will be bound for a specific timeframe. This is inflexible and makes it especially for businesses with no fixed or small budgets nearly impossible to decide on. With a performance-based pricing model these companies now have the freedom to use solutions which formerly have been reserved for big companies only. With

  • a complete feature set,
  • no limitation in service or support,
  • an exit scenario anytime

these small companies can still use the solution, but reduce the risk for their business.

Advantage 9: Transparency

As performance-based software as a service provider earn more money with performance, they simply have to prove that their solution is working. This makes these solution very transparent, because they have to show you, how this performance is calculated. This results in much more transparent tools and support.

Michael9 Advantages of Performance-Based Pricing