Assessment of Potential Revenue Models

About This Template

Why does knowing how to get paid for your B2B SaaS solution matter?

38% of all startups failed because they ran out of cash.18% of all startups failed because of pricing/cost issues. (CBInsights, 2021)

‍How to Assess Your Revenue Model Options

To gain a clear understanding of the potential revenue models, let’s

1. Understand which type of revenue models exist within the B2B SaaS space
2. Understand what type of pricing strategies we could opt for
3. Compare the pricing options available

What Is Included in the Potential Revenue Models Template

• Revenue Models in B2B SaaS Space: an overview of the various approaches to generate revenue within the B2B SaaS space
• Pricing Strategies Options: a summary of the various pricing strategies that entrepreneurs can consider for their B2B SaaS solution.
• Validating and Comparing Pricing Options: a structured framework that we can use to validate and compare the various pricing options.

Let’s Assess Our Revenue Strategies

Step 1: Let’s pick the revenue model(s) that fit(s) into our business

✅ Freemium Model: We offer a basic version of the product for free, with limited features, and charge instead for premium features or an upgraded version. E.g.: Miro, Figma, Slack, Notion, Mailchimp, etc. The advantage of this model is having quickly an increased user base, the disadvantage is that it takes more time to see a good return on investment and therefore we might be more dependent on external financing.

✅ Subscription-Based Model: We charge customers a recurring fee (monthly or annually) for access to our SaaS product or service based on the number of users or seats accessing the SaaS product. E.g.: Microsoft Office 365, Asana, Salesforce, or ServiceNow.

✅ Pay-as-You-Go Model: We charge customers based on their actual usage of our SaaS product or service, typically with tiered pricing. E.g.: Amazon Web Service (AWS) or Twilio.

✅ Enterprise Model: We tailor pricing and features based on the specific needs and size of enterprise-level customers. E.g.: SAP or Oracle.

✅ Other: We plan to charge our customers for our service using other types of revenue models using for example partners or resellers or white labeling our solution. You can also foresee in the beginning offering consulting services to increase the revenue generated.

Task for you: Why do we believe that the revenue models selected could be a fit for us when launching our product and services?

✏️ Example - SmartBooks - AI-Powered Accounting Solution: We can chose a subscription model because bookkeeping solves a recurring issue for companies.‍

Step 2: Pick which strategy could support us in defining our pricing

✅ Value-Based PricingWe calculate the total economic value for the customer by considering direct and indirect cost savings (money, time, work invested, etc), risk mitigation, and other value-added aspects.Once this is done, we define a fair percentage of the total economic value created we want to capture, ideally between 10-20% as this will support our customers at the moment when they decide whether to buy or not from us.

✅ Tiered PricingHere we offer different pricing options and feature bundles which are adjusted to different customer segments. By doing so we are able to address varying customer needs and related willingness to pay.

✅ Competitor-Based PricingHere we choose to define the prices in relation to our competitors, to ensure that they don’t fall out of the industry-accepted range. If the pricing is too high or too low compared to competitors this would potentially scare customers off.

✅ Price Skimming PricingIn this case, we enter the market with a high initial price and gradually reduce it over time as competition increases. This could be an effective approach for new solutions whose higher and differentiated value is recognized by customers.

✅ Penetration PricingIn comparison to the previous strategy, in this case, we introduce the product/service at a discounted price to gain market share and customers. We want to then gradually increase prices as brand loyalty and trust is established. This strategy is quite often used by incumbents whose products and services’ value are not easily differentiable.

✅ Cost-Plus PricingIn this case, we offer a fixed percentage on top of the production cost to determine the selling price. Price = Total Costs (incl. direct and indirect ones) + Profit Margin. This is usually a good approach for custom projects.

Remember: A good pricing strategy allows us to maximize our cash flow and be less dependent on external sources of financing (e.g.: investors, loans, etc.). If done properly it also influences how the value of our solution is being portrayed: if it’s too low, our buyers might think we are “cheap” and that we offer little value; if it’s too high it might scare them off.

Task for you: Which pricing strategies could be used in our case and why?

✏️ Example: We might have different tiers based on the usage. E.g. for more transactions booked or suppliers, the customer need to pay more.

Step 3: Validating and Comparing Pricing Options

Defining the best pricing strategy also means validating the various pricing options in the market and comparing them with each other. For this reason, let’s select the analyses and methodologies we intend to pursue when validating and comparing our pricing strategies:

✅ Willingness to Pay: We want to conduct direct market research to understand our customers' willingness to pay.

✅ Perceived Value: We want to assess how our pricing strategy reflects the true value and quality of our solution, as perceived by our target customers.

✅ Competitive Analysis: We want to compare our pricing to the ones of our competitors’ pricing.

✅ Profitability Analysis: We want to assess the profitability of each pricing option, taking into account both costs and expected sales volume.

✅ Scalability: We want to assess how our pricing strategy supports scalability and growth as our customer base expands.

✅ Flexibility: We want to assess if our pricing structure is flexible enough to accommodate changes in the market, customer demands, and evolving product features.

Task for you: Which dimensions will we use to validate and compare your pricing strategy? Why?

✏️ Example: Our competitors charge USD 12 to 40 per month and user. We will try to charge USD 500 per year and user. Because of our AI features we can streamline the bookkeeping process and thus create more value for the customer.