SaaS pricing basically implies to a software pricing model in which the customers are required to make payments on a subscription basis for their online software use. Joshua Melick underlines that for most of the SaaS organizations, developing the pricing system tend to be among the most difficult tasks. There are a lot of elements that have to be factored in, when it comes to fixing the pricing strategy for SaaS applications. These elements include revenue objectives, target markets, the marketing strategy of the software, and so on.

The pricing of their product is one of the key elements that impact the revenue of a company directly. However, Joshua Melick points out that even with its extreme importance, a lot of SaaS startups do not give proper thought to the critical component of pricing. Most of the SaaS organizations ultimately have quite similar prizing structures which are segmented into of bronze, silver, or gold plans, with the gold plans having the maximum benefits.  These plans can be referred to as two-dimensional plans, one dimension being the tier and another is the usage.

A lot of traditional SaaS companies even simplify their pricing process and use a single dimension. On the other hand, a few others may have just one plan or do not charge per user for certain reasons. These reasons can include selling specialty apps in fields like accounting or legal where there are very few users in a department. When it comes to usage, the plans might already include enough storage and messages for the majority of the users, and are majorly maintain protection against extreme usage. In addition to this, another common tactic used by SaaS start-ups is “grandfathering”. In this system, early customers get to enjoy all-inclusive packages, without up-sells. While this tactic may initially look smart for a business, it may cause a problem for them later on, as with this they end up creating a legacy of no price increases. This simply means that even if the company creates new features, later on, they won’t be able to charge this particular set of customers for that. Moreover, a number of companies tend to be afraid that by adding a “pricing gate” they may deter current customers from using new features, which would be an undesirable result as the feedback of these customers shall be needed to improve the platform and make it better.

Owing to the issues involved in the 2D pricing model, Joshua Melick underlines the importance of adding a third dimension. A lot of startups usually are hopeful that their prices will rise over time due to an increase in any of the two key dimensions. However, hope cannot drive revenue for a business, constructive strategy and planning is needed for it. Hence, Joshua suggests that rather than waiting for the variables to result in price increase, a company must be proactive in making it actually happen.