Adroit Market Research - Industry Insights

Having a well-structured IT infrastructure is the most important element of a big organization these days. This also come with a challenge of choosing a pricing model for the same. It becomes more crucial for startups as finalizing a pricing model can be one of the most difficult and confusing decisions. This case study is a brief explanation of several models currently employed by SaaS companies and also an in-depth presentation of the processes these companies are utilizing as a practice. It also highlights a detailed framework of a pricing model and its important components. Three case studies are discussed here to understand the growing demand for consumption based pricing model.

Having a well-structured IT infrastructure is the most important element of a big organization these days. This also come with a challenge of choosing a pricing model for the same. It becomes more crucial for startups as finalizing a pricing model can be one of the most difficult and confusing decisions. This case study is a brief explanation of several models currently employed by SaaS companies and also an in-depth presentation of the processes these companies are utilizing as a practice. It also highlights a detailed framework of a pricing model and its important components. Three case studies are discussed here to understand the growing demand for consumption based pricing model.

What is a consumption-based pricing model?

IT based consumption model ensures how any company should pay for the services it uses. According to what and how much IT services they consume, the consumers pay their bills. This consumption based model is prominently used for cloud services along with several other IT services that businesses today use. It is a very basic approach. The service providers will quantify the services and according to the use consumers have to pay for the used service. The approach with a consumption based pricing model is clear and easy. Vendor businesses quantifies the services they provide and offers a charge according to the standard services costing. For example, a particular internet package can charge a fix amount of a particular service and can be valid for a particular time period. Services that are provided in real time may charge per minute or hour. If you are using an internet in an internet café, then café owner would offer per minute or hourly based costing for the use of broadband services through IPSs. One can find analogy between consumption based pricing model also known as utility computing payment structure and other services we use like water, petrol, diesel, electricity etc.

Understanding on Pricing Models

A pricing model for an IT service refers to the official agreement between a service provider and a service gained where an agreement is formed based on the service the parties engage in. In today’s time, pricing models in the IT industry have promptly became matured from the traditional T&M and FP models to the modest managed services or outcome based models.

To reach the pricing model into a succession, it should compulsorily conclude the balanced level between the customer’s expectations of quality, price, and timelines including the service provider’s cost and operational efficiency.

Case Study: AtTask vs. Asana

Utah based startup, AtTask is a well-developed technology solution that is majorly characterized as Enterprise Work Management. It is SaaS based platform which is meant to manage project teams to for flexible work flow, collaborations, and plan. Asana is a collaborative task management tool on the web, which notifies the current status of the assignments, contacts and more.

AtTask leverages a direct Salesforce to enterprise customers. It usually offers a free trial version available on all existing search engines. AtTask has efficiently developed creative templates and introduced several versions of its product combined with specific functions and project classes. However, AtTask has promptly optimized its free trial business model which is absolutely based on customer friendly relations with a higher level management. It also provides customized solutions for specific tasks.

If a workforce counts with 30 or above users, Asana becomes a premium offering. This is a classic capacity-­?based method of freemium. With the help of sales, Asana monitors the number of users for every individual account and actively reaches out to the admin as they approach 30 users.

If the admin is looking forward to get adaptions for specific needs, Asana proactively offers an API. Asana make sure if it is efficiently meeting the needs of its users with no errors. It has created a generalized platform that allows for flexibility and customization by its users to meet their needs and drive widespread user adoption.

Case Study: Amazon Web Services

Launched in 2006, Amazon Web Services (AWS) is a suite of expanding products and services that constitute an Infrastructure-­?as-­?a-­?Service platform for web-­?based companies. Its primary products allow customers to have access to Amazon’s large-­? scale, reliable, and efficient IT infrastructure for needs such as storage and content delivery, networking and computation, and application services. Amazon prices several products on a per-use basis such as flexibility, scalability, security of AWS as an effective infrastructure solution, and cost effectiveness. The advantages of this pricing model are that it allows Amazon to match pricing according to the customer requirement, and it also presents a potential opportunities to upsell new and existing products.

Case Study: ZipCar

At the time of signing up, ZipCar offers a minimal membership fee. Furthermore, users then log into a mobile application or a website to book a nearby car. Using an onboard computer with the help of a satellite link, the car can be accessible swiping the ZipCard membership card, and users can easily pay an hourly rate for usage.

A significant factor in the rapid adoption of ZipCar is the design of user processes that include selecting convenient locations, understanding user requirements, vehicle servicing, and intelligent capacity management.

Case study: Twilio

Twilio provides voice, SMS, and other communication services through the cloud. This organization dedicatedly follows a “pay-as-you-go” model. Initially, the customer has to pay two cents per minute for outbound calls, and then the plan will charges will convert into 1 cent per minute for inbound calls with a $1 per month fee. This pricing model is more convenient for the customers to monitor the usage of calls, and also to use Twilio on a limited basis and keep an understanding of the value of the product to their business.

Conclusion

We next turn our attention to calculating a price floor. The purpose of price floor is to determine if the business is economically viable. If the cost of obtaining customer is greater than the value that a firm derives from the customer in terms of payment, then the prominent decision is for the firm and not to produce. Note that the acquisition cost can change over time, but companies should take this opportunity to have a strong understanding of what this cost looks like in the present and going forward. For freemium models, this includes critical calculations of the value that bring vis-à-vis a major asset of paying customers versus the cost of serving free customers.