How to Determine the Optimal Flat Rate for My SaaS Product
To identify an appropriate flat rate for your SaaS product, measure the average value provided across your entire user base and roll it into a single, predictable monthly or annual fee. This strategy will avoid complexity, allowing for shorter sales cycles and simplifying financial forecasting.
By following this guide, you’ll use the analytical framework required to accurately price your software for long-term profitability.
Quantify the Value Metric and Average Usage
Before settling on a single price point, identify the primary metric that drives value for your users, such as data processed, messages sent, or contacts managed. Precision is key. Understanding usage distributions is necessary to prevent heavy users from eroding your margins.
- Audit your telemetry: Review the last 60 days of application data.
- Find the median: Identify the middle ground of usage across your entire customer base.
- Set the anchor: If 80% of your users leverage only 20% of your maximum resources, anchor your flat rate slightly above the median, ensuring you capture the value provided to the majority of your users.
|
Usage Tier |
% of User Base |
Infrastructure Cost (Avg) |
|---|---|---|
|
Low Volume |
60% |
$2.00 |
|
Standard |
30% |
$15.00 |
|
Power User |
10% |
$85.00 |
Flat pricing is most effective when the marginal cost of serving a power user doesn’t exceed your set price. With a COGS calculator, make your margins healthy across all user segments and always protect your bottom line.
Canny, a feedback management tool, used flat-rate pricing early in the game. By understanding that most mid-market companies had similar feedback volumes, they came up with a flat $400/month rate, which simplified the decision-making process for product managers.
Flat-Rate SaaS Pricing Checklist
Validate, calculate, and implement a profitable flat rate pricing strategy with this checklist.
-
COGS and CAC calculation formulas
-
Fair Use and Grandfathering policies
-
Pricing implementation steps
-
A/B testing and validation
Flat Pricing vs. Per-Seat and Usage Models
Selecting the proper SaaS pricing strategy requires a strong self-assessment of your product’s core utility.
Ask the difficult questions and use this checklist to decide if a flat rate is right for your business:
- Collaboration: Does my software promote teamwork? If yes, flat pricing discourages user hoarding.
- Predictability: Is my infrastructure cost stable? If costs are predictable, flat-rate pricing is a good fit.
- Customer Experience: Do customers experience billing shock with variable invoices? If so, flat-rate pricing will increase retention.
Analyze your projected revenue with flat-rate pricing as compared to tiered pricing or a per-seat model. Industry standard benchmarks indicate that companies who use fixed-rate pricing will see higher initial conversion rates. However, they also may see a 15-20% lower expansion revenue compared to usage-based billing models. Growth requires balance.
Consider per-user pricing only when adding more users directly escalates support and/or infrastructure burden. If not, a flat rate is usually the more attractive choice for B2B SaaS.
Standard Notes, an encrypted note-taking app, uses a flat productivity plan that avoids per-note or per-device billing complexity. This sidesteps the complications of this strategy and helps consumers and small teams avoid frustration.
If you aren’t sure which model to use, PayPro Global supports all kind of pricing for SaaS including flat rate and hybrid pricing, which allows you to combine a flat base fee with usage-based overages for the best of both worlds.
Flat-Rate SaaS Pricing Checklist
Validate, calculate, and implement a profitable flat rate pricing strategy with this checklist.
-
COGS and CAC calculation formulas
-
Fair Use and Grandfathering policies
-
Pricing implementation steps
-
A/B testing and validation
Calculate the Breakeven Plus Margin
A flat-rate pricing model must account for Customer Acquisition Cost (CAC) and the total lifetime of the account. You cannot easily upsell more seats later. Your initial price must be robust from day one.
Apply the following formula to find your target price:
| Price = (PaybackPeriodMonthlyCAC) + Servicing Cost + Desired Margin |
A startup with a $1,200 CAC and a 12-month payback period will require a minimum flat rate of $100/month. Validate your specific numbers with a CAC payback period calculator.
In 2022, Tailscale maintained a clear flat-rate tier for teams, driven by a $20/user/month flat fee for their Pro version, which was later refined. This made even their smallest corporate clients covered for the high cost of supporting complex network configurations.
Flat-Rate SaaS Pricing Checklist
Validate, calculate, and implement a profitable flat rate pricing strategy with this checklist.
-
COGS and CAC calculation formulas
-
Fair Use and Grandfathering policies
-
Pricing implementation steps
-
A/B testing and validation
Validate with Shadow Testing
Before committing to a public flat-rate price, verify your assumptions with a shadow or A/B test on your pricing page. Do not guess.
- Split your traffic by directing 50% of your visitors to a page featuring your new flat rate, and the other 50% can be directed to your old model.
- Analyze data by measuring the conversion rate and the Time to Conversion for both groups.
Use price anchoring to show the value of your flat rate. If a variable plan looks like it could cost $500/month for a large team, a $200/month flat rate will seem much more valuable.
Fathom Analytics changed to simplified pricing based on pageviews. Though not considered a pure flat rate, their transparent price points minimized decision fatigue for new startups.
Flat-Rate SaaS Pricing Checklist
Validate, calculate, and implement a profitable flat rate pricing strategy with this checklist.
-
COGS and CAC calculation formulas
-
Fair Use and Grandfathering policies
-
Pricing implementation steps
-
A/B testing and validation
Implement an Annual Discount Structure
Flat-rate models will significantly benefit from annual commitments. These contracts lock in revenue and provide the much-needed upfront cash flow. This is a win-win situation.
- Incentivize: Offer a 15-20% discount for annual billing to boost Annual Recurring Revenue (ARR).
- Reduce Churn: Standard industry benchmarks show that annual prepayments can reduce SaaS churn up to 10% compared with month-to-month billing.
Have your service level agreement offer price adjustments with a 30-to-60-day notice, which will protect your business against any future inflation.
PayPro Global platform also supports discounts, cross-sells, upsell as well as revenue recovery features, like automated dunning and card updater services, to keep customers from payment failures.
Conclusion
You’ll find that the optimal flat rate is found at the intersection of customer affordability and long-term service cost. By closely studying your customer usage patterns and carefully comparing flat pricing to tiered pricing, billing friction can be eliminated, and accelerated growth can be achieved. To successfully implement, fully understand the Customer Acquisition Cost (CAC), and test price sensitivity. Consistently monitor the chosen rate to achieve a healthy LTV to CAC ratio.
FAQ
-
Flat-rate pricing is well-suited for startups that want to minimize sales friction and have products with equal value across all users. It works well with predictable infrastructure costs and with customers who do not require customization.
-
Pros include a shorter sales cycle and straightforward billing operations with price transparency, both of which build trust with users. Cons include few upselling opportunities with a risk of margin erosion, because high-volume users cost more to support than the flat fee would cover.
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Flat-rate pricing provides a single set of features for one fixed price, whereas tiered pricing provides multiple packages at different price points. Flat rates prioritize simplicity, whereas tiered models help you capture more revenue by charging larger customers more for advanced features or higher limits.
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To protect profitability, set your flat rate based on the median usage of your most active customers rather than the average one. Include fair use policies or high-level usage caps to prevent over-consuming expensive server resources.
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Yes, flat-rate pricing can lower CAC by making the decision-making process easier for potential buyers and minimizing a complex sales intervention. Customers can convert through a self-serve model much quicker than with variable pricing.
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It is somewhat common for companies to start with a flat rate to get traction and then change to tiers as they realize distinct customer segments. Consider grandfathering existing customers into your original rate for a set period while introducing the new tiered structure for new sign-ups.
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Generally not. Enterprise clients need custom security, dedicated support, and custom integrations that a flat rate will not easily accommodate. Most SaaS companies using a flat-rate model for their main product still offer a separate option for Enterprise deals.
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Look at your pricing model at least once a year or whenever there’s a large shift in operational costs or the competitive landscape. Data-driven changes will ensure that your flat rate will reflect the current value of your product while maintaining healthy unit economics.
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