Defining and exploring per-user pricing, the most used pricing model in SaaS—including benefits, drawbacks, examples & more.
Per-user pricing remains the most common billable metric used to price B2B SaaS according to several pricing studies (see most recent study by PeerSignal XaaS).
A google search on Per User pricing ranks several articles that suggest the pricing model is to be avoided. See "Per user pricing: stop using it; you're killing growth," which centered on GitHub’s original Per-Repository pricing model as an example... GitHub transitioned to a Per-User pricing after the article was published.
The reality is that many of the fastest growing SaaS vendors continue to rely upon the Per-Seat License model as their primary billable metric, or incorporate per user pricing within their hybrid pricing model.
Case in point: Looking ahead to the next wave of AI-led SaaS products, many of the fastest-growing application-layer generative AI products have selected the per-user pricing model, including ChatGPT, GitHub Copilot, and Runway.ml.
Still, per user pricing is not for every SaaS product. In this article, we’ll define and explore per-user pricing, discuss how the fastest growing SaaS companies are modernizing their per-user approaches, and what to consider when determining if it’s the right billing model for you.
What is per-user pricing?#
Simply put, per-user pricing is a billable metric that monetizes access. A SaaS customer is charged for each additional seat (or user license) provisioned within their account.
Per user pricing is a common billable metric for those products that address a large group of users within a customer organization.
As a billable metric, it is frequently utilized in conjunction with other pricing and packaging strategies.
- Per-user pricing can be combined with a plan packaging strategy (e.g. good-better-best) and product add-ons.
- Per-user pricing is separate from your SaaS price setting philosophy (e.g. competitive-based pricing versus value-based pricing).
- Per-user pricing can be paired with a price modeling strategy (e.g Should the 65th seat be charged the same price as the 5th seat on an Organization Plan?).
- Increasingly, per-user pricing is even used alongside other billable metrics in a hybrid pricing model.
Per-user subscription pricing emerged in the late 2000s when vendors like Salesforce and Microsoft led the shift away from perpetual licensing.
However, the model has evolved considerably over the last 20 years. Below, we discuss contemporary implementations of the per-user pricing.
What does “modern” per-user pricing look like?#
At its core, driving the number of seats per account is a specialized commerce funnel. SaaS vendors must efficiently convert end-user demand into paid seats.
Like any funnel, friction must be removed to drive conversion.
Early per-seat models were simple, low-converting and higher friction. Billing and user management were frequently designed, built and managed as isolated, homegrown services.
Viral SaaS vendors reimagined per-user monetization by deeply integrating user identity and subscription management.
Modern per-user pricing is characterized by powerful, dynamic user licensing features including (but not limited to):
- Invitation systems that preview prices (e.g. express licensing).
- Pricing based on user role changes.
- Default admin settings that auto-provision seats (e.g. auto join).
E-com companies like Amazon invested vast sums of capital to eliminate friction from consumer purchase funnels.
Now, Subscription SaaS companies approach the seat expansion funnel with the same level of rigor.
By instilling user-led growth into their buyer journeys, they’re able to unlock virality—and thus additional revenue— while unblocking end-user adoption..
Benefits and Drawbacks of Per-User Pricing#
Before we begin, we should point out that the perfect pricing model does not exist - because every pricing scheme creates friction.
When an action is paired with a price, you will de-incentivize customers from taking said action.
Here is the CEO of Amplitude discussing the impact of Per Event pricing model on customer behavior:
The event model is broken... It's extremely difficult to know how many events you'll send, which makes understanding how much you'll pay impossible ... every time you're instrumenting another event, you're thinking, "Is this worth it?" This leads you to ration the events you do track, undermining the whole purpose of analytics.
Friction is an inescapable consequence of charging customers money. Instead, your choice is around the type of friction. Below, we highlight the distinct benefits and drawbacks of per-using pricing.
Drawbacks#
Let’s start with an honest assessment of drawbacks.
Below are the specific types of friction that come as a consequence of pricing for users.
1: Friction for Team Expansion#
This is the most common criticism. By pricing the marginal user, you will create a headwind that works against team adoption within customer accounts.
As stated here, “Per user pricing kills your growth and sets you up for long term failure, because it’s rarely where value is ascribed to your product and kills your Monthly Active User metric.”
However, there is a counter-intuitive phenomenon at work here.
As we detailed in our article about Viral SaaS companies, those companies with the strongest in-account network effects are the ones who rely upon per user pricing.
Okta’s Businesses at Work report provided the best data describing this phenomena - the SaaS products with highest in-account user growth are all per-user pricers:
2: Account Sharing#
Customers may decide to share logins as a workaround to paying you.
This is typically a problem for products with higher per seat products, particularly for those that do not have an inherent multi-player value prop (E.g. ZoomInfo data product).
Additionally, this tends to be more common for less-security concerned customers (read: SMB). If this is a pervasive problem, you will need to detect login collisions, or else account sharing can prevent revenue expansion.
Beyond detection and enforcement, product teams should attempt to build value propositions that incent users to have their own account.
3: Cost of Integrating User Management and Billing#
Because per-user pricing is fundamentally pricing based on access, it should come as no surprise that SaaS vendors deeply integrate access management with billing.
In short, your tech team will have to build Seat Management, which comes with an additional set of requirements over and above User Management.
These drawbacks are well understood, and many have known-workarounds. Still, if they present the type of friction you’re trying to avoid, per-seat pricing might not be right for you.
Benefits#
Now, where does per-user pricing help eliminate friction?
1: Value Alignment#
In the absence of an alternative metric that correlates with value delivered, the number of seats is frequently the billable metric of last resort for products that address a large cross section of users within an organization.
Some proof/examples:#
- GitHub used to price Per Repository, but shifted to per-user pricing.
- Jasper transitioned from per-word pricing to per user pricing.
- In theory, Slack could price per message. The problem? Admins would likely instruct users to use more discretion before sending messages, which would tax the core product loop within slack.
- In theory, Figma could charge based on the number of design files. The problem? Design files have tenuous value alignment with value delivered by Figma, and could produce undesirable usage patterns (e.g. jamming more designs into a single file). Instead, Figma is better off using number of files as an entitlement to push buyers to higher plan levels (as they do on their freemium plan), instead of using it as a billable metric.
2: Predictability for your customers#
When your customers do not understand how your billable metric will scale with their usage, they may feel like your pricing model is opaque. This creates friction in the form of uncertainty.
SaaS buyers are not dumb—they realize they are not just buying a SaaS product today.
So, SaaS buyers like to understand how they will be charged today, next month, and next year.
Per-user billing makes your pricing easy to understand. SaaS vendors typically plan around headcount. Pricing per seat makes it easy to build intermediate and long-term forecasts regarding the price of your product.
3: Predictability for your company#
Your company, particularly your CFO, will have a strong preference for predictable revenue.
Per-user pricing is not a volatile metric, and is relatively easy to forecast.
Furthermore, it is customary to bill for per-user in-advance, instead of in-arrears.
As mentioned earlier, as well, per-user pricing sets the stage for being able to replicate user-led growth strategies that have helped companies like Slack, Miro, and Figma become the major players they are today.
Per-User Pricing Examples#
Per-user pricing is ubiquitous across SaaS product categories.
Below, we provide different examples found across the SaaS universe.
From a price setting standpoint, most per-user prices range from $5 per month to $70 per month, with vertical SaaS products establishing the upper-end of the range, and highly horizontal products establishing the low-end of the range.
Per-user pricing is a rather ubiquitous billing model within SaaS, covering a great variety of product categories.
Seat-Based Pricing#
Standard Seat-based pricing is the most straightforward version of per-user pricing. A pricing plan incorporates standard seat based pricing if all users are charged irrespective of role or activity level. Furthermore, in a standard seat based pricing plan, no other billable metrics are used within the plan.
Jira is an example of a company that continues to use a standard seat based pricing across their pricing plans.
Many of the pricing models below are evolutionary offshoots of the standard seat-based model and are rising in popularity
Role-Based Pricing#
Many SaaS products have begun to incorporate role-based pricing.
Figma Design product only charges per editor, while viewers are free.
Figma’s value prop was predicated on designers collaborating with non-designers.
While convincing organizations to pay for a design tool for all their designs, they typically do not want to pay for product managers, engineers & other departments. So, role-based pricing was an elegant solution. Additionally, role-based pricing can create powerful cross-sell opportunities later on.
By aggregating a larger cross-section of free users within a product, it is significantly easier to monetize a secondary ICP via add-ons or a second product later-on.
Figma launched two products to monetize free users in core product
First, they launched Fijam (whiteboard product). Most recently, they launched Figma Dev. These follow-on products are in a better position to succeed, as many of these target users already exist within a figma workspace.
Per User Product Add-Ons#
Per User Product Add-ons are becoming increasingly common, particularly in the age of the AI copilot.
Unlike a second independent product, a product-add requires access to the base product.
In the case of GItHub copilot, the user must be a part of a workspace with an active subscription to GitHub core product to be eligible.
Per User product-add ons allow your customer billing admins to selectively opt workspace users onto the add-on, instead of having to pay for all users in the workspace, or pay a fixed account-level fee which is imprecise.
The product add-on is the ideal model for single-player mode AI copilots.
Hybrid Pricing Model: Multidimensional plans#
Multi-Dimensional pricing plans, sometimes referred to as hybrid pricing plans, are becoming more common. Openview documented the rise of hybrid pricing plans in their state of 2023 pricing report.
In a multi-dimensional pricing plan, 2 or more billable metrics that can scale the price.
This creates multiple directions of intra-plan expansion (e.g. not including inter-plan upgrades, or product-add ons).
Many of these billable metrics are pay-as-you-go, while others are credits bought in advance. More billable metrics are not necessarily better. Again, you want to minimize the amount of math your customer has to do to predict future costs.
So, why does Intercom have a plan with 6 billable metrics, while Vercel has 10+ billable metrics on a single-plan?
Many of the underlying services associated with these billable metrics have high marginal costs. They’re simply passing those costs through to their customers. If SMS text messages were entirely free to send, it's not hard to imagine a product like Intercom making SMS text messages unlimited.
Meanwhile, the per-user pricing metric tends to be extremely high margin, as provisioning a user access has zero cost.
Per-Active User Pricing#
Slack pioneered the Per Active User Pricing strategy—an event we believe marks the beginning of modern Seat Management.
Slack marks a user as dormant after 28 days of inactivity and proactively credits the customer balance. In effect, this automates the removal of dormant user licenses.
While this pricing strategy received a lot of attention initially, it has not gained traction compared to some of the other per-user pricing variants we have discussed.
Furthermore, after Salesforce acquired Slack, the Fair Billing Policy that established the Per Active User pricing has been slowly watered down.
Slack began by setting the dormancy period to 14 days, which has since been moved back to 28 days.
Is per-user pricing a good billable metric for my SaaS?#
If you are deciding if the inclusion of a per user pricing metric makes sense for your product, one heuristic is useful:
Is your customer's willingness to pay highly correlated with the number of users added? This can be a difficult question with hard data. Here, you may have to use instinct and soft data. For starters, what drives usage of your product? Is usage of your software primarily driven by human workflow, or other software?
Let's compare Segment.io (non-seat biller) with GitHub (seat-biller).
- Segment.io product usage is primarily machine driven. Yes, Segment.io requires a developer to perform and maintain the integration. However, the integrating app is programmatically generating the usage of Segment.io APIs. So, Segment.io usage is primarily machine-driven.
- GitHub is a different story: usage is primarily driven by developers who are contributing to a code repository, and every developer will need continual access to GitHub to do their job. So, GitHub usage is primarily human-driven.
The Final Verdict#
While pricing guides can provide a useful starting point, the journey to your ideal pricing model is arrived at through hard-earned knowledge.
Markets are dynamic, and your optimal pricing strategy will change over time.
Still, Per User pricing is set to remain the most common billing metric in SaaS.