What is a SaaS Subscription?

Perhaps the most-common form of SaaS subscription model, annual contracts lock users into a specific service for one year. Clients pay a single payment upfront, with the option to renew after 12 months. Although some businesses may prefer this method in that it allows them to operate without having to worry about making monthly or quarterly payments, it may also exacerbate commitment fears among company leaders who have budgets to keep to.

Short-term SaaS subscriptions allow organizations to purchase licensing permissions on a quarterly, monthly, or otherwise limited-duration basis. Short-term contracts help eliminate the danger of lock in, instead allowing users to reevaluate and possibly replace underperforming service providers. Additionally, the risk of customer churn forces vendors to continually improve their products. At the same time, vendors can often charge more for their services overall than they would under an annual contract.

Although often considered the foil to standard SaaS subscription models, pay per use may instead be thought of as a subset. In a pay-per-use pricing model, clients are changed based on the amount of data or other resources they use, or on the number of users on a specific account. This allows businesses to scale down without having to worry about paying for services they aren’t using. Vendors may also benefit from this model, as it allows them to match incoming revenue more accurately to expenses.

The SaaS subscription model provides several advantages. Here, we outline key benefits worth considering:

Subscription SaaS models have a much lower cost outlay than traditional pricing options. Rather than having to budget and account for a large, one-time purchase, costs can be spread out into smaller, expected charges, making it easier to budget for, and much simpler to account for in yearly taxes.

Because SaaS subscription expenses are recurring and itemized, organizations can easily predict with a high degree of accuracy exactly what their SaaS expenses are going to be for a given time period. Likewise, companies can plan for growth by forecasting future expenses based on current pricing.

For subscription SaaS providers, there is always a very-real threat that a client organization may choose to cut ties and shift over to another vendor. To prevent this from happening, vendors must be capable and willing to provide the best possible support. This also extends to the service itself; if it is not user friendly, intuitive, and powerful, users will simply end their subscription and move on. This means that there is a great deal of competition among subscription SaaS providers to produce a satisfying customer experience.