Back to Research

How PLG gets paid

over 1 year ago 6 mins read
Adam Schoenfeld
Adam Schoenfeld

*Thank you for being one of the first 13,142 members and supporting PeerSignal research!

Welcome back to my almost-weekly newsletter where I share data and examples to help you study B2B sales and marketing.*

*Have a B2B tech company in mind you’d like us to track?*

*1.

Fill out* *this form**.*

*2.

Tag a company on* *my LinkedIn post* *and I’ll add them manually.*

---

Last quarter, we partnered with XaaS, a SaaS pricing firm, to study the pricing and packaging strategies of 150 top product-led growth (PLG) companies.

Check out our 2023 PLG pricing summary here.

In total, we found 44 unique pricing metrics – seats, contacts, transactions, storage, web visitors, etc.

– represented across 150 PLG companies.

However, usage and seats remain the common thread among product-led growth companies.

In fact, 53% of top PLG companies factor seats into pricing and 80% rely on usage-based tiering.

plg pricing Source: January 2023 PLG Pricing Report

In this newsletter, we’ll break down four common pricing and packaging models with examples of how each are used in B2B SaaS.

1. Usage-Based Pricing (UBP)

While most PLG companies incorporate usage into their pricing, it’s rare to see *pure* usage-based pricing.

Just 5% of the companies in our study charge exclusively by units used.

Like your water bill, UBP charges for what you consume.

In Elastic’s model, tiered pricing is variable, not fixed.

To help customers understand their true monthly cost, “up to” estimates are provided for each tier along with this pricing calculator.

elastic pricing Source: Elastic

2. Usage-Based Tiering

The most common packaging of usage in PLG, Usage-Based Tiering simplifies math for folks.

Tiers standardize payments into one monthly cost with use-it-or-lose-it usage and feature limits.

Storage SaaS products like DropBox and Google Workspace are perhaps the most basic examples of this model.

Rather than pay per GB of data stored, Google gives you four options to choose from: 30 GB, 2 TB, 5 TB, or unlimited plans.

Each tier also limits features like meetings attendees allowed on video calls.

Google Workspace pricing Source: Google Workspace

3. Seat-Based Pricing

Seat-based pricing has been around since the dawn of SaaS.

There are three main ways PLG companies incorporate seats into their pricing strategy: model is entirely seat-based, seats are an important input to pricing or pricing tiers are bundled together based on seat totals.

pricing by seats Source: January 2023 PLG Pricing Report

You’ve seen the standard pay per seat model across SaaS websites.

Companies like Grammarly incentivize team use with per seat discounts after 10 users.

grammarly pricing Source: Grammarly

Typically, SaaS companies leveraging per seat pricing will still have tiers with additional features or usage limits, but the pricing for each tier represents a per user per month cost versus a total monthly or annual rate.

4. Seat + Usage-Based Tiering

Few PLG companies charge exclusively by seat or usage.

Instead, they take a blended approach to maximize flexibility for users and increase upsell opportunities for themselves.

By gating features most valuable for large teams, SaaS companies allow customers to create custom plans and expand as they grow – headcount or feature consumption – while also providing transparent pricing and lowering the barrier of entry to serve smaller businesses.

ClickUp’s Seat + Usage-Based Tiering demonstrates how and when it might make sense to gate pricing based on seats and usage.

In total, they have 20 usage-based gates for their product tiers, creating a dual flywheel nudging free users into paying customers.

Clickup pricing Source: ClickUp

Pricing predictions for 2023

SaaS price hikes likely to continue

SaaS is not immune to inflation.

Some sectors are more affected than others.

If your SaaS serves the auto industry, you’re in a different place than SaaS serving energy sectors.

Last year, Hubspot hiked prices (+12%) for the first time since 2018.

Around the same time, Slack made it’s first ever pricing increase (+10%).

Saastr poll Source: SaaStr via LinkedIn

While in theory, price is a lever you can pull to increase profits during hard times, it’s not that simple.

Retention rate is vital to survival rate and hiking prices on early customers could do more harm than good.

At the same time, every SaaS CFO has been asked to cut OpEx, not add to it.

So be honest with yourself about the value your product brings to a business during this return to rigor.

Buyer-friendly pricing packages

Traditional subscription models (seat-based subscriptions, flat-fee tiered subscriptions) aren’t dying, they’re evolving.

While the algorithms now fueling sophisticated PLG pricing and packaging have become more complex, the buying experience is simpler, which contributes to the mission of PLG – accelerating time to value in SaaS products and building for the end users.

Similarly, PLG companies are opting for usage-based tiering over usage-based pricing, which bundles usage and features into tiers.

It’s the difference between booking a flight through Delta versus Spirit – must-have features built into pricing vs.

pay per feature.

Emerging pricing tech will increase adoption of modern models

This one’s meta.

We’re seeing more pricing and packaging infrastructure startups emerge post-COVID.

(Stigg, Kana, Togai, Salesbricks, M3ter, Amberflo, etc.)

In XaaS Pricing’s summary of BVP’s PLG tech stack piece, they concludes adoption of these tools will make it easier to get started with usage-based pricing and tiering in 2023 and beyond.

Want to dig into our full Jan 2023 PLG pricing dataset yourself?

See how you stack up: <https://docs.google.com/spreadsheets/d/16LEzqWNyruL31uL_INw_We1biQExGQVL5ng9j523wu8/edit#gid=0>​

Questions on our report or pricing predictions for 2023?

Join the conversation on LinkedIn.

Or reply to this email.

I read all replies.

Best,

Camille & Adam

---