SaaS allows businesses to access complex IT without investing in hardware. Pricing is based on market demand, required support, system availability, and modules. Support and availability affect pricing, and modular pricing is ideal for small businesses. Additional consulting hours may be required, representing an additional cost.
Software as a Service (SaaS) is an information technology delivery method that allows businesses to purchase access to complex information technologies without having to invest in hardware and infrastructure. As computer systems become more tightly integrated into business operations, it has become a necessity rather than a luxury. SaaS pricing is primarily determined by four factors: market demand, required support, system availability, and purchased module or modules.
As with all commodities, market demand has a huge effect on product prices. For example, an accounting software package that meets the needs of your target customer group could become very popular. The cost of providing the service may not have increased, but the price may increase to reflect increased demand.
SaaS pricing is usually a negotiated item that is based on the unique combination of services and support the customer requires. It is common for a potential customer to start with a small contract to test how SaaS works and the challenges of integrating this type of software with other services. SaaS pricing for a trial project or proof of concept is often quite aggressive and is designed to encourage the customer to see the value of software as a service.
The level of support required depends on the type of software purchased and the relevance to business operations. For example, accounting software requires support during normal business hours, but production control products need continuous support. SaaS pricing agreements often state the hours of support provided and the cost for any additional support required outside of those hours.
System availability requirements are a primary factor in SaaS pricing. The more hours of access required, the higher the total contract price. A cost-benefit analysis may reveal that SaaS is cost-effective due to the high costs of setting up and supporting a continuously operating information technology department.
When comparing SaaS pricing models, a business should look at the actual product offering. Many companies offer two options: individual modules or software packages. Modular pricing is ideal for small to medium-sized businesses looking to expand existing systems or test the concept. The price might seem higher than a software package, but it’s important to be aware of the hidden costs associated with the price of the software.
SaaS pricing contracts will cover the cost to access the system, a specific number of support hours, and perhaps some implementation and training hours. Many companies find that these hours are not sufficient to meet their needs and that additional consulting hours may be required to implement a production-level system. These hours represent a significant additional cost that must be considered.
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