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When deciding on the commercials for your SaaS product, it is important to clearly consider what and how you will be setting fees, and how you will charge your customers. There are certain things you should consider when deciding how to set and collect fees from your customers. This article will help you with points to keep in mind when going through the SaaS pricing process. Specifically, this article will explore:

  • the frequency of fees; 
  • how your customer will make payment; 
  • dealing with customers who do not pay;
  • plan tiers; and
  • cancellation fees and refunds.

Frequency of Fees

Often SaaS fees for access to the SaaS product as a subscription are charged annually or monthly. However, if you want to keep revenue coming into your business more frequently, the monthly pricing strategy may be more attractive for you. Furthermore, you may provide other services to the customer along the way, such as implementation or support services for the SaaS product, which you may like to charge at other times throughout the year. Below are some example services that may run alongside the SaaS subscription and some common time frames.

Services

Common time frames

Support services

At the end of each calendar month.

Implementation services

Following the delivery or installation of the hardware or goods or at the end of the calendar month.

Leased hardware

Upfront payment of any bond for the leased hardware and then for the leased hardware fee at the end of each month.

Provision of hardware

Payment upfront or immediately following delivery of the hardware.

Development services

Upon completion of the relevant milestone to which the relevant portion of the delivery service fee relates.

There is less risk for your business if you can charge customers as soon as you can. For services provided throughout the month alongside the SaaS subscription, charging the customer at the end of each month as opposed to stretching out the payment terms to quarterly or bi-annually may be more commercial for your business.

How Will Your Customer Pay?

Recurring Credit Card Payments Or Direct Debit?

There are various ways you can request your customers to pay fees. Invoicing could create a barrier due to the fact that you may then need to chase up the payment each month. Ideally, for SaaS subscriptions, you can have your payment system automated so that the customer is automatically debited or charged at the end of each month or year. For additional services incurred throughout the year, you may want to provide the customer with an invoice or payment advice that lets them know you will deduct this fee alongside the customer’s subscription fee. 

You will need to obtain the customer’s consent to deduct payments via direct debit. Furthermore, you may also have the issue of the payment bouncing if the customer does not have sufficient funds in their bank account. You can include a term in your SaaS Agreement that there will be an administrative fee charged to the customer after a certain number of direct debit attempts.

Dealing With Customers Who Do Not Pay

In your SaaS Agreement with your customers, you want to ensure you can cease providing the services if the customer does not make payment within a certain period from when the payment becomes due. You can also include that you can charge interest on any amounts unpaid after the due date. 

Whether you include these terms in your agreement or not, out of goodwill, you should first contact the customer to let them know their payment is late and ask them when you can expect payment from them. You should also outline what the repercussions are if they do not make payment (for example, suspension of the service or interest accruing). 

If the customer does not respond and continues not to pay, you may want to issue them with a more formal letter of demand for the money owing.

Plan Tiers

You may choose to provide a tiered pricing model, with each tier having different inclusions. For example, you could link each tier to a number of “authorised users” the customer can allow to access the SaaS product per month. Another option may be that the tier is linked to a data limit.

You may want to tie your fees to a certain number of authorised users. You will also want to ensure that your customers know whether they can upgrade or downgrade from each tier by giving you notice.

Cancellation Fees and Refunds

If you are offering a SaaS as a subscription and you are allowing a customer to terminate for no reason, you may include a cancellation fee. However, you should note that this could be seen as potentially an unfair contract term or a substantially prejudicial term (if this regime applies to your business). 

This clause could also be seen as a penalty if the fees are not a genuine pre-estimate of your loss. For example, you may have an initial term that the customer agrees to in the SaaS Agreement, and if they terminate before the end of that initial term, you may want the cancellation fee to equal the fees that are owing for the rest of the term. For example, if there are three months of monthly fees remaining, this will be the cancellation fee. Alternatively, suppose the customer has paid for the next six months in advance. In that case, you will want to be clear that any payments made by the customer are not refundable to them (to the furthest extent possible, without limiting any of the customer’s consumer law rights).

Key Takeaways

Organising a pricing model for your SaaS and payment terms suitable for your business can require quite a bit of thought. However, it is an important step in the process of making a successful SaaS product. There are various ways to structure your pricing, and some may suit your business better than others. Things that are important to keep in mind are:

  • the frequency of the fees being due;
  • how your client will make payment;
  • how to deal with clients who do not pay;
  • different plan tiers; and
  • cancellation fees and refunds.

If you need assistance setting up a pricing model for your SaaS product, contact LegalVision’s experienced commercial contract lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is a SaaS agreement?

SaaS agreements are for businesses that offer Software as a Service. These agreements should be in place with each customer – which in some cases is a business. SaaS agreements take different forms depending on who your customers are and how your customers access your software.

What is a tiered pricing model?

A tiered pricing model offers different inclusions at each payment level. For example, you may correlate each tier to the number of “authorised users” allowed to use the service at that payment price. Another option may be that the tier is linked to a data limit.

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