SaaS Pricing Models: Freemium, Per-Seat, and Usage-Based

Pricing is the most consequential product decision most SaaS founders make — and the one they spend the least time on. A wrong pricing model doesn't just cap revenue; it attracts the wrong customers, inflates churn, and breaks your unit economics before you ever hit product-market fit.

This guide compares the three dominant SaaS pricing models — freemium, per-seat, and usage-based — with concrete criteria for choosing the right one at the right stage.

Why Pricing Model Matters More Than Price

The number you charge matters less than the structure around it. Price is what customers pay; pricing model is how they relate to your product economically. A per-seat model aligns incentives with team adoption. A usage-based model aligns with value delivery. Freemium aligns with viral distribution.

Get the structure wrong and no amount of discounting fixes it.

Freemium: When Free Is a Distribution Strategy

Freemium gives users a permanent free tier with limited features or usage caps. It's not a trial — it's a business model.

When Freemium Works

• Viral loops: Users invite other users, creating self-sustaining growth.
• Individual-first value: The product delivers value before team/org buy-in is needed.
• Low CAC: Organic and PLG motions keep acquisition costs low enough that conversion economics work.
• Network effects: More users make the product more valuable for everyone.

When Freemium Fails

• Sales-led enterprise: High-touch enterprise deals can't be funded by free-user infrastructure costs.
• No upgrade trigger: The free tier is "good enough" forever and users never hit a natural paywall.
• Top-down purchasing: When the CTO or VP decides what software teams use, individual champions don't convert.

Most SaaS products convert 2–5% of free users to paid. If your model depends on higher conversion, revisit the tier design first.

Per-Seat Pricing: Predictable, Scalable, Honest

Per-seat pricing charges a fixed monthly fee per user. It's the most common B2B SaaS model because it's intuitive to buyers and predictable for sellers.

When Per-Seat Works

• Team tools: Value scales with number of users — CRM, project management, HR platforms.
• Headcount thinking: Enterprise buyers think in headcount; per-seat maps to how they budget.
• Predictable MRR: Seat-based contracts make revenue forecasting reliable.
• Expansion revenue: Natural upsell path — as teams grow, seats grow.

When Per-Seat Fails

• Value doesn't scale with users: An analytics platform used by 2 analysts but generating value for 1,000 customers is mis-priced per-seat.
• Seat minimization: Customers buy minimum seats and share logins, limiting your expansion revenue.

Common mistake: Setting seat price too low early. Raising it later is painful. Start at a price that feels slightly uncomfortable and discount during sales as needed.

Usage-Based Pricing: Align Cost With Value

Usage-based pricing charges based on consumption — API calls, compute hours, rows processed, messages sent, documents generated. Pioneered by infrastructure companies, it's increasingly common in application-layer SaaS.

When Usage-Based Works

• Natural value unit: Your product has a clear unit of output that correlates with customer value.
• Low barrier to start: Customers can start small and grow without committing to a large contract upfront.
• Developer-focused: Engineering teams prefer pay-as-you-go over fixed commitments.

When Usage-Based Fails

• Bill shock: Unpredictable invoices create anxiety and churn.
• Revenue unpredictability: Hard to forecast; makes planning and fundraising harder.
• Usage minimization: Customers actively reduce consumption to control costs, hurting engagement.

Best practice: Hybrid UBP — a fixed platform fee plus usage overage — gives buyers cost certainty while preserving your revenue upside.

Side-by-Side Comparison

Dimension	Freemium	Per-Seat	Usage-Based
Revenue predictability	Low	High	Medium
Viral potential	High	Low	Medium
Enterprise fit	Medium	High	Medium
Expansion revenue path	Feature upgrades	Seat additions	Usage growth
Infrastructure risk	High (free users cost money)	Low	Variable
Best for	PLG, individual virality	CRM, HR, team tools	APIs, infra, data tools

Hybrid Models: When One Isn't Enough

Most mature SaaS companies layer multiple models:

• Freemium + per-seat: Free individual plan, paid team plan (Figma, Notion).
• Per-seat + usage: Base seat fee plus storage/compute overage charges.
• Freemium + usage-based: Free tier up to N units, pay per unit above threshold.

The risk with hybrid models is complexity. Customers who can't quickly estimate their bill hesitate to commit. Simplicity in pricing is an underrated conversion lever.

Choosing Your Model: A Decision Framework

Step 1: Define your value metric. What does your customer get more of as they use your product more? More users adopting → per-seat. More outputs generated → usage-based. Network effects from adoption → freemium.

Step 2: Validate with willingness-to-pay research. Talk to 20 customers. Ask: "What would a 10x price increase make you question?" and "What if it were free — what would still make you leave?" The answers reveal actual value perception.

Step 3: Check unit economics. Can you deliver the free tier profitably at scale? Does per-seat price cover CAC within 12 months? Does usage-based revenue stay margin-positive for high-volume customers?

When to Change Pricing Models

Signs you've outgrown your current model:

• High usage, low revenue: Usage-based rate set too low or value metric misaligned.
• High-seat contracts, few active users: Per-seat misaligned with actual value extraction.
• Freemium users never upgrade: Wrong upgrade trigger or free tier is too generous.

When changing models: grandfather existing customers, run parallel models for different segments, or introduce the new model for new customers only. Avoid retroactive changes without significant notice.

For SaaS billing infrastructure — Stripe subscriptions, trial logic, dunning, proration, and upgrade flows — see our guide on Stripe Subscription Setup for SaaS Developers. For the full product architecture context, read How to Scale Your SaaS Product from MVP to Enterprise.

FAQs

What is the most common SaaS pricing model?

Per-seat (per-user) pricing is the most common model for B2B SaaS. It's predictable for sellers, intuitive for buyers, and scales naturally with team growth — making it the default for CRM, HR, project management, and most team collaboration tools.

Is freemium the right pricing model for B2B SaaS?

Freemium works for B2B products with strong individual virality and low infrastructure cost per free user. It struggles when the sales motion is top-down enterprise, when procurement teams require formal contracts, or when free-user infrastructure costs erode margins before conversion.

What is usage-based pricing in SaaS?

Usage-based pricing charges customers based on their actual consumption of a defined unit — API calls, transactions, compute hours, or generated outputs — rather than a fixed monthly fee per user. It aligns revenue with value delivered and lowers the barrier to entry for new customers.

Can you combine multiple SaaS pricing models?

Yes. Hybrid models are common in mature SaaS: freemium + per-seat (Figma, Notion), per-seat + usage overage (HubSpot), or freemium + usage-based (OpenAI API). The trade-off is pricing complexity versus capturing a broader range of customer value.