Pricing intelligence · reference
SaaS pricing glossary
SaaS pricing has its own vocabulary, and most of it is built to make a quote sound simpler than it is. This glossary defines the 63 terms you meet most often when comparing tools, reading a contract, or sitting down to negotiate a renewal. Each entry keeps the definition plain and adds a worked example so you can use the term, not just recognise it.
- Active user billing (MAU/DAU)
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Charges based on users who actually used the product in a period, measured as monthly or daily active users.
Example: A tool billing per MAU charges for the 120 people who logged in this month, not the 400 with accounts.
- Add-on (module)
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An optional paid feature or capability sold on top of the base plan, priced separately.
Example: Advanced reporting offered as a $5/seat add-on raises a $20 base seat to $25.
- Anchoring
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Presenting a high number first so every later price feels reasonable by comparison. A reason to know list and net price before talking.
Example: Quoting the Enterprise price first makes the Pro price feel like a bargain by anchoring.
- Annual billing discount
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A lower effective price for paying a year upfront instead of month to month, commonly around two months free.
Example: A $10/month plan offered at $100/year gives two months free for paying annually.
- Annual commitment
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A promise to pay for a set quantity for a full year, usually in exchange for a lower unit price than month-to-month.
Example: Committing to 50 seats for the year might cut the per-seat price 20% versus paying monthly.
- Annual contract value (ACV)
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The recurring revenue a single contract represents over one year, excluding one-off fees like setup or services.
Example: A $2,000/month subscription on a one-year deal has an ACV of $24,000, even if you pay it in monthly instalments.
- Annual recurring revenue (ARR)
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The normalised value of recurring subscriptions over a year. Vendors track it as their core growth metric, and it shapes how badly they want your renewal.
Example: A vendor with 500 customers each paying $24,000/year reports $12M ARR.
- Auto-renewal
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A clause that renews your contract automatically unless you give notice within a set window, often 30 to 90 days before the end date.
Example: Miss the 60-day notice window and the contract rolls over for another year at the new rate.
- Bundling
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Packaging several products or features together for one price, which can save money or can hide the cost of parts you do not need.
Example: A suite bundling docs, chat, and storage may be cheaper than buying all three, or pricier if you only want one.
- Co-terming
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Aligning multiple subscriptions or add-ons to share one end date, so everything renews and is negotiated together.
Example: Co-terming three add-ons bought at different times onto one anniversary date simplifies the renewal.
- Concurrent user pricing
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Bills for the number of users active at the same time rather than the total number of accounts. Cheaper for teams that take turns.
Example: A 5 concurrent-user license lets 30 occasional staff share access as long as no more than 5 are online at once.
- Consumption-based pricing
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Another name for usage-based pricing, common in infrastructure and data tools where the meter is compute, rows, or credits.
Example: A data warehouse billing per credit consumed costs nothing on an idle day and spikes during a heavy query run.
- Contract term
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How long you are committed, typically one, two, or three years. Longer terms buy lower prices but reduce your ability to walk away.
Example: A three-year term locks a good rate but also locks you in if the tool stops fitting in year two.
- Cost per employee
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Total SaaS spend divided by headcount, a benchmark for whether your software budget is in a normal range.
Example: A 200-person company spending $2.4M/year on SaaS runs $12,000 per employee.
- Cost per seat
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Total spend on a tool divided by the number of seats. The honest per-seat number once fees and unused seats are counted.
Example: Paying $12,000/year for 50 seats but using 30 means your real cost per used seat is $400, not $240.
- Cross-sell
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Selling a different product or module alongside the one you already buy.
Example: A help-desk vendor selling you its separate chat product is cross-selling.
- Custom quote
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A price built for your specific seat count, term, and feature mix rather than taken from a public table. Always negotiable.
Example: A custom quote for 250 seats over three years will look nothing like six times the 40-seat list price.
- Data egress fee
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A charge for moving your own data out of a service, most common with cloud and storage providers.
Example: Migrating 10 TB out of a provider that charges per GB egress can cost hundreds of dollars just to leave.
- Decoy pricing
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Adding a deliberately unattractive option to make a target plan look like the obvious value choice.
Example: A barely-cheaper middle tier exists mainly to make the top tier feel worth it.
- Discount
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A reduction from list price, usually quoted as a percentage. Larger discounts typically require longer terms or bigger commitments.
Example: Vendors often trade a deeper discount for a multi-year term or an upfront annual payment.
- Enterprise tier ("Contact sales")
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The top package with no public price, requiring a sales conversation. It bundles security, support, and admin features teams often need at scale.
Example: A "Contact sales" tier hides the price so the quote can flex to your size and urgency.
- Evergreen clause
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Contract language that makes auto-renewal indefinite, renewing term after term until you actively cancel in the notice window.
Example: An evergreen annual deal keeps renewing every year on its own until you send written notice.
- Expansion revenue
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Extra revenue a vendor earns from an existing customer through more seats, higher tiers, or add-ons.
Example: Your team doubling its seat count is expansion revenue for the vendor.
- Feature gating
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Reserving specific capabilities for higher tiers or paid add-ons to push buyers up the price ladder.
Example: Putting audit logs behind the Enterprise tier is feature gating, even when the feature costs little to provide.
- Flat-rate pricing
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One fixed price for the whole product, with no per-seat or per-usage variable. Predictable, but it can overcharge small teams.
Example: A project tool at $99/month flat costs the same for a team of 3 or 30.
- Floor price
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The lowest price a vendor's sales team is allowed to approve without escalation. Knowing it sets a realistic negotiation target.
Example: If reps can discount to 30% but no further without a manager, that 30% is the practical floor.
- Free trial
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Time-limited full or near-full access, after which the account converts to paid or downgrades. Unlike freemium, it expires.
Example: A 14-day trial that asks for a card up front auto-charges on day 15 unless you cancel.
- Freemium
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A permanently free tier with capped features or limits, designed to convert a share of free users into paying ones over time.
Example: A free plan limited to 3 projects nudges growing teams onto the paid tier once they hit the cap.
- Grandfathering
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Letting existing customers keep an old plan or price after the vendor changes or retires it for new buyers.
Example: A team on a discontinued $10 legacy plan that keeps paying $10 has been grandfathered in.
- Implementation fee
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A one-time charge for setup, onboarding, or data migration, separate from the recurring subscription.
Example: A $10,000 implementation fee on a $24,000/year deal is a real part of year-one cost.
- License utilization
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The share of purchased seats that are actually active. Low utilization is the cue to cut seats at renewal.
Example: 30 active users on 50 purchased seats is 60% utilization, a clear case to drop 15 seats.
- List price
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The published, undiscounted price. It is the starting point for negotiation, not the price most committed buyers actually pay.
Example: The website shows $30/seat list, but a 50-seat annual deal might close at $22.
- Metered API pricing
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Billing per API call or per unit of API output, where cost rises directly with how much your integration calls the service.
Example: An API at $0.50 per 1,000 requests costs $500 in a month your app makes a million calls.
- Monthly recurring revenue (MRR)
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The recurring subscription revenue billed in a month. ARR divided by twelve, used for shorter billing cycles.
Example: Ten customers on $500/month plans generate $5,000 MRR.
- Named user pricing
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Each license is tied to one specific person and cannot be shared or rotated between people.
Example: Under named-user terms you cannot have two part-timers share one login to save a seat.
- Net price
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What you actually pay after discounts are applied to the list price. The number that belongs in your budget.
Example: A 25% discount off a $30 list price gives a net price of $22.50 per seat.
- Net revenue retention (NRR)
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A vendor metric for how much existing-customer revenue grows or shrinks over a year after upgrades, downgrades, and churn. High NRR means strong upsell pressure on you.
Example: An NRR of 120% means existing accounts paid 20% more this year, often through seat growth and upsells.
- Onboarding fee
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A one-time charge for getting your team set up and trained, sometimes negotiable or waived on larger deals.
Example: A $3,000 onboarding fee can often be waived when you commit to an annual term.
- Overage
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Extra charges when you exceed an included allowance of usage, seats, or storage. Often priced higher per unit than the base plan.
Example: A plan including 100,000 API calls that charges $2 per extra 1,000 adds $200 in a month you make 200,000 calls.
- Per-seat pricing
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A model that charges a fixed price for each named user account, regardless of how heavily each one uses the product.
Example: At $15 per seat, a 40-person team pays $600/month whether everyone logs in daily or not.
- Per-user pricing
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Often used interchangeably with per-seat, but some vendors bill per active user rather than per provisioned account, so the bill tracks real usage.
Example: If billing counts monthly active users, a seat that nobody opened that month is not charged.
- Pilot
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A limited paid or free rollout to one team or use case, used to prove value before buying for the whole organisation.
Example: Running a pilot with the support team first gives you internal evidence before expanding company-wide.
- Price protection
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A contract term that locks your unit price for a defined period so it cannot rise mid-term or at the next renewal.
Example: A two-year price-lock keeps your per-seat rate flat even if list prices climb.
- Professional services
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Paid help with configuration, integration, or training, usually billed per hour or as a fixed package.
Example: Buying 40 hours of professional services to integrate the tool with your CRM is a separate line item.
- Proof of concept (POC)
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A short, scoped evaluation to confirm the product solves your problem before you commit budget. Usually free or credited back.
Example: A two-week POC on your real data settles whether the tool actually fits before a 12-month signature.
- Proration
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Charging or crediting a partial amount when you add or remove seats partway through a billing period.
Example: Adding a seat halfway through the month is prorated to roughly half that month's seat price.
- Ramp deal
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A multi-year contract where committed quantity and price step up over time, matching spend to expected adoption.
Example: A ramp might commit to 20 seats in year one, 40 in year two, and 60 in year three at a blended rate.
- Renewal uplift
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The price increase applied at renewal. Capping it in the original contract is one of the highest-value things a buyer can negotiate.
Example: A contract with a 5% uplift cap protects you from a 25% jump at renewal.
- Seat (license)
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One user's right to access the product. Counted as provisioned accounts in most per-seat models, whether or not the person is active.
Example: Buying 50 seats means 50 people can be invited, not that 50 people are using it.
- Seat minimum
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A floor on how many seats you must buy, even if your team is smaller. A common way vendors raise the effective entry price.
Example: A 10-seat minimum at $20/seat costs a 4-person team $200/month for six seats it will not use.
- Service-level agreement (SLA)
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A contractual promise on uptime or support response, often with credits owed to you if the vendor misses it.
Example: A 99.9% uptime SLA allows roughly 43 minutes of downtime a month before service credits apply.
- Shelfware
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Licenses or tools you pay for but barely use. One of the largest sources of recoverable SaaS waste.
Example: Buying 100 seats and activating 60 leaves 40 seats of shelfware on every invoice.
- SSO tax
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The practice of locking single sign-on behind the most expensive tier, forcing a large upgrade for a basic security feature.
Example: Needing SSO can mean jumping from a $15 plan to a $40 Enterprise plan just to satisfy IT policy.
- Tiered pricing
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Several named packages (often labelled something like Starter, Pro, Enterprise) that bundle different feature sets and limits at rising prices.
Example: Moving from Pro to Enterprise to unlock SSO can double the per-seat price even though seat count is unchanged.
- Total contract value (TCV)
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Everything a contract is worth across its full term, including recurring fees plus one-time charges such as implementation.
Example: A three-year deal at $24,000/year with a $10,000 setup fee has a TCV of $82,000.
- Total cost of ownership (TCO)
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The full cost of a tool over its life, including subscription, setup, integration, training, and admin time, not just the sticker price.
Example: A $20/seat tool with heavy onboarding can have a higher TCO than a $30/seat tool that runs itself.
- True-up
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A periodic reconciliation where the vendor bills you for any seats or usage added above your committed amount during the term.
Example: If you committed to 50 seats but averaged 60, the annual true-up invoices the extra 10.
- Upsell
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Moving a customer to a more expensive tier or larger plan of the same product.
Example: A nudge to upgrade from Pro to Enterprise for advanced permissions is an upsell.
- Usage-based pricing
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Charges scale with a metered unit such as API calls, events, storage, or messages sent, rather than with a headcount.
Example: An email API that bills $1 per 1,000 sends charges $300 in a month you send 300,000 emails.
- Vendor lock-in
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When switching away becomes costly or hard because of data formats, integrations, or contract terms, weakening your leverage.
Example: A tool that makes exporting your data slow and lossy is building lock-in that hurts you at renewal.
- Volume discount
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A lower per-unit price that kicks in as you buy more seats or usage, rewarding scale.
Example: Per-seat price might drop from $25 at 10 seats to $18 at 100 seats.
Put the terms to work
Once the vocabulary is clear, run the numbers and read the playbooks: Compare billing models · Cost calculators · Buyer guides · Full pricing index.