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The right way to overcome the challenges of switching to usage-based pricing
It’s not simply your creativeness — usage-based pricing (UBP) is seemingly in every single place in 2021.
SaaS firms have been ditching conventional subscription pricing in favor of usage-based fashions that higher align with fashionable shopping for habits and the worth delivered by their merchandise. UBP, also referred to as consumption-based pricing, connects how a lot a buyer pays with how a lot they devour a given services or products.
Utilization-based subscriptions is usually a means for SaaS firms to check the feasibility of UBP with no need to utterly change their enterprise mannequin.
Public cloud observability firm New Relic launched its consumption-based pricing mannequin in July 2020. Extra not too long ago the corporate doubled down on the mannequin, deciding to solely pay gross sales reps based mostly on clients’ precise consumption relatively than subscription commitments. The choice seems to be paying off, as New Relic has seen a spurt in each account progress and knowledge retention, two main indicators the corporate tracks intently.
Comparable pricing pivots have been made by startups like Cypress, which launched consumption-based pricing in March 2021; pre-IPO firms like Kong, which introduced a pay-as-you-go pricing tier in Could 2021; and even longstanding firms like 40-year-old Autodesk, which launched pay-as-you-go pricing in September.
In keeping with our State of Utilization-Based mostly Pricing Report, which incorporates knowledge from practically 600 contributors, 45% of SaaS firms had a UBP mannequin in 2021. This determine is up considerably in comparison with 34% in 2020 and 30% in 2019.
The wave gained’t decelerate in 2022
1 / 4 of firms that at present use a UBP mannequin say they launched it inside the final 12 months. This yr’s adoption of UBP exceeds that of each 2019 and 2020 mixed.
In the meantime a majority of the UBP holdouts (61%) say they anticipate to both launch or take a look at usage-based pricing within the close to future. If these developments proceed, UBP will change into the norm, not the exception, as early as 2022.
Subscriptions versus UBP isn’t an either-or choice
The info exhibits that UBP can — and sometimes does — co-exist with conventional subscription pricing. These with a usage-based mannequin are divided equally between those that supply usage-based subscription tiers (23%) and people with a largely usage-based or pay-as-you-go pricing mannequin (23%).