Skip to main content
https://www.highperformancecpmgate.com/rgeesizw1?key=a9d7b2ab045c91688419e8e18a006621

Subscription-based pricing is dead: Smart SaaS companies are shifting to usage-based models

Kyle Povar Contributor
Kyle Povar is VP of Growth at OpenView.

Software buying has evolved. The days of executives choosing software for their employees based on IT compatibility or KPIs are gone. Employees now tell their boss what to buy. This is why we’re seeing more and more SaaS companies — Datadog, Twilio, AWS, Snowflake and Stripe, to name a few — find success with a usage-based pricing model.

The usage-based model allows a customer to start at a low cost, while still preserving the ability to monetize a customer over time.

The usage-based model allows a customer to start at a low cost, minimizing friction to getting started while still preserving the ability to monetize a customer over time because the price is directly tied with the value a customer receives. Not limiting the number of users who can access the software, customers are able to find new use cases — which leads to more long-term success and higher lifetime value.

While we aren’t going 100% usage-based overnight, looking at some of the megatrends in software —  automation, AI and APIs — the value of a product normally doesn’t scale with more logins. Usage-based pricing will be the key to successful monetization in the future. Here are four top tips to help companies scale to $100+ million ARR with this model.

1. Land-and-expand is real

Usage-based pricing is in all layers of the tech stack. Though it was pioneered in the infrastructure layer (think: AWS and Azure), it’s becoming increasingly popular for API-based products and application software — across infrastructure, middleware and applications.

API-based products and appliacation software – across infrastructure, middleware and applications.

Image Credits: Kyle Povar / OpenView

Some fear that investors will hate usage-based pricing because customers aren’t locked into a subscription. But, investors actually see it as a sign that customers are seeing value from a product and there’s no shelf-ware.

In fact, investors are increasingly rewarding usage-based companies in the market. Usage-based companies are trading at a 50% revenue multiple premium over their peers.

Investors especially love how the usage-based pricing model pairs with the land-and-expand business model. And of the IPOs over the last three years, seven of the nine that had the best net dollar retention all have a usage-based model. Snowflake in particular is off the charts with a 158% net dollar retention.

Comments

Post a Comment

Popular posts from this blog

Uber co-founder Garrett Camp steps back from board director role

Uber co-founder Garrett Camp is relinquishing his role as a board director and switching to board observer — where he says he’ll focus on product strategy for the ride hailing giant. Camp made the announcement in a short Medium post in which he writes of his decade at Uber: “I’ve learned a lot, and realized that I’m most helpful when focused on product strategy & design, and this is where I’d like to focus going forward.” “I will continue to work with Dara [Khosrowshahi, Uber CEO] and the product and technology leadership teams to brainstorm new ideas, iterate on plans and designs, and continue to innovate at scale,” he adds. “We have a strong and diverse team in place, and I’m confident everyone will navigate well during these turbulent times.” The Canadian billionaire entrepreneur signs off by saying he’s looking forward to helping Uber “brainstorm the next big idea”. Camp hasn’t been short of ideas over his career in tech. He’s the co-founder of the web 2.0 recommendatio
Post a Comment
Read more

Drone crash near kids leads Swiss Post and Matternet to suspend autonomous deliveries

A serious crash by a delivery drone in Switzerland have grounded the fleet and put a partnership on ice. Within a stone’s throw of a school, the incident raised grim possibilities for the possibilities of catastrophic failure of payload-bearing autonomous aerial vehicles. The drones were operated by Matternet as part of a partnership with the Swiss Post (i.e. the postal service), which was using the craft to dispatch lab samples from one medical center for priority cases. As far as potential applications of drone delivery, it’s a home run — but twice now the craft have crashed, first with a soft landing and the second time a very hard one. The first incident, in January, was the result of a GPS hardware error; the drone entered a planned failback state and deployed its emergency parachute, falling slowly to the ground. Measures were taken to improve the GPS systems. The second failure in May, however, led to the drone attempting to deploy its parachute again, only to sever the line
Post a Comment
Read more

How the world’s largest cannabis dispensary avoids social media restrictions

Planet 13 is the world’s largest cannabis dispensary. Located in Las Vegas, blocks off the Strip, the facility is the size of a small Walmart. By design, it’s hard to miss. Planet 13 is upending the dispensary model. It’s big, loud and visitors are encouraged to photograph everything. As part of the cannabis industry, Planet 13 is heavily restricted on the type of content it can publish on Instagram, Facebook and other social media platforms. It’s not allowed to post pictures of buds or vapes on some sites. It can’t talk about pricing or product selection on others.   View this post on Instagram   A post shared by Morgan Celeste SF Blogger (@bayareabeautyblogger) on Jan 25, 2020 at 7:54pm PST Instead, Planet 13 encourages its thousands of visitors to take photos and videos. Starting with the entrance, the facility is full of surprises tailored for the ‘gram. As a business, Planet 13’s social media content is heavily restricted and monito
3 comments
Read more