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Contained in the speedy rise of usage-based pricing

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Kyle Poyar is a associate at OpenView.

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It’s not simply your creativeness — usage-based pricing (UBP) is seemingly in every single place in 2021.

SaaS corporations have been ditching conventional subscription pricing in favor of usage-based fashions that higher align with trendy shopping for conduct 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 corporations to check the feasibility of UBP while not having to fully 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 fairly than subscription commitments. The choice seems to be paying off, as New Relic has seen a spurt in each account development and information retention, two main indicators the corporate tracks intently.

Related pricing pivots have been made by startups like Cypress, which launched consumption-based pricing in March 2021; pre-IPO corporations like Kong, which introduced a pay-as-you-go pricing tier in Might 2021; and even longstanding corporations like 40-year-old Autodesk, which launched pay-as-you-go pricing in September.

Based on our State of Utilization-Based mostly Pricing Report, which incorporates information from almost 600 individuals, 45% of SaaS corporations had a UBP mannequin in 2021. This determine is up considerably in comparison with 34% in 2020 and 30% in 2019.

Graph depicting rise of usage-based pricing adoption 2018-2023

Picture Credit: OpenView Companions

The wave received’t decelerate in 2022

1 / 4 of corporations that at the moment use a UBP mannequin say they launched it throughout 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 count on to both launch or take a look at usage-based pricing within the close to future. If these traits proceed, UBP will turn out to be the norm, not the exception, as early as 2022.

Subscriptions versus UBP isn’t an either-or determination

The info reveals 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%).

Graph showing adoption of usage-based pricing alongside subscription and no usage based pricing

Picture Credit: OpenView Companions

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