1/ Had a CFO of a 100 person SaaS company reach out today for some advice on pricing. Today they sell primarily fixed annual subscriptions. Wanted to know if moving to transactional pricing models made sense or not. Said I was a big fan, here's why.
2/ First, this is where the world is going. Amazon Web Services is getting everyone used to consumption based pricing models.
3/ Second, our research shows usage pricing works. Looking across 900+ companies, we found that companies that use consumption (aka transaction) based pricing see faster growth. ow.ly/r0aA30meLTs
4/ But, there’s a catch — there’s a point of diminishing, even negative returns w/ consumption pricing: Growth stalls out if too much revenue comes from usage-based models. Turns out customers also want predicability of costs.
5/ I personally favor a "tiered plus overage" model, especially for SaaS. Let customers select from a set of tiers that reflect their anticipated usage levels, but encourage them not to overbuy. They can pay overages month to month, or upgrade to a higher tier at any time.
6/ Tiered + overage pricing has the advantage of (i) giving customers choice, (ii) having some level of revenue predictability, (iii) letting you grow with your customers → higher net $ retention (which investors like), & (iv) aligning value to price -- & you with your customer
