Usage-based pricing has grown in popularity across the software stack. Consumption models are poised to capture outsized gains during expansionary periods, but what happens when the tide turns?
It doesn't need to be an either/or situation. Use a base fee with a certain amount of included usage, then charge for overage usage. At renewal time, adjust the base fee up or down depending on actual usage at that time - with or without headroom for growth.
Very interesting breakdown of the business model. Subscription models protect / reduce downside but also limit upside (if no overages); however, depending on the customer base this might make sense. For instance SMB customers are wary of not ending up with large bills that are over budget due to going over their tier.
Recently wrote about how every company business model is converging to X-as-a-Service. It's definitely an interesting time for software.
These are usage based billing models...not usage based pricing models. Pricing is static at the SKU level and customers are billed (or burn down a commitment) based on the mix of SKUs they use and how much they use.
It doesn't need to be an either/or situation. Use a base fee with a certain amount of included usage, then charge for overage usage. At renewal time, adjust the base fee up or down depending on actual usage at that time - with or without headroom for growth.
Very interesting breakdown of the business model. Subscription models protect / reduce downside but also limit upside (if no overages); however, depending on the customer base this might make sense. For instance SMB customers are wary of not ending up with large bills that are over budget due to going over their tier.
Recently wrote about how every company business model is converging to X-as-a-Service. It's definitely an interesting time for software.
https://brandanatomy101.substack.com/p/is-every-company-becoming-a-software
These are usage based billing models...not usage based pricing models. Pricing is static at the SKU level and customers are billed (or burn down a commitment) based on the mix of SKUs they use and how much they use.