How can your company implement a usage-based business model like AWS

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From 300+ services that Amazon Web Services (AWS) has released over the years, none of them needed to be rolled back due to the wrong price.

This is no coincidence.

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Usage Based Pricing (UBP) provides very high levels of revenue growth and product adoption. Any cloud-based company can (and should) adopt a usage-based pricing model based on best practices and platforms that optimize the value delivered to the customer.

For several years, I worked as a General Manager at AWS, where I personally oversaw Amazon CloudSearch and some of its connected services as they grew to over a billion dollars in revenue thanks to a usage-based pricing model. Later, when we launched Amazon OpenSearch, the same model drove its huge success and adoption.

The usage-based model is the only one that makes sense in the cloud. Given the elastic nature of the underlying infrastructure, everything on top should be just as flexible, including pricing. Below, I’ll outline seven steps to get you started with a usage-based pricing model for your business.

The single most important reason the dimension exists as a standalone artifact is that it is specifically designed to track usage.

Step 1: Implement usage accounting

Many companies make the mistake of starting with a pricing model and then trying to get back to measuring usage.

This is the wrong approach. The first step should be to measure all of your technological artifacts. If you’re building a startup from the ground up, implementing accounting from the start will give you a huge advantage.

Knowing who uses what, when, where, and how much will help you gain valuable insights across functional groups and teams and make pricing much easier.

Looking for a specialized measurement service

Don’t fall into the trap of measuring (instrumenting usage) only those items that your billing plan dictates. Holistically measure your technology stack. You should think about measurement first and then move on to pricing and billing rather than going back to measurement from pricing and billing.

Here is a good way to digest it:

Let’s say you know you want to charge for API calls and you start by looking at a tiered pricing model for API calls by quantity. Moving back from that to measurement, you will come to the conclusion that you need to measure the number of API calls.

Compare this with the measure-ahead approach. First, you decide that you need to use tool API calls because this is one of the main features of your customers’ interaction with your product. Then you ask yourself what is the holistic way to use the API call tool?

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