Inside the rapid rise of usage-based pricing

DMCA / Correction Notice
- Advertisement -


This is not right Your imagination – usage-based pricing (UBP) seems to be everywhere in 2021.

- Advertisement -

SaaS companies are abandoning traditional subscription pricing in favor of usage-based models that better align with modern shopping behavior and the value delivered by their products. UBP, also known as consumption-based pricing, relates how much a customer pays to consume a product or service.

Usage-based subscriptions can be a way for SaaS companies to test the viability of UBP without needing to completely change their business model.

Public cloud observability company New Relic introduced its consumption-based pricing model in July 2020. Recently the company doubled down on the model, deciding to only pay sales reps based on customers’ actual consumption rather than subscription commitments. The decision appears to have paid off, as New Relic has seen an uptick in both account growth and data retention, two key indicators the company tracks closely.

advertisement

Similar pricing has been created by startups like Cypress, which introduced consumption-based pricing in March 2021; pre-IPO companies such as Kong, which announced a pay-as-you-go pricing tier in May 2021; And even older companies like 40-year-old Autodesk, which introduced pay-as-you-go pricing in September.

according to our Usage status-based pricing reports, which includes data from about 600 participants, 45% of SaaS companies had a UBP model in 2021. This figure is significantly higher compared to 34% in 2020 and 30% in 2019.

- Advertisement -

image credit: Open View Partners

The wave won’t slow down in 2022

A quarter of companies currently using the UBP model say they have introduced it in the past 12 months. The adoption of UBP this year exceeds the combined acceptance of both 2019 and 2020.

Meanwhile most UBP holdouts (61%) say they expect to either launch or test usage-based pricing in the near future. If these trends continue, UBP will become the norm by early 2022, not the exception.

Membership vs UBP is not an either decision

The data shows that UBP can – and often does – coexist with traditional subscription pricing. Those with a usage-based model are split evenly between those with usage-based subscription tiers (23%) and those with a largely usage-based or pay-as-you-go pricing model (23%) offer.

Graph adopting usage-based pricing alongside subscriptions and showing no usage-based pricing

image credit: Open View Partners

- Advertisement -

Stay on top - Get the daily news in your inbox

Recent Articles

Related Stories