The rise of Usage-based pricing model
Usage or resource-based pricing enables consumers to pay on the basis of consumption, rather than a fixed monthly or yearly charge that has to be paid in case of a subscription-based billing setup .
The SaaS space has primarily been dominated by the user-based pricing model. However, a number of recent developments in this space indicate a change in consumer preferences. For example:
- Companies with over 25% revenue from usage-based price grew at a rate of 21%, while for one with no such in place, the growth was 19%. 28% YoY growth rate has been in the case of companies that have the usage-based contribution in the 1-50% range.
- The YoY growth rate of companies that have the usage-based pricing component between 1-25% of their revenue is 1.5x higher compared to ones with none, and 1.2x times of companies with 25%+ of revenue comprising of usage.
In a survey of 2,200+ SaaS companies worldwide, that included a mix of seed/pre-revenue stage, expansion, and companies with >$100 million ARR, it was found that 42% of seed-stage participants were on usage-based pricing.
- The usage-based option has proven to be a satisfying experience with over 2/3rd of adopters rating it satisfactory and in fact, 25% as immensely satisfactory.
The above findings clearly indicate the growth in adoption of the usage-based strategy, but it should also be kept in mind that there's no one-size-fits-all model, hence a careful type of it should be selected to price the offerings. These types are -
References: Subscribed Institute, Forrester
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