In 2000, Salesforce disrupted the software space by implementing usage-based pricing. Instead of the traditional flat-rate subscription model, they offered access to their software by charging customers on a per-user, per-month basis. But did you know this wasn’t the earliest instance of usage billing? Michelin too offered usage pricing all the way back in the 1920s.
Are Traditional Subscriptions Dead?
Usage-based pricing is here to stay
- It has blurred the lines for many SaaS companies who are looking to build out effective pricing models
- The task of choosing price metrics that reflect the value experienced by your customer is daunting
- When implementing it, it could be as simple as metered billing to a multi-attribute, events-based model
Level 3: Datadog employs usage galore with multiple usage-based pricing models
Price points include hosts, containers, custom metrics, devices, serverless functions, and an AWS Fargate task.
- What makes their pricing unique is that they charge some of their services using high watermark plans (HWMP).
- They charge based on the eighth highest measurement recorded.
Events-Based Billing
Takes usage-based billing to another level by attributing your pricing metrics on real-time events happening within your application
- Benefits vastly outstrip those of a pure consumption-based pricing model
- The event data which SaaS businesses are already collecting provides the agility to iterate pricing based on the changing needs of the market
Level 1: Mailgun charges per unit
Mailgun offers 4 tiers of usage-based pricing: Flex, Foundation, Growth, and Scale
- Each plan is defined by the amount of emails sent per month with overage buckets to support excess emails without jumping tiers
- The lowest tier offers just the basics while the higher tiers offer more features
Preparing for the Next Evolution in Pricing & Billing
For SaaS companies who have implemented usage-based pricing, the journey toward effective implementation of Events-Based Billing is halfway complete
- Chargify is the only billing and subscription management provider to offer an out-of-the-box events-based billing solution
Snowflake prices based on more than 1 variable
They charge customers based on 2 usage-based attributes: storage space and processing units consumed.
- This model allows Snowflake to keep their services simple, cost-effective, and price-efficient without missing out on the complexity needed to cover their own operating costs.
