TL;DR
- Understanding customer usage patterns is foundational to implementing a SaaS pricing model, guiding the creation of value metrics that reflect the product's worth.
- Collaboration across departments is essential for a seamless transition to usage-based pricing, ensuring alignment on strategy and customer-centric approaches.
- Investment in the right technological tools can make or break the implementation of usage-based pricing, necessitating a focus on automation, flexibility, and scalability.
- When selecting a tool for UBP, prioritize features like diverse data collection capabilities, scalability through automation, and the flexibility to test various pricing models.
- Adopting a platform like Togai can streamline your pricing strategy implementation, reducing time to market and enhancing your ability to manage and analyze customer usage data.
Here's a deep-dive into factors specific to implementing a usage-based pricing strategy and what to look for in a tool that could help you implement UBP.
Usage-based pricing is rapidly becoming the default-go-to-market SaaS pricing model since it aligns particularly well with product-led growth models. Despite all this excitement about usage-based pricing, the implementation of such a strategy needs to be well thought out.
Previously, we had written a blog on how to develop a holistic SaaS pricing strategy. It stands true for implementing a usage-based pricing strategy as well.
Let's quickly recap what was discussed.
Recap
1. Pricing is one of the important growth levers that is often underutilized.
2. The majority of SaaS companies base their pricing based on competition or a cost-plus model. It doesn't take into account the ‘customer’s willingness to pay.’
3. Successful organizations like Netflix and Spotify experiment with different pricing strategies so they can adopt the one that is right for both the company and its customers. This helps them ensure that money isn’t left on the table.
4. But unfortunately, experimenting with pricing comes with certain challenges for businesses. Often, they do not have the right data to make pricing decisions. Neither do they have the technology nor the right team to experiment with pricing.
5. To get started with rethinking how you price your products, here are 4 effective strategies.
6. Understand the usage of your customers. This will help you segment your users based on how they are using your product. Don't hesitate to invest in analytics that help you understand the usage data better.
7. Everything your business does centers around your customers. The same applied to pricing as well. Do not base your decisions on assumptions. Instead, talk to your customers.
8. Form a pricing committee consisting of people from sales, marketing, product, finance, customer success, and management. They should be responsible for making pricing more strategic and aligned with the product value.
9. Bear in mind that pricing is not a set-and-forget kind of process. Regularly revisit your data, understand customer and business demands, and optimize your price.
Now let's delve deep into factors specific to implementing a usage-based pricing strategy and what to look for in a tool that could help you implement UBP.
Implementing a usage-based pricing strategy
Think of aligning pricing with your value metrics
Earlier, we mentioned that you take the time to understand how your customers use your product or service. But why is that important? Because it provides insight into what your value metrics could be. Now, what are value metrics? Essentially, a value metric measures how much value your customers receive. It influences how you price your product.
Here are some examples to consider
- The number of emails sent via an email marketing platform.
- Amount of money invoiced using a billing platform.
- Amount of data transferred to a data warehouse.
- The number of videos uploaded on a video platform
- number of messages sent using a communication application
Patrick Campbell, CEO of ProfitWell cites that value metrics outperform feature differentiation with up to 75% less churn. A good value metric is aligned with the value the customer receives from the product.
Identify which one is yours. It should also be easy for the customer to understand and grows with your customer’s usage of that value. To find your value metrics, always take a data-driven approach.
Ensure all your departments are on the same page
For usage-based pricing to succeed, other departments within your organization must collaborate to support your transition to usage-based pricing. Ensure you are transparent about pricing and that it clearly conveys the value of your products and services. Reconfigure how the sales team be compensated. Sales should take a customer-centric approach. They should think about how each customer can uncover more value by using your solution and uncover new opportunities to upsell. Similarly, your support and success teams should have a strong understanding of how to proactively inform customers about how they can derive more value from the product. Get your finance teams involved in the discussion on how to make pricing easy to understand and contribute to the strategy so, they can account for any unknowns and forecast revenue more accurately
Read More: A Complete Guide to Usage-Based Pricing
Invest in tools to implement UBP
If you don't get your pricing right, there is a good chance you are either losing money or pissing off your customers. Worse, you are doing both. So it requires careful consideration of how you are going to go about it. Are you going to build a system yourself? Or are you going to buy a SaaS tool to handle it?
Buying the right tool offers faster execution time, pre-built integrations, and lower upfront costs. It could also give you flexibility, and depending on the tool, more control over the business logic.
Infrastructure tools can help you collect and convert your raw usage data from multiple sources and provide insights to inform your pricing decisions. It would facilitate automating your pricing operations, thus allowing you to scale effectively. It will help you save time, money, and frankly everyone's energy from scrambling to put it all together by themselves.
Factors to consider before your pricing infrastructure
You should consider and look for the following features as you evaluate platforms:
- Flexibility to collect diverse data.
- Automation to make the implementation more scalable.
- Usage binding to bind usage data to a specific customer.
- Handle current and future use cases.
- Ability to experiment with different pricing models over past usage metrics
- Ability to streamline your business and finance workflows
Ideally, you need a system that can process events, apply aggregations with low- or no-code tools, calculate usage for each customer, and ship an invoice.
Also Read: The Advantages, Drawbacks, and When to Implement Usage-Based Pricing Model
Wrapping Up
If you are keen on implementing UBP, we are here to help. We are a cloud metering and pricing software. You can launch any software pricing model in the shortest time. We facilitate collecting events from multiple data sources and help you track, measure, and compute value metrics for your product. If you are curious and would like to take a look, sign up here. Or you can schedule a demo!
