TL;DR
- Delve into the future of SaaS with examples of saas pricing models examples that highlight the shift towards usage-based pricing, including industry leaders like AWS, Snowflake, and Twilio.
- Grasp the key advantages of adopting a usage-based pricing model for SaaS businesses, such as enhanced pricing flexibility, lower barriers to entry for customers, and improved customer loyalty.
- Examine specific case studies of SaaS companies that have successfully implemented usage-based pricing, demonstrating its effectiveness in driving growth and customer satisfaction.
- Usage-based pricing is predicted to continue to grow, with 61% of SaaS companies looking to launch consumption-based models.
- Examples like Mailchimp and Clearbit demonstrate the versatility of usage-based pricing across different SaaS applications, not just infrastructure or cloud services.
- Gain insights into how usage-based pricing can significantly impact your SaaS business's growth trajectory by aligning pricing with customer value and usage.
- Explore how Togai's innovative usage-based pricing infrastructure can streamline your pricing strategy, enabling faster business scaling and deeper customer engagement.
Usage-based pricing is making great inroads as the go-to pricing strategy in every industry. More specifically, usage-based pricing is considered the star pricing model of Software as a Service (SaaS) companies. According to OpenView Partners'Â State of Usage-Based Pricing Report, which includes data from nearly 600 participants, 45% of SaaS companies had a UBP model in 2021. This move can be attributed to businesses wanting to ensure that their price is better aligned with the value delivered by their products.
The usage-based pricing trend is predicted to continue to grow. In fact, many SaaS companies (nearly 61%, according to OpenView Partners) are testing or looking to launch consumption-based pricing models in the near future.
Where Can a Consumption-based Pricing Model Be Found?
Usage-based pricing is in all layers of the tech stack, starting first with the infrastructure layer, with companies like AWS and Azure. Today, it has also grown to encompass API-based products and application software, with various API pricing models being implemented.
Image Credits: Kyle Poyar / OpenView
You might think there is a general apprehension that businesses and investors alike might have because customers aren’t locked into a subscription. But the benefits outweigh the disadvantages.
Some benefits of UBP include
- pricing agility and affordability appeal to a wider range of customers.
- minimal commitment from customers
- increased customer satisfaction and higher customer retention
Moreover, investors have witnessed public usage-based companies trading at a 50% revenue multiple premia over their peers with their UBP model. SaaS companies like Snowflake, JFrog, Fastly, Elastic, and Datadog have over 130% net dollar retention. And this adds credibility to the UBP model.
Also, as companies adopt a product-led growth approach, they are further reevaluating their product packaging model and pricing strategy. PeerSignal and XaaS Pricing's study shows 58% of PLG companies use a per-user pricing model while 74% of the PLG companies use a usage-based tiering model. These just prove that usage-based pricing could be the future of pricing.
To further our understanding, let's explore specific examples of companies that have successfully implemented the consumption-based pricing model.
SaaS Usage-Based Pricing Examples
Amazon Web Services (AWS)
AWS has acquired a massive market share primarily because of usage-based pricing. This strategy has been part of the company’s business model since its inception. Amazon offers Free Tier, which lets businesses use a wide variety of services, with certain limitations, for the first year. Additionally, there is an Always Free tier with a limited set of services.
All Amazon services have on-demand pricing. However, discounts are provided in the following cases:
- reserving services for periods of 1 or 3 years
- spare computing capacity by bidding on Amazon’s Spot Instance market
- a commitment to purchase a certain quantity of Amazon resources across your entire organization
It also offers a pricing calculator that allows customers to estimate their monthly bills.
Snowflake
Snowflake Inc. is a cloud computing-based data warehousing platform that offers data storage, processing, and analytic solutions. Their pricing is based on two consumption-based metrics: usage of compute and data storage.
The charge for computing is based on the number of credits used to run queries or perform a service. The pricing rate for credits depends on the edition used: standard, enterprise, or business-critical. Similarly, the charge for storage is based on the number of bytes stored per month and the cost of moving data across regions. The total compressed file size is used to calculate the storage bill for an account.
Also Read: Is Usage-Based Pricing Right for Your Business and Strategies to Successfully Implement It
Azure
Azure has demonstrated tremendous growth from being a consumption-based pricing model for their services like Azure Virtual Machines, Azure Backup, and Azure Logic Apps.
Azure charges for VMs by the minute. Customers pay only for the time that a VM instance is running. The pay-as-you-go model makes the most sense for workloads with unpredictable capacity requirements. It also has two other pricing models. Reserved instances allow customers to pay upfront for a predefined period of VM run time. Then there are spot VMs where customers purchase a fixed amount of computing capacity while availing deep discounts. But they are unable to control when their VM actually runs.
Similarly, Azure Logic Apps uses a graduated tier. Here, the cost per unit goes down with increased consumption.
Stripe
Stripe is a payment infrastructure for businesses to seamlessly accept payments, and send payouts. They use flat-rate, transaction-based fees. The value customers get from the product is derived from their 'per-transaction' pricing, regardless of the size of the transaction, the type of card that’s used, or the network that issued the card. Each customer is charged a ‘per successful card charge’ for the product. This allows a great deal of simplicity for customers.
Twilio
Through Twilio's web service APIs, users can make and receive phone calls, send and receive text messages, and perform other communication functions. Customers at Twilio have the option of paying as they go, getting volume discounts, getting committed use discounts, or a combination of them all. Twilio's SMS product pricing is “per SMS." This captures the value derived by the customers.
Clearbit
Clearbit is an API-based product that helps businesses as a real-time data enrichment platform that provides better market intelligence into prospects. The product integrates with several tools, including Salesforce, G Suite, Outlook, HubSpot, Marketo, Zapier, Segment, and Tray. The pricing is typically determined by how many API requests are made to the API.
Zapier
Zapier is a productivity tool that enables easy workflows by automating repetitive tasks. Zapier offers a free tier with some limitations. Customers can perform up to 100 tasks per month and have up to 5 Zaps active at any given time. It gives customers a taste of how it works and also includes a 14-day trial of premium features.
Since the company operates on team-based plans and larger professionals, it offers usage-based pricing for its top-of-the-line account plans (Zapier Pro, Team, Company, or higher). If customers go over the task limit, they will be charged an overage rate per task. It should be noted that Zapier achieved the $140 million mark in Annual Recurring Revenue earlier in 2022.
Mailchimp
Mailchimp is an email marketing and automation software that helps businesses manage and talk to their customers. It also offers many tools to manage and interact with the audience within its platform.
Various pricing structures are available for the platform's applications, but users can choose to pay as they go. It's a good option for users who send infrequently. For every email sent, it would cost one credit. They can buy email credits as needed.
Mailchimp also offers a free plan that includes up to 500 contacts and 2,500 monthly sends.
Utilize Togai's Usage-based Pricing to Stay Ahead
Usage-based pricing models enable value-based pricing, allowing businesses to easily upsell, maintain a low barrier for adoption, and provide customer satisfaction. As we have seen in the example above, successful companies (the likes of Snowflake and Twilio) operate on the UBP model. They see an increased net revenue retention (NRR) compared to many others.
You can experience gaining a competitive advantage over others in your field with usage-based pricing. With reliable usage-based pricing infrastructure like Togai, your SaaS business can automate your usage-based pricing operations, allowing you to scale your business growth. Togai allows you to experiment with various pricing strategies and adopt what best suits your business. Utilize Togai’s usage-based pricing solution, and tie your success to the success of your customers.
