We are all increasingly aware of the new buzz word of 2021 – ״usage based pricing” – as more and more unicorns (such as Snowflake, Twilio, AWS, Datadog, Stripe, etc) have adopted this model. Usage based pricing means that you pay for what you use, or in other words you pay for the value you get.
This could be based on a variety of metrics such as the number of transactions, the amount of data used, the amount of time (hours) consumed, etc. Sounds like a dream, doesn’t it? – low entry barrier for customers, flexibility to expand as customers grow their product offering combined with never-ending highly granular feedback from customers.
But usage based pricing brings with it some potential pain points that you need to be aware of and that need to be resolved early on:
1. Billing
Billing can be a real issue. In traditional SaaS, you bill once a year / month a fixed amount, while with usage based pricing, you bill the customer monthly for their variable usage. This can be complicated to calculate and can be difficult to demonstrate transparently to your customer.