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Inside the rapid rise of usage-based pricing


Kyle Poyar

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How to overcome the challenges of switching to usage-based pricing

It’s not just your imagination — usage-based pricing (UBP) is seemingly everywhere in 2021.
SaaS companies have been ditching traditional subscription pricing in favor of usage-based models that better align with modern buying behavior and the value delivered by their products. UBP, also known as consumption-based pricing, connects how much a customer pays with how much they consume a given product or service.

Usage-based subscriptions can be a way for SaaS companies to test the feasibility of UBP without needing to completely change their business model.

Public cloud observability company New Relic introduced its consumption-based pricing model in July 2020. More recently the company doubled down on the model, deciding to only pay sales reps based on customers’ actual consumption rather than subscription commitments. The decision appears to be paying off, as New Relic has seen a spurt in both account growth and data retention, two leading indicators the company tracks closely.
Similar pricing pivots have been made by startups like Cypress, which introduced consumption-based pricing in March 2021; pre-IPO companies like Kong, which announced a pay-as-you-go pricing tier in May 2021; and even longstanding companies like 40-year-old Autodesk, which introduced pa …

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