Why is Usage Based Pricing (UBP) so popular these days? Should I change my product's pricing to UBP?

Question

Christy Roach · Accepted Answer

1. Usage Based Pricing is popular for many reasons. I don’t have the exact answer but my hunch is that there are more and more products built to be use by broader swaths of users than there used to be. In this world, a software bill can often get bloated with folks who signed up or got added to a software system once, but never logged in again. Having usage based pricing ensures folks are only being charged for the users that actually get value from their product. This helps customers get over the fear that they’ll be paying for folks who don’t use the software and makes them more likely to add more users to the tool. It’s attractive for customers who are good at keeping active usage high as they’ll often see a high NDR (net-dollar retention) from customers expanding their usage. It can be risky, however, if your company sees inconsistent active usage from your base.
 2. I’d say switching pricing determines on how folks use your product and what your priorities are (cost per user versus volume of users).

Daniel Kish · Answer

The short answer is: think really hard about your buyer.

Usage-based pricing makes a huge amount of sense for small teams who want to experiment.

Hence why you see startups moving fast with dev on AWS or engineers coding on Twilio.

What do most UBP products have in common? The thing you're counting is easy to understand and scales with value. That's why you see so many CIOs loving UBP (remember that advice about the buyer?!).

Counting data, integration points, servers, storage, compute, etc. is pretty easy for those teams.

You know who it's super tough for? A VP of Sales. Not many of them want to count the # of opportunities in their Salesforce instance. What they do like to count are people in their org. That's a big reason why Salesforce charges per user.

Often I'll see lots of creativity around usage (# of emails! # of workflows (huh?)! # of API calls).

These can work great! Just remember that if your buyer can't count it easily it's unlikely to be effective.

So ask them!

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