12 Traditional seat-based subscriptions are much more predictable than consumption-based business models. No surprise there. Customer consumption will always be a variable input. That’s why you need to reinvent the way you think about revenue to succeed with usage- based pricing. CONSUMPTION MODEL LEARNINGS With consumption, Financial Planning & Analysis (FP&A) teams must include multiple factors in revenue forecasting, ranging from the impact of factors such as seasonality, to the potential for customer onboarding to scale at a different rate than expected. And that’s not even taking into account the broader economic and geopolitical environments. Here are some consumption model learnings to heed so you can better plan for financial variability (and be aware of your potential blind spots): • New customers’ usage may vary wildly. Adoption of your solution depends on many technical and organizational factors that may be out of your control. The sales rep should be tracking these factors and working with the customer to smooth out this process, but it’s smart to assume a large degree of variation in the early days. • Customer usage does not follow a straight line. Every customer is unique, which means each customer will engage with your solution in a different way. This variability is seen in everything from ramp times to usage patterns. Even customers in the same industry with similar sizes, use cases, and technology stacks may consume in entirely different ways. • Systematic and unsystematic factors drive usage trends. It’s worth repeating: usage is a variable input, which means usage trends are going to be impacted by some things you can predict with data and some factors that are less foreseeable. You need to account for environmental changes, upcoming product improvements, and on-the- ground information about anticipated shifts in customer behavior that may not be evident in the data-driven usage history. • Contract sizing is an art, not a science. You should use historical data and insights to inform contract sizing, but it’s important to remember that this data is only one input. Solicit input from sales reps and sales leaders to adjust sizing based on the unique aspects of each customer. Depending on the product, front-end sales engineers will be especially instrumental in helping customers size their current and future usage. • Increased efficiencies and product optimizations may offset increases in customer usage. You have an obligation to continuously optimize your technology—customers expect no less. While it may sound counterintuitive at first, product improvements will likely have a negative impact on revenue as customers derive added benefit from your ongoing R&D. This may result in a short- term drop in customer credit consumption, even as customer usage stays the same or increases. Plan for this future variability and make ongoing adjustments to your forecasts. Be sure to keep your pricing metric and discounting practices in check, and ensure that your sales team is fluid in these benefits as part of the value-sale process. RETHINK YOUR REVENUE PLAYBOOK CHAMPION GUIDES