4 CONSUMPTION IS KING: WHY THE FUTURE OF PRICING IS USAGE-BASED SaaS companies have relied on subscription- based pricing for more than a decade. Subscriptions are a popular way to sell SaaS solutions because transactions are relatively uncomplicated. Customers can budget for the purchase, and SaaS providers can forecast revenue with a high degree of precision. However, today’s customers are tired of shelfware. They don’t want to waste money on seats that go unused or pay upfront for solutions that may suffer from poor adoption. Usage is variable by nature, challenging to predict, and represents an unknown value-to-cost ratio. Customers prefer a try-before-you- buy approach and paying for exactly what they use. Any SaaS provider that uses modern cloud and data architectures should rejoice at this shift in customer preferences. Most cloud and data services charge based on consumption, leaving SaaS providers exposed if they don’t align the metrics for how they pay for their delivery costs with the pricing they offer their customers. It’s not hard to imagine what happens if an active customer uses more data and cloud services than is covered by a fixed subscription price. This lack of alignment can cripple startups and eat into revenues for established companies.. Remarkably, both SaaS providers and customers benefit from the cost alignment built into consumption-based (or usage-based) pricing. For providers, it represents the best way to launch and sell a sustainable solution. Usage models eliminate a lot of friction found in the sales process. Target customers don’t have to make a huge financial commitment in order to try out your product. As a result, the usual objections in the sales process are moot, replaced by discussions around the best use cases for deploying your offering. For customers, it encourages organizations of all sizes to experience the solution without risk, thanks to a low-entry price point. No one is concerned about purchasing oversized subscription packages to meet occasional peak demand periods. And every target customer loves to hear that they don’t need to do anything during a lull in usage (other than pay less). The beauty of a well-designed consumption pricing model is that it shifts cost control to the customer and provides them with maximum flexibility. Often, these factors lead to an increase in usage and the addition of use cases as value is discovered. CHAMPION GUIDES