How Your Top 10% of Customers Could Account for 70% of Revenue
Flat-rate subscriptions are a good way to deliver recurring revenue and attract new customers, but they don’t allow companies to truly scale. This is why so many subscription and SaaS companies have moved to usage-based pricing. When they offer usage-based pricing, their revenue grows as usage grows.
And when companies make this switch? Some of them discover that a small percentage of their customers account for a large percentage of their revenue. Usage-based pricing helped them turn some of their flat-rate or tiered subscription customers into their most profitable customers.
Let’s look at how one SaaS company has achieved incredible growth from usage-based pricing.
Twilio soars high with cloud-based communications
Twilio, a cloud communications specialist, offers a simple pricing structure on their website: “Only pay for what you use.” Twilio provides a communications platform-as-a-service (CPaaS) that helps companies bring their physical contact centers into the cloud using its APIs.
The company enables its customers to connect with their own customers through channels such as voice, messaging, video and email. Twilio’s customers pay each time they use the service. For example, Lyft uses Twilio’s service to enable interactions between its drivers and users, while Airbnb uses Twilio to send automated messages between hosts and guests.
Most of Twilio’s revenue comes from its top customers.
With more than 200,000 active customers, Twilio has a staggeringly big portfolio. And yet, most of Twilio’s revenue comes from its top customers. Just seven of them spend more than $10 million per year, while 142 pay more than $1 million, according to OpenView. Twilio’s usage-based pricing strategy continues to bring big results, with revenue up 48% year over year in the first quarter of 2022.
The business communications platform Slack is another example of a SaaS company taking the 70/10 rule even further. With 77% of Fortune 100 companies using its Slack Connect service, Slack earns 46% of its revenue from a mere 0.8% of its customers. Its top 1% accounts for nearly half its earnings.
Regardless of the ratio, the bottom line is that usage-based pricing helps companies develop the true revenue potential of their customers’ usage.
Moving from flat-rate subscriptions to usage
Our CEO, Andreas Zartmann, sums up the move from flat-rate subscriptions to usage rather well: “It’s a better model to just use things as you want to use them and pay exactly for what you use. That’s a better customer experience and that’s driving the change.”
The change, however, is not always easy. When enterprises move to usage-based business models, the volume and complexity of data generated can increase dramatically. Data can be lost, revenue can leak, and the standard of services can stall. That’s because tracking, orchestrating and transforming raw usage data into billable information is an incredibly complex task. Most billing systems can’t handle this.
DigitalRoute has 20 years of experience in helping companies transform their businesses with usage-based pricing. We’ve collected what we’ve learned in an ebook: Your guide to moving to a usage-based business model. Download it to get insights on:
- How to choose the right usage-based pricing.
- What’s involved in turning usage data into revenue.
- The risks of not getting it right, such as revenue leakage and churn.
DigitalRoute has 20 years of experience in helping companies transform their businesses with usage-based pricing.
We’ve collected what we’ve learned in an ebook:
In the guide, you will get insights on:
• How to choose the right usage-based pricing.
• What’s involved in turning usage data into revenue.
• The risks of not getting it right, such as revenue leakage and churn.
You can also learn more about how we enable consumption-based business modelsor get in touch with us now if you have any questions!
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