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Data for subscriptions podcast - Episode #14

Are You Mature Enough for Usage-Based Pricing?

Guest

Stephan Liozu

Stephan Liozu
Co-Founder & Chief Monetization Officer, Pricing for the Planet

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Episode description

Are You Mature Enough for Usage-Based Pricing?

Host Behdad Banian and Stefan Liozu, Co-Founder & Chief Monetization Officer of Pricing for the Planet, discusses usage-based pricing, its benefits, challenges, and future trends. Stefan presents a five-step maturity model for its implementation, highlighting complexity and data quality concerns. He emphasizes the importance of having the right data and adaptable billing systems. The conversation also explored the potential for a hybrid pricing model, particularly in B2B SaaS companies. Finance teams’ involvement and customer research were stressed, concluding with the rising importance of usage-based pricing and the need for customer-centric approaches.

Highlights

Do you see a difference when it comes to consumption-based pricing between B2B versus B2C?

We’ve been using usage-based models for a long time in B2C. B2B now is starting to take off, and the reason for that is the amount of competition in the software space. And many companies are investing in the SaaS model, and they realize that, gee, I have 20 competitors that are doing the same subscription, so I need to kind of change that. And there are a lot of pushbacks from customers in B2B, so it’s not at the level of B2C, but it’s coming. It’s increasing steadily.

You want to be able to provide as many (consumption and pricing) options as possible because that might be the best way to cater for all of your customers’ needs. The challenge then is that for every new metric that you introduce, it’s a significant increase of complexity. Is that the case?

I would say every jump in the maturity model is a significant jump. You may have a group of sophisticated customers that want multi-metric usage, and they want to only pay clearly for what they use. But you may also have a group of customers that are price buyers where you would just do a flat subscription. As you get into good-better-best, and you get into different bundles and functional bundles. The complexity is you multiply the complexity tenfold because now you manage multiple models, some of them usage-based, some of them subscription or transactional-based. And now everybody in your IT team and your accounting team is going Poof!

I like a quote that I actually have in front of me now that I picked up from you – “Billing systems need to adapt to innovative pricing models, not the other way around.” What do you mean by that?

Usually, as you evolve in your pricing maturity, you started with a very simple billing system and maybe you’ve upgraded to a more advanced one. There are billing systems that are excellent for subscription and level-one or two of the maturity model. But when you get into the multi-metric and into level four, it’s not appropriate.

So you would take a company that requires a bunch of other companies and they put them together and trying to solve the usage-based formula, but it’s not well-integrated and you have a lot of connectors and APIs depending on where you are on the maturity model. And we didn’t even talk about level five, which is the metaverse cybersecured Web3 type of token multi-metric. So this is an advanced billing system because you really need to have blockchain capability to do digital wallets and advanced payments. So not every billing system is going to be able to go to the higher-level maturity. And a bit of my frustration is they all claim that they do consumption pricing or usage-based pricing, but which one?