How Usage-Based Pricing Unlocks Rapid Growth: Stories of Scaling [eBook]
How did Snowflake, a data cloud company, grow to become one of the few cloud-native SaaS companies to reach $1 billion in annual product revenue? Their tremendous success can be attributed to the way they flipped the script on how to build and distribute a software product.
Instead of relying on subscriptions (the standard revenue model in the software world up until recently), Snowflake generated 90% of its revenue by charging on consumption. Does a consumption-based pricing model make revenue forecasting more challenging? The answer: most definitely. But it also enabled Snowflake to scale at a rate nearly unheard of in SaaS—growing 106% year-on-year before hitting the $1 billion annual recurring revenue milestone.
We’re seeing a massive market shift away from seat-based subscription models toward consumption-based pricing models. Following their tremendous success, it’s no surprise that Snowflake has emerged as a role model for building a modern usage-based software company. But they aren’t the only ones. Other SaaS companies leading the charge include Stripe (payments), Twilio (communication APIs), Plaid (fintech APIs), Datadog (cloud monitoring), AWS (cloud computing), Slack (messaging), and Klaviyo (marketing automation), to name just a few.
A new standard for monetization in software
According to OpenView’s State of Usage-Based Pricing report, usage-based pricing (UBP) is slated to become the most popular monetization model in software. It’s gained some serious traction just in the last few years, outperforming seat- and subscription-based peers for several key metrics—these include rapid growth at scale (33.7% vs. 23.2%) and superior net retention rates (125% vs. 115%).
But the transition to a usage-based process isn’t so straightforward. It impacts more than just pricing strategy—it complicates operational practices spanning sales compensation, financial planning, investor communication, and revenue forecasting.
I’m excited to release Stories of Scaling with Usage-Based Pricing, an eBook that shares the stories of how to build and scale a usage-based software company with help from top operators at today’s most forward-thinking companies. This eBook covers every corner of the business impacted by the transition to usage-based, from strategy and pricing, to CS and sales, to finance and operations.
In addition to my own strategies and research, this eBook includes insights from SaaS industry leaders who have successfully led the transition to usage-based in their own businesses, including:
- Datadog’s former VP of finance on growing to $1B ARR using a usage-based pricing model, finding the right metrics to fit your UBP model, managing expectations for predictability, and selling your investors on UBP.
- Algolia’s leadership talks about how they built the most ‘customer-friendly’ pricing ever by focusing on technical product users, increasing access to advanced features, and making pricing more transparent.
- Cypress’s VP of customer success and sales shares wisdom on building a cross-functional pricing implementation team and how early success had existing customers raising their hands to upgrade.
Learn all this and more from the companies who have seen usage-based success and find out how you can implement this model in your own business by downloading Stories of Scaling with Usage-Based Pricing today.
What’s the state of pricing in 2023? Data from our 2023 SaaS Benchmarks report uncovers a few key trends to know heading into the new year. Read the full analysis here.
How can B2B SaaS leaders use pricing to their advantage? Learn more in Paddle’s 2023 State of SaaS Pricing report here.