The notion of a one-size-fits-all pricing model is becoming increasingly obsolete. Every company evolves at a different pace and scale, necessitating tailored pricing strategies to meet its unique needs and ability to achieve go-to-market goals. Just as no two companies grow in the exact same way, their revenue streams, customer bases and market demands also differ significantly.
Adopting a flexible pricing model and a culture of testing and iterating can provide the agility needed to cater to diverse customer segments and drive sustainable growth. Approaching pricing in this manner can increase customer satisfaction by aligning costs with usage and value, and offer a competitive edge by accommodating the varying stages of a company’s lifecycle.
The Future of Pricing is Flexible
Often, founders are so obsessed with product fit that they forget about pricing. I’d argue that we need to be obsessed with both and develop product and pricing in parallel.
Today, more nuanced and flexible hybrid strategies are challenging the traditional pricing approach. This shift is driven by consumer demand and the need for companies to monetize every aspect of their businesses. The ultimate payoff is when a customer wants to pay to have your product in their lives.
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Adapting to changing markets requires a flexible pricing strategy. Despite tempting headlines like “subscription pricing is dead” or “the future is usage-based,” remember that buzzwords like “customer-centric” and “fair pricing” might not fit your unique business and customers. You’re the expert on your business; understanding your customers’ needs is crucial.
The best litmus test of pricing is your customers. Stay informed on market trends, be prepared to adjust your pricing model, and incorporate flexibility into your decision-making process by testing and using the right tools. Base your strategies on genuine customer feedback and data analysis.
While value-based pricing is always a good idea, it’s not synonymous with usage-based pricing. A good example is seat-based pricing, which has proven successful for many businesses, including some AI companies. Usage-based billing (UBB) is often seen as a proxy for value pricing, but there are scenarios where UBB can interfere with the perception of value.
When evaluating pricing, think about the use case. For example, many software-to-user-based businesses would fit well into a seat-based pricing model that has the flexibility to introduce hybrid pricing with overages for additional seats as needed, versus adopting a pure usage-based model. For example, take an AI writing tool that is seat-based. If the pricing was changed to usage-based, users would be confined by a set number of outputs, which would be counterintuitive and discourage usage and product adoption.
In a software-to-software relationship, a usage-based model may be more beneficial. Always consider your goals and how you monetize based on that. Risks of usage-based billing can include:
- Loss of predictability: Revenue forecasting and cash flow become more challenging and inconsistent.
- Increased complexity: While the idea of paying for what you use resonates with customers, the specifics of usage can increase complexity, especially for new customers.
- Tracking difficulties: Accurate usage tracking, aligned with customer expectations, is essential for billing and downstream activities.
- Customer cost uncertainty: If revenue prediction is hard for you, predicting costs will be equally hard for customers.
- Potential expense: At scale, UBB pricing models can become increasingly expensive.
- Customer usage reduction: Customers might limit their usage to avoid higher costs, which can impact value perception.
- Human factor: If your SaaS end users are humans, UBB might not be the best model compared to services measured by data transfer or API calls.
Final Thoughts: Pricing is Iterative
The future of pricing is not about choosing between licensing, tier-based or usage-based models. It is about a healthy mix of these pricing models. A flexible pricing strategy can help SaaS companies become sustainable businesses that reach their profit potential. Your pricing strategy is not static. It should evolve as your business does.
By combining recurring fees with usage-based elements, you can ensure revenue predictability while monetizing the value delivered. This approach satisfies early adopters with a lower barrier to entry and long-term customers with consistent, scalable pricing.
Embrace flexible pricing to increase revenue predictability, improve margin structures and position your business for sustainable growth.
Ariela Bitran is Chargebee‘s Monetization Strategy Director. She is an expert in pricing and packaging strategy and has 10 years of experience driving topline growth in B2B settings across various industries.
