
Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.
In today's evolving SaaS landscape, usage-based pricing (UBP) has emerged as a powerful alternative to traditional subscription models. Companies like Snowflake, Twilio, and AWS have demonstrated how this consumption-driven approach can accelerate growth and improve customer alignment. However, one significant challenge remains: how do you effectively compensate your sales team when revenue depends on future customer usage rather than upfront commitments?
This shift requires a fundamental rethinking of sales compensation strategies. Let's explore how forward-thinking SaaS executives can design compensation plans that motivate sales teams while supporting the unique dynamics of usage-based pricing models.
Traditional SaaS compensation models are built around annual contract values (ACVs) and predictable subscription revenue. Sales representatives secure commitments upfront, making it straightforward to calculate commissions at the time of sale.
Usage-based pricing introduces a different paradigm:
According to OpenView Partners' 2022 SaaS Benchmarks report, companies with usage-based models report 38% higher net dollar retention compared to their subscription-only counterparts. This demonstrates the long-term value potential, but creates a challenging disconnect for sales compensation.
The most successful UBP compensation plans provide sales representatives with both:
Kyle Poyar, Partner at OpenView, notes: "The best usage-based compensation plans create a sense of ownership, where representatives benefit from customer success long after the initial deal closes."
While usage can't be guaranteed, effective usage-based sales teams still establish expectations:
These elements provide the anchors needed to build meaningful compensation structures.
In usage-based models, the line between sales and customer success blurs significantly. Compensation should reflect this reality:
How it works: Sales representatives are compensated primarily on negotiated minimum commitments, with smaller incentives for exceeding those thresholds.
Example structure:
Best for: Organizations transitioning from subscription models or those selling to enterprise customers who prefer predictable budgeting.
Datadog employs a version of this approach, according to former sales leaders, providing significant upfront compensation while maintaining alignment with long-term customer value.
How it works: Sales teams forecast expected first-year consumption and are compensated against achievement of these projections.
Example structure:
Best for: Companies with predictable usage patterns and reliable forecasting methodologies.
How it works: This forward-looking model ties compensation to projected multi-year customer value.
Example structure:
Best for: Mature usage-based companies with sufficient historical data to make reliable lifetime value projections.
Snowflake reportedly uses elements of this approach, with sales compensation factoring in expected long-term account value beyond initial commitments.
How it works: Compensation is tied to specific implementation and usage milestones rather than purely financial metrics.
Example structure:
Best for: Complex technical products with longer implementation cycles and multiple potential expansion paths.
If you're shifting from subscription to usage-based pricing, consider these transition approaches:
Successful UBP compensation requires robust data infrastructure:
Usage-based models often benefit from specialized sales roles:
Traditional sales metrics like ACV and CAC don't fully capture the dynamics of usage-based pricing. Consider adding these key performance indicators:
According to Bessemer Venture Partners, elite usage-based companies see new customers reach projected steady-state consumption within 12 months, while average performers take 24+ months. This metric directly impacts sales compensation effectiveness.
Creating effective sales compensation for usage-based pricing requires balancing immediate incentives with long-term alignment. The most successful models create a sense of "customer partnership" where sales representatives' financial outcomes are directly tied to customer success and ongoing value realization.
As you design your approach, remember these key principles:
By thoughtfully designing compensation that supports your usage-based pricing strategy, you can create a powerful advantage in customer alignment, revenue growth, and sales team effectiveness.
Join companies like Zoom, DocuSign, and Twilio using our systematic pricing approach to increase revenue by 12-40% year-over-year.