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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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In the ever-evolving SaaS landscape, pricing models have undergone a significant transformation. Usage-based pricing (UBP) has emerged as a disruptive force, fundamentally changing how companies approach discounting strategies. For SaaS executives accustomed to traditional subscription models, this shift requires a complete rethinking of discount philosophies and practices.
The Traditional Discounting Playbook Is Obsolete
In the subscription world, discounting followed predictable patterns: offer 10-20% for annual commitments, stack on volume discounts for enterprise deals, and perhaps throw in aggressive incentives for multi-year agreements. The math was straightforward—trading immediate revenue for predictability and reduced churn.
But usage-based pricing changes everything.
According to OpenView Partners' 2022 SaaS Benchmarks report, 45% of SaaS companies now employ some form of usage-based pricing, up from just 34% in 2020. This shift is happening because consumption-based models align vendor success directly with customer value realization—but it also creates new complexities in discount strategies.
Why Traditional Discounts Don't Work with Usage-Based Models
When your revenue depends on customer consumption rather than fixed subscriptions, traditional discounting creates several problems:
Revenue uncertainty multiplies: With subscription models, discounting a $100K contract to $80K means you're sacrificing a predictable $20K. With usage-based pricing, you're discounting future consumption you can't accurately predict, potentially leaving far more money on the table.
Incentive misalignment: Deep discounts on per-unit costs can inadvertently encourage inefficient usage patterns, creating a long-term value perception problem.
Forecasting challenges: When consumption varies and unit economics are discounted differently across customers, revenue forecasting becomes exponentially more complex.
As Todd Gardner, former CFO of SaaS Capital, explains: "Usage-based models require completely different financial modeling approaches. Discounting in this environment isn't just about percentage off—it's about designing economic incentives that work for both parties under conditions of uncertainty."
The New Discount Paradigm for Usage-Based Pricing
Forward-thinking SaaS executives are reimagining discounting for the consumption era with these approaches:
Tiered Volume Discounts That Scale Automatically
Rather than negotiating custom discounts, leading UBP companies implement automatic volume-based pricing tiers. As usage increases, the per-unit price naturally decreases. This approach:
- Creates predictability for customers
- Rewards growth without requiring renegotiation
- Preserves margin integrity while still acknowledging volume value
Snowflake exemplifies this approach with their clear volume-based discounting that applies automatically as consumption scales, eliminating the need for difficult discount negotiations with each renewal.
Minimum Commitment Discounts
Instead of discounting the per-unit rate, some UBP companies offer discounts in exchange for minimum spend commitments. According to Paddle's State of SaaS Pricing report, this hybrid approach has grown 32% year-over-year as companies seek to balance flexibility with predictability.
The formula typically follows:
- Standard pay-as-you-go rates for usage
- Discount applied when customer commits to minimum spending thresholds
- Overage charged at the discounted rate
This approach provides the financial predictability of subscriptions while maintaining the customer alignment of usage-based pricing.
Introductory Usage Credits Instead of Discounts
Rather than permanent discounting, leading UBP companies offer time-limited usage credits that:
- Allow customers to experience the full value proposition
- Expire after a set period, reverting to standard pricing
- Focus the conversation on value rather than price
MongoDB has successfully employed this strategy, offering credits that encourage exploration and adoption across their platform rather than negotiating permanent rate reductions.
Consumption Guarantees: The Anti-Discount
Perhaps the most innovative approach is flipping the discount model entirely. Instead of customers seeking discounts, some UBP vendors now offer "consumption guarantees" where they commit to ensuring customers achieve specific usage thresholds—or they pay the difference.
This transforms the conversation from "how much off" to "how much value," aligning both parties around successful product adoption and usage.
Data-Driven Discount Decisions
The sophistication of metered billing systems provides unprecedented insight into usage patterns, allowing for more scientific discount approaches. According to research by Chargify, companies with usage-based pricing that leverage consumption analytics for discount decisions see 23% higher net revenue retention than those using traditional discount methods.
Leading companies now analyze:
- Consumption patterns by customer segment
- Expansion potential based on early usage indicators
- Price elasticity across different features and modules
This data intelligence allows for precision discounting rather than blunt percentage reductions.
Best Practices for Discounting in a Usage-Based World
For SaaS executives navigating this new landscape, consider these guidelines:
Focus on customer economics, not yours: Structure discounts around helping customers achieve positive unit economics with your solution.
Use commitment levels rather than rate reductions: When possible, maintain rate integrity and offer benefits for commitment instead.
Build discount governance early: Variable pricing requires stronger discount controls and clear approval processes to prevent margin erosion.
Create natural expansion paths: The best discount strategy anticipates how customers grow and removes pricing barriers to that expansion.
Train sales on new discount narratives: Sales teams need new language to discuss value-based discounting rather than relying on percentage-off conversations.
The Future of Discounting is Value-Based
As usage-based and consumption pricing models continue gaining adoption, the most successful SaaS companies are those reframing discounting entirely. Rather than seeing discounts as necessary evils to close deals, they're using innovative pricing approaches to align economic incentives between vendor and customer.
The companies winning in this new paradigm focus less on "how much discount" and more on "how to structure pricing that accelerates customer success." This shift represents not just a tactical change in how discounts are calculated, but a strategic reimagining of the vendor-customer relationship.
For SaaS executives, the question isn't whether to adapt discount strategies for usage-based pricing—it's how quickly you can implement these new approaches before your competition does.