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Estd 4.22.2023
The Evolution of SaaS Pricing in Manufacturing
The manufacturing sector is undergoing a profound digital transformation. As industrial companies increasingly adopt software solutions to optimize operations, the pricing models for these solutions are evolving in tandem. Traditional perpetual licensing with large upfront fees is giving way to more flexible Software-as-a-Service (SaaS) models, with usage-based pricing emerging as a particularly compelling option for industrial applications.
According to a recent OpenView Partners report, the percentage of SaaS companies utilizing usage-based pricing has nearly doubled since 2018, rising from 23% to 45% in 2022. This pricing evolution is now making significant inroads in manufacturing—a sector that has historically been cautious about adopting new business models.
Understanding Usage-Based Pricing in Manufacturing SaaS
Unlike flat subscription fees, usage-based pricing (sometimes called consumption-based pricing) allows manufacturers to pay based on their actual consumption of a software service. This might be measured by:
- Production volume: Fees tied to units produced using the software
- Machine hours: Pricing based on the runtime of connected equipment
- Data processing volume: Costs aligned with the amount of sensor data processed
- User actions: Charges per specific operation performed in the system
- Resource consumption: Billing tied to computational resources utilized
This approach represents a fundamental shift from fixed, predictable costs to a more dynamic model that scales with actual value delivery.
The Business Case for Usage-Based Models in Industrial Settings
1. Alignment with Production Economics
For manufacturers, production volumes and resource utilization fluctuate based on market demand, seasonal factors, and broader economic conditions. According to McKinsey's research on manufacturing resilience, 94% of manufacturing companies experienced production disruptions during the pandemic.
Usage-based pricing creates natural alignment between software costs and production economics. When production decreases, software expenses decrease proportionally. This risk-sharing approach is particularly valuable in industries with cyclical demand patterns or volatile market conditions.
2. Democratizing Access to Industrial Software
The traditional high-cost enterprise software model has limited access to digital transformation tools, particularly for small and mid-sized manufacturers. A 2021 Deloitte survey found that while 76% of manufacturers believe digital transformation is critical for future success, only 20% of small manufacturers had implemented advanced manufacturing technologies.
Usage-based models lower the barrier to entry by:
- Eliminating large upfront investments
- Starting with costs scaled to current operations
- Growing expenses only alongside business growth
- Reducing implementation risk
This democratization of industrial software access may accelerate the overall digital transformation of manufacturing, benefiting the entire ecosystem.
3. Creating Vendor Accountability
Usage-based pricing fundamentally changes the vendor-customer relationship. As PTC's CEO Jim Heppelmann noted in a recent manufacturing conference, "When your revenue is directly tied to customers actively using your product, you're inherently motivated to ensure they extract maximum value from it."
This accountability drives:
- More attentive customer success management
- Continuous product improvement focused on actual usage patterns
- Higher-quality implementation support
- Stronger focus on user adoption and training
Real-World Applications and Case Studies
Predictive Maintenance Platforms
Companies like Augury and Senseye have pioneered usage-based pricing for predictive maintenance. Rather than charging flat subscription fees, they price based on the number of assets monitored and the volume of sensor data processed.
A major food producer implementing Augury's solution reported not only a 60% reduction in unplanned downtime but also appreciated how the pricing structure allowed them to start with monitoring just their most critical equipment before gradually expanding coverage as ROI was proven.
Production Planning Optimization
Factory operations platforms like Tulip and Parsable are implementing hybrid pricing models. While they maintain a base subscription fee, a significant portion of their pricing is tied to the volume of production orders processed or the number of workflows executed.
An automotive parts supplier utilizing Tulip's platform started with digitizing just three production processes, paying minimal fees while proving the concept. As they experienced a 32% productivity improvement, they progressively expanded to additional production lines, with software costs scaling in direct proportion to the expanding implementation.
Quality Management Systems
QMS providers like ETQ and MasterControl have introduced usage-based elements to their pricing, tying costs to the number of quality events processed, audit activities conducted, or compliance documents managed.
A medical device manufacturer implementing ETQ's solution recently shared how the usage-based approach allowed them to implement robust quality management processes across different business units at different paces, with costs scaling appropriately for each unit's implementation depth.
Implementation Challenges and Solutions
Despite its benefits, usage-based pricing introduces several challenges for manufacturing SaaS providers and their customers:
1. Metering Complexity and Transparency
Manufacturing environments involve complex, interconnected systems, making usage metering potentially complicated. Leading providers are addressing this by:
- Implementing transparent dashboards showing real-time usage metrics
- Providing usage forecasting tools
- Setting usage caps to prevent billing surprises
- Offering hybrid models with baseline subscriptions plus usage components
2. Budgeting Unpredictability
Finance departments traditionally prefer predictable expenses. According to a CFO survey by Deloitte, 65% of manufacturing finance leaders cite budgeting predictability as a major concern with consumption-based models.
Successful implementations mitigate this by:
- Providing detailed usage analytics and forecasting tools
- Offering "committed use" discounts for projected usage levels
- Creating hybrid models with baseline subscription components
- Implementing graduated pricing tiers that soften the impact of usage spikes
3. Technical Implementation Requirements
Usage-based billing systems require robust usage tracking capabilities integrated into the software platform. This technical requirement has been a barrier for some industrial software providers with legacy architectures.
Modern industrial SaaS platforms are addressing this by building metering capabilities directly into their core architecture or partnering with specialized billing platforms like Chargebee, Recurly or Chargify that now offer manufacturing-specific usage metering capabilities.
Future Trends in Manufacturing SaaS Pricing
The evolution of usage-based pricing in manufacturing software is likely to continue with several emerging trends:
Outcome-Based Pricing
Perhaps the most promising frontier is the shift from measuring usage to measuring outcomes. Rather than charging for software usage metrics, some providers are beginning to tie pricing directly to the business results achieved:
- Yield improvement percentages
- Downtime reduction metrics
- Quality improvement measurements
- Energy efficiency gains
Enterprise software provider SAP recently piloted an outcome-based pricing model for its manufacturing execution system, where a portion of fees was tied directly to measured OEE (Overall Equipment Effectiveness) improvements.
AI-Driven Dynamic Pricing
As manufacturing software increasingly incorporates artificial intelligence, pricing models are becoming more sophisticated. AI can analyze usage patterns, predict future needs, and dynamically adjust pricing to optimize value for both vendor and customer.
GE Digital's Predix platform is pioneering this approach, using AI to analyze actual value creation from the software and adjusting pricing models accordingly for each customer's unique usage profile.
Industry-Specific Usage Metrics
Rather than generic usage measures, manufacturing software is increasingly adopting industry-specific metrics that better reflect value creation in particular manufacturing contexts:
- Automotive: Price per vehicle produced
- Pharmaceuticals: Cost per batch manufactured
- Consumer packaged goods: Fee per case packed
- Process manufacturing: Charge per production hour
Conclusion: The Strategic Imperative for Modern Manufacturing
Usage-based pricing represents more than just a financial innovation—it's a strategic alignment between software providers and manufacturers that can accelerate digital transformation across the industrial landscape.
While implementation challenges remain, the trend toward usage-based and outcome-based pricing models appears irreversible. As Gartner noted in its recent manufacturing technology outlook, by 2025, more than 60% of new manufacturing software implementations are expected to incorporate some form of consumption-based pricing.
For manufacturing executives evaluating software investments, understanding these pricing evolutions is becoming a critical competency. The most successful digital transformations will likely involve thoughtfully structured usage-based agreements that align vendor success with tangible operational improvements, creating true partnerships rather than traditional vendor-customer relationships.
As industrial software continues its rapid evolution, those manufacturers who master the strategic implications of these new pricing models may gain significant competitive advantages in operational agility, financial flexibility, and pace of innovation.