.png)
Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
In the highly specialized world of aerospace and defense, software-as-a-service (SaaS) solutions have become critical operational components. However, determining the right pricing strategy for these solutions presents unique challenges. Usage-based pricing (UBP) has gained popularity across many SaaS sectors, but does it truly work for aerospace and defense manufacturers' software needs? Let's explore when this pricing model succeeds and when it might create more problems than solutions.
Understanding Usage-Based Pricing in the Aerospace Context
Usage-based pricing allows aerospace and defense manufacturers to pay for software based on their actual consumption rather than flat subscription rates. This consumption might be measured in various ways: number of simulations run, volume of data processed, number of designs created, or manufacturing processes managed.
According to a 2022 OpenView Partners report, SaaS companies with usage-based models experienced 38% higher revenue growth compared to those with traditional subscription models. However, the aerospace and defense sector has unique considerations that can influence this pricing model's effectiveness.
When Usage-Based Pricing Works for Aerospace and Defense Manufacturers SaaS
1. Variable and Unpredictable Usage Patterns
For manufacturers with cyclical or project-based operations, usage-based pricing aligns costs with actual needs. When designing a new aircraft system or defense component, usage may spike during certain phases and decrease during others.
"For defense contractors working on multiple programs simultaneously but at different stages, usage-based pricing creates immediate cost efficiencies," notes Jane Mitchell, pricing strategist at AeroDynamic Solutions.
2. Value-Based Alignment
Usage-based pricing creates a natural connection between the value delivered and cost incurred. For simulation software that helps identify critical design flaws, the value generated from each simulation justifies the incremental cost.
This value-based pricing approach resonates with aerospace companies seeking clear ROI from their technology investments. When software directly contributes to mission-critical outcomes, paying based on usage makes financial sense.
3. Easier Departmental Adoption
Enterprise pricing structures often require significant upfront commitment. With usage-based models, individual departments can adopt solutions without requiring massive corporate investments or lengthy approval processes.
This flexibility allows innovation teams to test new software capabilities without committing to large enterprise-wide contracts initially.
When Usage-Based Pricing Backfires for Aerospace SaaS
1. Unpredictable Budgeting Challenges
Defense contractors often operate under strict budgetary controls and need predictable expenditures. According to a Deloitte aerospace industry report, 73% of defense contractors cite budget predictability as a primary concern for software investments.
When usage fluctuates significantly, the resulting unpredictable costs can create budgeting nightmares, especially for programs operating under fixed government contracts.
2. Security and Compliance Issues
Aerospace and defense manufacturers operate under stringent security protocols. Some usage-based pricing models require continuous monitoring of usage metrics, potentially creating security vulnerabilities or compliance issues with ITAR and other regulations.
"The constant data exchange required for accurate usage tracking can create security challenges that may outweigh the pricing benefits," explains Colonel (Ret.) Samuel Harris, cybersecurity advisor for defense contractors.
3. Penalizing Success and Scale
As aerospace manufacturers scale their operations or succeed with major contracts, usage-based pricing can inadvertently penalize that success through rapidly escalating costs. This is particularly problematic for software that becomes increasingly critical as operations expand.
One major defense contractor reported switching from usage-based pricing after costs increased 340% following a major government contract award, despite having negotiated volume-based price fences.
Finding the Right Balance: Hybrid Approaches
Many successful aerospace SaaS providers have implemented hybrid pricing models that combine elements of subscription and usage-based approaches. These often include:
Tiered Usage Models
Establishing pricing tiers based on expected usage ranges provides some cost predictability while maintaining the consumption-based principle. This approach works well for PLM (Product Lifecycle Management) and simulation software where usage falls into relatively predictable ranges.
Base Plus Consumption
A fixed base subscription with optional usage-based components for specific features or exceptional usage provides budget stability while allowing for flexibility. This model is increasingly popular for MRO (Maintenance, Repair, and Operations) software in the aerospace sector.
Enterprise Agreements with Usage Rights
Some providers offer enterprise pricing agreements that include generous usage allocations, with overage charges applying only in exceptional circumstances. This approach gives aerospace manufacturers the predictability they need while providing flexibility for unexpected needs.
Key Considerations for Selecting the Right Pricing Metric
When evaluating usage-based pricing for aerospace and defense SaaS, manufacturers should consider:
Alignment with value creation: Does the pricing metric (per simulation, per user, per process) align with how value is actually created?
Budget predictability needs: How important is cost predictability versus optimizing for actual usage?
Security implications: Does usage monitoring create security or compliance risks?
Scalability concerns: How will costs change as operations scale or program phases shift?
Discounting structure: Are volume discounts or other price fences available to prevent cost explosions?
Conclusion: Strategic Pricing Requires Industry-Specific Approach
Usage-based pricing offers compelling advantages for certain aerospace and defense SaaS applications, particularly those with variable usage patterns and clear value metrics. However, it's not universally appropriate for this specialized industry.
The most successful aerospace SaaS providers recognize that pricing strategy must align with the unique operational constraints, security requirements, and budgeting processes of defense contractors and aerospace manufacturers.
By carefully evaluating when usage-based pricing creates value versus when it introduces new problems, both providers and customers can develop pricing approaches that support innovation, predictability, and long-term partnership in this critical industry.