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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 rapidly evolving oil and gas downstream sector, software-as-a-service (SaaS) solutions have become essential tools for optimizing operations, managing complex supply chains, and driving efficiency. As these technologies become more integrated into core business functions, the question of how to price them becomes increasingly important—both for vendors seeking sustainable growth and customers looking for value-aligned solutions.
Usage-based pricing (UBP) has emerged as a compelling pricing strategy across many SaaS verticals. But does it make sense for oil and gas downstream SaaS providers? When does it create win-win scenarios, and when might it lead to customer dissatisfaction or revenue instability?
Understanding Usage-Based Pricing in the Context of Oil and Gas
Usage-based pricing is a model where customers pay based on their actual consumption of a service. Unlike subscription models with fixed monthly or annual fees, UBP directly ties costs to value received—at least in theory.
For oil and gas downstream SaaS, this could manifest as pricing based on:
- Volume of transactions processed
- Number of barrels monitored or managed
- Data storage utilized
- API calls or computing resources consumed
- Number of assets tracked or optimized
According to OpenView Partners' 2022 SaaS Pricing Survey, companies with usage-based pricing models grew at a 29% higher rate than their counterparts using traditional pricing strategies. But does this advantage translate to the unique environment of oil and gas downstream operations?
When Usage-Based Pricing Works for Oil and Gas Downstream SaaS
1. When Value Creation is Directly Linked to Usage
Usage-based pricing excels when there's a clear correlation between software usage and value creation. For example, a terminal management system that optimizes loading/unloading operations might charge based on throughput volume, as the value scales proportionally with the amount of product handled.
2. When Customer Segments Have Vastly Different Needs
The downstream sector encompasses everything from massive integrated refiners to specialized regional distributors. With such diverse customer profiles, a one-size-fits-all pricing approach often fails to address varying needs.
"Usage-based pricing allows smaller players to adopt enterprise-grade solutions that would otherwise be financially out of reach," notes a McKinsey report on digital transformation in energy. This democratization effect can significantly expand the addressable market for SaaS providers.
3. When Aligning with Industry Cyclicality Makes Sense
The oil and gas industry is notoriously cyclical, with dramatic swings in activity levels. Usage-based pricing can align software costs with business activity, allowing customers to scale costs down during downturns—a particularly valuable feature for downstream operators dealing with volatile margins.
4. When Promoting Product Adoption is a Priority
For new SaaS solutions entering the traditionally conservative downstream market, lowering barriers to adoption can be crucial. Usage-based models with low entry costs but scalable pricing can encourage initial adoption while preserving long-term revenue potential.
When Usage-Based Pricing Backfires in Oil and Gas Downstream SaaS
1. When It Creates Budgetary Uncertainty
While flexibility sounds appealing, many downstream operations run on carefully planned annual budgets. According to a survey by Deloitte, 78% of oil and gas finance executives cite "predictable technology costs" as important or very important in their digital transformation initiatives.
Unpredictable month-to-month costs from usage spikes can create significant challenges for financial planning—potentially leading to customer dissatisfaction or restricted usage.
2. When Usage Metrics Don't Reflect True Value
If your pricing metric doesn't align with actual value delivery, you risk creating perverse incentives. For instance, pricing based solely on data storage might discourage customers from uploading comprehensive asset data—ultimately reducing the software's effectiveness and customer satisfaction.
3. When Enterprise Customers Demand Predictability
Large downstream enterprises often prefer the certainty of enterprise pricing agreements with predetermined costs, especially for mission-critical software. These organizations may view the variability of usage-based models as an unnecessary risk rather than a benefit.
A PwC study found that 65% of oil majors prefer fixed-term contracts for digital services to variable pricing models, primarily citing budgetary predictability as the driving factor.
4. When Implementation Creates Excessive Complexity
Implementing usage-based pricing requires sophisticated metering, billing, and reporting systems. For downstream applications with complex deployment environments (potentially spanning on-premises and cloud infrastructure), accurate usage tracking can become technically challenging and expensive to implement.
Finding the Right Balance: Hybrid Pricing Approaches
Rather than viewing pricing approaches as binary choices, successful oil and gas downstream SaaS providers often implement hybrid models that incorporate elements of both usage-based and subscription pricing:
Tiered Usage with Predictable Bands
This approach maintains predictability while acknowledging different usage levels. For example, a refinery planning solution might offer tiered pricing based on production capacity ranges, avoiding bill shock while still scaling with customer size.
Base Subscription + Usage Components
A common hybrid model includes a base subscription covering essential features with usage-based components for specific high-value functions. This provides predictable core costs while allowing for scaled value in specific areas.
Value-Based Pricing with Usage Elements
Some innovative downstream SaaS providers are moving toward outcome-based pricing tied to specific value metrics (like percentage yield improvement or maintenance cost reduction) while using usage metrics as a component of the overall pricing formula.
Best Practices for Implementing Usage-Based Pricing in Oil and Gas Downstream SaaS
If you're considering implementing or optimizing a usage-based pricing strategy for your downstream SaaS solution, consider these best practices:
1. Select Value-Aligned Pricing Metrics
Choose pricing metrics that directly correlate with the value your software delivers. For a terminal management system, this might be throughput volume; for a trading and risk management platform, it might be transaction volume.
2. Implement Clear Price Fences
Price fences—rules that determine which customers qualify for which pricing—are essential for preventing revenue erosion through discounting while maintaining flexibility. These might include volume commitments, contract terms, or feature access levels.
3. Offer Consumption Visibility and Controls
Provide customers with dashboards showing current usage and projected costs, along with controls to manage and limit consumption if needed. This transparency builds trust and helps prevent "bill shock."
4. Consider Industry-Specific Factors
Oil and gas downstream operations have unique characteristics that should inform pricing strategy:
- Seasonal and cyclical demand patterns
- High compliance and reliability requirements
- Long investment cycles and ROI timeframes
- Varying scales of operation
5. Build in Predictability Mechanisms
Even within usage-based models, incorporate elements of predictability through mechanisms like:
- Annual usage commitments with discounted rates
- Rolling average usage calculations
- Capped usage fees
- "Rollover" of unused capacity
Conclusion: The Future of Oil and Gas Downstream SaaS Pricing
The optimal pricing strategy for oil and gas downstream SaaS isn't universal—it depends on your specific solution, target customers, and value proposition. Usage-based pricing offers compelling advantages in certain scenarios but can create significant challenges in others.
As the industry continues its digital transformation journey, we're likely to see further evolution toward sophisticated hybrid pricing models that balance flexibility with predictability. These models acknowledge the complex realities of downstream operations while creating sustainable relationships between vendors and customers.
The most successful SaaS providers in this space will view pricing not as a static decision but as an ongoing strategic process requiring regular evaluation and refinement based on customer feedback, market conditions, and evolving value propositions.
For downstream oil and gas companies evaluating SaaS solutions, understanding the implications of different pricing models is equally important—ensuring that technology investments deliver maximum value while remaining aligned with operational and financial realities.