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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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The Evolution of SaaS Pricing in Oil and Gas
The oil and gas midstream sector is undergoing digital transformation, with specialized SaaS solutions becoming increasingly critical to operations. As these platforms evolve, so too must their pricing strategies. Usage-based pricing (UBP) has gained traction across many SaaS verticals, but does it make sense for midstream oil and gas software?
This question is particularly relevant as midstream operators—those managing the transportation, storage, and wholesale marketing of crude oil and natural gas products—face unique operational challenges and budget constraints.
Understanding Usage-Based Pricing in the Midstream Context
Usage-based pricing allows customers to pay based on their actual consumption of a service rather than a fixed subscription fee. This consumption might be measured in various ways: API calls, data processed, transactions completed, or users onboarded.
For midstream oil and gas SaaS, typical usage metrics might include:
- Volume of data processed (barrels, cubic feet)
- Number of assets monitored
- Throughput tracked
- Transactions processed
- Reports generated
When Usage-Based Pricing Works for Midstream SaaS
1. When Value Scales Directly with Usage
Usage-based pricing works exceptionally well when the value derived from the software correlates strongly with usage volume. For pipeline management software that helps optimize throughput, for instance, the more throughput managed, the more value created.
According to a 2022 report by OpenView Partners, companies that adopt usage-based pricing experience 38% higher revenue growth than their counterparts using traditional pricing models. This growth potential can be particularly valuable in the cyclical midstream market.
2. For Variable Operations with Seasonal Fluctuations
Midstream operations often experience significant variability—seasonal demand changes, market fluctuations, and project-based operations. Software that monitors terminal operations might see usage spikes during peak seasons.
"Usage-based pricing allows midstream operators to scale their software costs up and down with their operations, providing flexibility that traditional subscription models simply can't match," notes David Rogers, energy sector analyst at Deloitte.
3. When Serving Diverse Customer Segments
The midstream sector encompasses companies of vastly different sizes—from major pipeline operators to regional storage facilities. Usage-based pricing with appropriate tiers can make sophisticated software accessible to smaller players while still capturing appropriate value from larger enterprises.
4. For New Market Entry and Adoption
When introducing novel software solutions to the traditionally conservative midstream sector, usage-based pricing can lower the perceived risk and initial commitment, encouraging adoption. This approach allows operators to "test the waters" before making larger commitments.
When Usage-Based Pricing Backfires in Midstream SaaS
1. Unpredictable Revenue for Vendors
The cyclical nature of the energy sector can create significant revenue variability for SaaS providers using pure usage-based models. During industry downturns, usage may drop dramatically, creating financial instability for the software provider.
Research from KeyBanc Capital Markets shows that while usage-based pricing can accelerate growth, it also introduces 30-40% more revenue variability compared to subscription models—a significant consideration for investors and company planning.
2. Budget Unpredictability for Customers
Enterprise customers in the midstream sector typically operate with annual technology budgets. Usage-based pricing without caps or predictable tiers can create forecasting challenges for CTOs and CIOs.
"Our midstream clients consistently report that unpredictable software costs create internal friction between operations and finance teams," explains Sarah Johnson, Oil & Gas Technology Advisor at Accenture. "This often leads to usage restrictions that undermine the software's potential value."
3. When Cost Doesn't Align with Value Perception
If the chosen usage metric doesn't align with how customers perceive value, problems arise. For instance, charging based on data volume might backfire if customers don't directly associate larger data volumes with greater value.
4. Complex Implementations with High Setup Costs
For midstream solutions requiring significant implementation effort, customization, or integration with operational technology (OT) systems, pure usage-based pricing can create misalignment. The vendor incurs substantial upfront costs that may not be recouped if initial usage is low.
Successful Hybrid Approaches for Midstream SaaS
Most successful pricing strategies for oil and gas midstream SaaS employ hybrid models that balance predictability with usage-alignment:
1. Base + Usage Model
A foundation of guaranteed revenue through a base subscription with additional usage-based components for variable consumption. This works well for pipeline monitoring systems with basic monitoring in the base package and advanced analytics charged by usage.
2. Tiered Usage with Predictable Thresholds
Creating usage tiers with clear thresholds allows midstream operators to select appropriate plans based on their anticipated needs, with the option to upgrade as operations expand.
3. Value-Based Pricing with Usage Components
Some advanced midstream SaaS providers are moving toward outcome-based pricing, where fees partially tie to measurable business outcomes like reduced downtime, improved throughput, or compliance success rates.
According to Gartner's research on SaaS pricing trends, "Value-based pricing models that incorporate usage elements show 26% better customer retention rates than pure usage-based models in industrial software applications."
Implementation Best Practices
When implementing usage-based elements in your midstream SaaS pricing strategy:
Choose metrics carefully - Select usage metrics that directly correlate with the value your software provides. For midstream, this might be throughput optimized rather than simply data stored.
Establish price fences - Create clear boundaries between different service tiers to prevent revenue leakage while encouraging upgrades.
Provide usage visibility - Transparent dashboards showing consumption patterns help customers understand and manage their usage.
Consider cost structures - Ensure your pricing reflects your own cost structure—cloud infrastructure, data processing, and support costs.
Plan for enterprise discounting - Design your usage rates with room for enterprise negotiations, as large midstream operators will expect volume-based discounts.
Conclusion: Finding the Right Balance
There's no one-size-fits-all pricing approach for oil and gas midstream SaaS. The ideal strategy depends on your specific solution, customer base, and value proposition.
The most successful midstream SaaS companies create pricing models that align with how their customers create and measure value. By understanding both the operational realities of midstream operations and the economic dynamics of SaaS business models, you can develop pricing that drives adoption while ensuring sustainable growth.
For midstream operators evaluating SaaS solutions, the pricing model should be as important a consideration as the functionality itself—it will ultimately determine whether the partnership creates lasting value for both parties.