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Estd 4.22.2023
Pricing is not just a number with “$” on a page. It is one of the most powerful growth levers in SaaS. Yet, many high-growth SaaS startups fail to revisit their pricing models, leading to stalled revenue, customer confusion, and missed opportunities.
As businesses scale, what once worked stops working. A pricing model that drove initial traction can later become a bottleneck, limiting expansion, discouraging adoption, or misaligning with customer value.
In this blog, we dive into five real-world pricing transformations, companies that faced pricing challenges, made bold changes, and saw measurable impact. Whether it’s shifting from subscription to consumption-based pricing (New Relic & Splunk), transitioning from legacy licensing to cloud subscriptions (SAP), or restructuring to encourage expansion (HubSpot & Mailchimp), each story offers tactical lessons for SaaS leaders.
Each case study follows a structured breakdown:
- Company Background
- Why They Changed
- The Transformation Process
- Impact and Results
- Lessons Learned
Let’s start with New Relic…
1. New Relic: From Subscription to Consumption-Based Pricing
Company Background
New Relic is a cloud observability platform (APM, logging, infrastructure monitoring, etc.) launched in 2008 by Lew Cirne. It scaled rapidly, reaching an IPO in 2014. For years, New Relic’s pricing followed a traditional subscription model: customers paid based on the number of hosts or instances monitored, and each product in the suite was sold à la carte. This meant if a customer used New Relic for APM and wanted to add another feature (like logs or infrastructure monitoring), they had to pay for it as a separate SKU. The per host, per product pricing worked in the early years but became increasingly complex as New Relic’s portfolio expanded to 13+ SKUs.. By 2019, cracks appeared—both in customer adoption and the company’s financial trajectory.
Why They Changed
By 2019, New Relic hit a growth wall. A weak Q1 FY2020 earnings call led to a 29% stock drop in a single day. Internally, the team identified the pricing model as a key problem:
- Limited adoption – Charging per host discouraged customers from monitoring all their infrastructure (as founder Lew Cirne put it, “like buying health insurance for two of your three kids and hoping the sick one is covered”).
- Complex sales motion – Selling 13 separate products made sales unnecessarily difficult.
- Misalignment with customer value – Competitors using usage-based pricing were gaining traction.
To unlock growth, New Relic needed a radical pricing transformation.
The Transformation Process
In July 2020, New Relic undertook its biggest pricing overhaul, repositioning itself as a unified observability platform (New Relic One) and launching a new pricing model. Key steps included:
- Simplifying Packaging – They collapsed 13 products into one platform with just two pricing metrics:
- Data ingestion ($0.25/GB)
- User seats
This replaced the confusing à la carte model, making pricing transparent and scalable.
- Introducing a Free Tier – A generous perpetual free plan (100 GB of data per month + 1 full-access user) encouraged product-led growth.
- Shifting to Consumption-Based Pricing – New Relic replaced annual host-based subscriptions with usage-based billing (monthly or annual commit for discounts). This required:
- Overhauling billing systems
- Reworking sales incentives – Traditional sales reps, accustomed to large upfront deals, struggled with the new model. Many left, and New Relic hired reps who thrived in a land-and-expand, customer success-driven approach.
- Change Management – The shift impacted every function:
- product had to unify the platform
- marketing had to re-message value
- sales had to be retrained
- finance had to adjust to new metrics
To prevent customer backlash, New Relic grandfathered existing customers into the new model gradually, ensuring they didn’t face sudden price hikes.
Impact and Results
In the short term, ARR growth dipped, as removing artificial usage limits meant customers got more value at the same spend. However, key leading indicators turned positive:
- Increased account growth – More customers signed up, thanks to the simplified pricing and free tier.
- Higher adoption – Customers used the platform more deeply, leading to greater data ingestion.
- Lower churn – Price was no longer a blocker, improving retention and stickiness.
By 2021, New Relic became one of the first public SaaS companies to fully transition from subscription to consumption pricing. The company culture shifted:
- Instead of focusing on contract renewals, sales teams helped customers expand usage, since that drove revenue.
- Investor confidence rebounded, with the company demonstrating growth in both accounts and data volume, laying the foundation for long-term ARR expansion.
Lessons Learned
New Relic’s transformation underscores several key lessons for SaaS pricing strategy:
- Align Price with Customer Value – If pricing discourages full product usage, it’s broken. New Relic’s switch from per-host to data-based pricing removed artificial constraints and aligned pricing with customer success.
- Big Bets Drive Big Outcomes – Radical changes may be necessary to unlock growth. New Relic didn’t tweak pricing—it reinvented it. They took short-term pain (churned sales reps, billing complexity) but ultimately accelerated growth.
- Change Management is Critical – A pricing shift affects product, sales, finance, and marketing. New Relic’s success came from careful internal alignment, retraining sales teams, and thoughtful customer migration.
- Usage-Based Pricing and Product-Led Growth Work Together – Their free tier and pay-for-usage model encouraged easy onboarding and expansion. Smart in-product nudges (like UI prompts for new features) tripled adoption of new capabilities.
While New Relic reinvented its pricing model to encourage broader adoption, SAP faced a different challenge, simplifying its pricing to drive cloud migration. The shift from legacy on-premise licensing to subscription-first models required SAP to rethink the pricing. Let’s read that in detail.
2. SAP
Company Background
SAP, the German enterprise software giant, built its dominance in ERP through a traditional on-premise licensing model, similar to Oracle’s. Before 2020, SAP’s revenue came primarily from selling perpetual software licenses for its core SAP ERP and related modules (CRM, SRM, etc.), with additional annual maintenance fees (~20% of license cost) and professional services. Pricing was historically user-based or module-based, often amounting to millions of dollars per enterprise deal.
By the mid-2010s, SAP began offering a cloud-based ERP version (SAP S/4HANA Cloud) and acquired SuccessFactors (HR), Ariba (procurement), Concur (travel), and other cloud services. However, many customers remained on legacy SAP ECC on-premises. By 2019, SAP was in a hybrid revenue model, where cloud subscriptions accounted for ~30% of revenue, while on-prem licenses and maintenance contracts still contributed significantly.
The pricing model was fragmented:
Some customers paid subscription fees (SaaS) while others stuck to one-time license purchases plus annual maintenance. SAP’s challenge was to accelerate its transition to a fully cloud-based, subscription-first model without alienating legacy customers.
Why They Changed
Several factors drove SAP to overhaul its pricing strategy post-2020:
- Market Shift to Cloud: Enterprises were increasingly favoring cloud ERP for agility and cost-efficiency. Competitors like Oracle and Workday aggressively promoted cloud-based alternatives, making SAP’s complex pricing structure less attractive.
- Demand for Simplicity: Customer demand for Opex and simplicity was another driver. CIOs and CFOs wanted predictable subscription costs rather than large capital expenditures. They also wanted one throat to choke – historically, implementing SAP involved buying SAP software, hiring infrastructure (or cloud hosting separately), and integration services. SAP saw an opening to offer a more integrated “bundle” as a subscription. This led to the concept of RISE with SAP.
It was introduced in January 2021, which was essentially SAP’s answer to the question “how do we get customers to cloud easily?.” RISE with SAP packaged the S/4HANA Cloud software, the required infrastructure (on hyperscalers or SAP’s datacenters), and SAP’s technical support services into one subscription pricing. This simplified migration and pricing, addressing customer hesitancy about cloud adoption.
- Revenue Predictability & Valuation: Seeing how investors rewarded Adobe, Microsoft, etc. for recurring revenue, SAP set targets to dramatically increase its cloud share of revenue by 2025. In fact, SAP’s leadership announced goals to have cloud revenue exceed license revenue by a wide margin and to hit certain cloud backlog numbers. They knew they needed to accelerate the conversion of their install base. This meant not just offering cloud, but sometimes forcing the issue – for instance, SAP announced an end-of-maintenance date for its old ERP (2027 for SAP ECC) to push customers toward S/4HANA. Pricing incentives were key here: making the cloud subscription financially appealing compared to continuing paying maintenance on old systems.
- Competitive Pricing Pressure: Cloud-first ERP players like NetSuite were appealing to mid-market firms. To counter this, SAP introduced GROW with SAP (2023), a more templated, fixed-price cloud ERP option for smaller businesses. SAP recognized one size (or one price) does not fit all – large enterprises might go RISE, while mid-market needed GROW – each with different pricing structures to suit their needs (RISE is more bespoke, GROW more fixed-price).
- Cloud Cost Efficiency: By 2020, hyperscaler cloud economics allowed SAP to bundle hosting into its subscription while maintaining margins. This meant customers could pay one all-inclusive fee. Earlier, customers might run SAP on their own AWS tenancy – now SAP could negotiate better rates with AWS/Azure and include it in the subscription, saving customers money overall while still profiting. Thus, the time was right to pitch an all-in-one subscription that might even undercut the customer’s total cost of ownership if they attempted to do SAP in cloud on their own.
The Transformation Process
SAP’s pricing transformation revolved around RISE with SAP, launched in January 2021, which fundamentally shifted SAP’s business model from software licensing to subscription-based cloud services.
Key components of the transformation:
- Bundled Pricing Model: RISE combined ERP software, cloud hosting, and technical support into a single subscription fee. Instead of separate charges for licenses, maintenance, and infrastructure, customers paid a fixed annual amount based on usage metrics (e.g., Full-Time Equivalent users or system size).
- Customer Migration Incentives: SAP introduced a “Conversion to Cloud” program, allowing customers to transfer on-prem license investments into cloud credits, reducing the perceived double-payment issue.
- Flexible Packaging for Different Segments:
- RISE with SAP – Enterprise-grade, customizable cloud ERP.
- GROW with SAP – Pre-configured, lower-cost SaaS ERP for mid-market.
- Operational Alignment with Hyperscalers: SAP partnered with AWS, Azure, and Google Cloud, negotiating bulk pricing and embedding infrastructure costs within the RISE subscription.
- Sales Compensation Adjustments: SAP incentivized its salesforce on cloud Total Contract Value (TCV) and cloud adoption metrics rather than license sales. This reorientation was vital – SAP account executives needed to sell the value of cloud (fast innovation, lower TCO over time, agility) instead of just pushing a big upfront deal. SAP also worked with large customers’ CFOs to make RISE deals CFO-friendly (one line item Opex).
- Tiered Offerings: SAP introduced premium RISE editions with enhanced SLAs and concierge support, catering to customers requiring white-glove service.
- Consumption-Based Pricing Expansion: In 2022, SAP also adjusted its pricing for the Business Technology Platform (SAP BTP) to be more consumption-based (pay per use of integration or database services) to complement the RISE core. They essentially created a unified commercial offering where a customer could get their ERP, platform, and other services all on subscription.
Impact and Results
The shift to subscription pricing significantly changed SAP’s revenue composition:
- Cloud Revenue Growth: By the end of 2023, SAP’s cloud revenue had grown to €13.64 billion annually, up 20% year-on-year, and it now constitutes roughly 45% of SAP’s total revenue (up from about 30% in 2018).
- Decline in License Revenue: Traditional license revenue has plunged – in 2022, software license revenue was only €2.06B (down 37% from prior year), and it continues to decline (SAP reported that the shift to cloud via RISE was a main reason license revenue fell). This shows that customers are indeed choosing the new subscription model over buying licenses. The share of predictable, recurring revenue hit 81% of total revenue by Q4 2023, up from 72% in 2018 – a direct outcome of converting one-time sales into subscriptions.
- Cloud Backlog Expansion: SAP’s Current Cloud Backlog (CCB) reached €13.7 billion in 2023, reached €13.7B at the end of 2023, ensuring future revenue visibility.
- Customer Expansion: Top 100 SAP customers use 5+ SAP cloud solutions on average, up from 4 in 2022, indicating strong cross-sell opportunities.
- Improved Profitability: SAP’s cloud gross margins expanded as it achieved economies of scale in hosting and support operations.
- Stronger Customer Retention: By mid-2023, SAP had more than 3,000 customers signed up for RISE with SAP (including heavyweights like Siemens, BMW, etc.). Customers found SAP’s managed cloud model aligned vendor and customer incentives, improving long-term relationships. SAP even noted that 90%+ of RISE customers were new to SAP’s cloud ERP – so it’s effectively converting legacy customers and also capturing some new ones who might have otherwise gone to competitors.
- Stock Performance: SAP’s stock, which had lagged in the 2010s, saw a revival as cloud KPIs improved. After launching RISE and demonstrating cloud growth, SAP’s share price hit all-time highs in late 2023. Investors were encouraged that SAP was meeting or exceeding its outlook (which it did in 2023, hitting €13.6B cloud rev, 6% total rev growth despite war and macro challenges).
Lessons Learned
SAP’s pricing transformation offers several key lessons for SaaS and enterprise software firms:
- Sell Outcomes, Not Just Software: SAP repositioned ERP as an end-to-end cloud service (RISE) rather than standalone software. SaaS firms should bundle products with supporting services to enhance perceived value.
- Simplify Pricing to Remove Friction: SAP’s shift to subscription-based bundled pricing reduced complexity and improved customer adoption. SaaS firms should consider tiered pricing with clear value differentiation.
- Use Creative Migration Incentives: SAP’s license-to-cloud credit program eased the transition. SaaS firms moving from legacy pricing models should offer structured incentives to retain existing customers.
- Be Willing to Cannibalize Existing Revenue Streams: SAP sacrificed short-term license revenue for long-term subscription stability. SaaS firms must be bold in transitioning to new pricing models when market trends demand it.
- Align Internal Operations with Pricing Strategy: SAP overhauled sales compensation, partner alignment, and cloud operations to support the new model. Any SaaS pricing transformation requires cross-functional alignment.
- Leverage Cloud Economics to Drive Value: SAP’s ability to bundle cloud hosting at scale made its pricing competitive. SaaS firms should explore how cost efficiencies can enhance pricing models.
SAP’s transformation centered on converting enterprise customers to the cloud, but Mailchimp had an entirely different challenge, i.e., expanding beyond a single pricing metric. Let’s read about it in detail.
3. Mailchimp
Company Background
Mailchimp began as an email marketing service, charging customers based on the number of subscribers on their email list. Prior to 2019, its pricing was simple: a freemium plan for up to 2,000 subscribers, and paid plans priced in tiers by subscriber count (with unlimited email sends on paid tiers). This model was standard in the email marketing space and had served Mailchimp well, helping it grow to over $600 million in annual revenue by 2019. However, Mailchimp was increasingly positioning itself as more than an email tool – it started adding landing pages, digital ads, CRM features, and even a website builder to evolve into a full-service marketing platform. Its legacy pricing by email subscribers no longer fit this expanded product scope.
Why They Changed
By 2019, Mailchimp faced both an opportunity and a threat. The opportunity was to capture a larger share of SMB marketing spend with an all-in-one platform. However, competition from integrated marketing/CRM solutions like HubSpot and Adobe was intensifying, and remaining “just an email service” risked stagnation.
Internally, Mailchimp’s data showed that customers were increasingly using its new features, yet pricing remained focused solely on email subscribers. The company needed to monetize its broader platform capabilities while ensuring customers understood its expanded value. Pricing was a key part of repositioning Mailchimp as a multi-channel marketing hub.
The Transformation Process
In May 2019, Mailchimp announced a sweeping pricing overhaul alongside its rebranding as a “full-service marketing platform”.
The changes were massive. It introduced new tiered plans (Essentials, Standard, Premium) with additional marketing features. It changed the pricing metric from subscribed contacts to total contacts in a user’s database. This meant customers would now pay for all contacts stored – including all stored contacts, including unsubscribed ones, under the premise that Mailchimp could re-target them via other channels (e.g., ads, automation).
Moreover, the new plans eliminated unlimited email sends; each tier came with monthly send limits, a dramatic shift from the prior “all-you-can-send” approach. Mailchimp grandfathered existing customers on legacy plans (they could keep their old pricing if they wished) to ease the transition.
Operationally, this transformation was complex.
Mailchimp had to update billing for millions of users, retrain support to explain the new model, and justify why a user’s “audience” size (including non-subscribers) represented marketing value.
The rollout was bumpy – communications were confusing at first and some customers felt blindsided– but Mailchimp stuck with the new model and focused its messaging on the broader capabilities of the platform rather than just email.
Impact and Results
The immediate customer reaction was mixed. Many long-time users disliked paying for unsubscribed contacts and losing unlimited email sends. Some SMBs reported a 20–30% cost increase overnight, leading to criticism on social media.
Despite this, the long-term strategic shift proved successful:
- Revenue Growth: Mailchimp’s revenue jumped to $800 million in 2020, up ~20% year-over-year. This suggests that the new multi-channel capabilities (and corresponding pricing) unlocked more spending from customers, offsetting those who left.
- Multi-Channel Expansion: By 2020, half of Mailchimp’s revenue came from non-email services, validating the platform approach.
- Intuit Acquisition (2021): Mailchimp was acquired for $12B, with Intuit citing its expanded marketing functionality as a key asset.
- Stronger Expansion Revenue: While NRR (Net Revenue Retention) is undisclosed, Mailchimp’s ability to add ~$100M in new annual revenue each year suggests strong customer expansion post-pivot.
Lessons Learned
Mailchimp’s transformation offers key pricing strategy takeaways:
- Evolve Pricing Alongside Product Expansion
- As Mailchimp expanded beyond email, pricing had to reflect its full marketing capabilities. SaaS companies should ensure pricing metrics align with customer-perceived value.
- Communicate and Transition Thoughtfully
- Mailchimp faced backlash due to unclear messaging. Pricing overhauls should include transparent communication, beta testing, and phased rollouts to manage customer expectations.
- Pair Pricing Changes with Added Value
- Mailchimp introduced CRM tools, websites, and AI features alongside new pricing. SaaS firms raising prices should showcase new benefits to justify the change.
Mailchimp’s pricing shift from subscriber-based to total-contacts pricing played a crucial role in its transformation into an all-in-one marketing platform. Despite early resistance, the strategy increased ARPU, unlocked new revenue streams, and positioned Mailchimp for acquisition at a $12B valuation.
Similarly, HubSpot faced a similar dilemma, but instead of adding pricing complexity, it had to simplify an already fragmented multi-product pricing structure.
4. HubSpot
Company Background
HubSpot a leading marketing automation and CRM platform, historically used a multi-dimensional pricing model that varied across its product suite:
- Before 2020, HubSpot’s flagship Marketing Hub was priced primarily by the number of contacts in the database (in addition to a base software fee)
- Sales Hub and Service Hub were priced per user (seat)
- A free CRM and bundle discounts complicated pricing further.
This pricing structure led to customer confusion and unexpected costs:
- A small business with a large email list paid high fees for contacts even if they had few active sales reps.
- A sales-driven company could face expensive minimum seat bundles, even if only a handful of reps used the CRM.
- Customers using multiple Hubs found inconsistent pricing logics, making it hard to forecast costs as they scaled.
By 2020, HubSpot had grown to $1B+ in ARR, but it realized simplifying pricing would be critical to reaching its next 100,000 customers and competing more effectively with Salesforce and ActiveCampaign.
Why They Changed
HubSpot’s decision to transform pricing was driven by a mix of customer feedback and strategic goals.
- Customer Feedback
- Users found HubSpot’s pricing model complex, especially when scaling across multiple Hubs.
- Small businesses hesitated to add contacts due to high costs, while enterprises struggled to balance budgets across Marketing vs. Sales Hub.
- Product Expansion
- HubSpot introduced CMS Hub, Operations Hub, and AI-powered CRM features, but the old pricing model made cross-Hub adoption difficult.
- Customers wanted a more flexible structure that encouraged them to use multiple Hubs seamlessly.
- Pressure from SMB & Mid-Market Players
- ActiveCampaign & Zoho CRM were gaining traction with cheaper, simpler pricing models.
- Salesforce bundled Pardot with CRM deals, pushing HubSpot to offer a clearer alternative to mid-market buyers.
- Net Revenue Retention (NRR) & Long-Term Growth Goals
- NRR was a key metric for expansion, and the existing model limited natural upsells.
- A unified pricing structure would enable frictionless customer growth, increasing multi-Hub adoption and seat expansion.
As HubSpot’s Chief Customer Officer put it, the goal was to make HubSpot “easy to buy” as a unified platform rather than a set of separately priced point solutions
The Transformation Process
HubSpot’s pricing transformation happened in phases:
Phase 1: “Marketing Contacts” (2020) – Lowering Cost Barriers
- HubSpot stopped charging for inactive contacts, ensuring customers only paid for contacts they actively marketed to (email, ads, etc.).
- This directly addressed customer pain points, reducing costs for businesses with large databases of non-engaged contacts.
- The change improved satisfaction & retention, making Marketing Hub more affordable for SMBs scaling their lists.
Phase 2: Unified Seat-Based Pricing (March 2024) – Consistency Across Hubs
- HubSpot standardized pricing across all Hubs by shifting to a “Core User” model:
- Core Users (Paid Seats): Employees who actively use HubSpot’s features (e.g., sales reps, marketers, service agents) require a paid seat.
- Free Unlimited “View-Only” Users: Employees who only need access to dashboards & reports can use HubSpot for free.
- Starter plans include bundled seats, removing previous minimum seat requirements (e.g., Sales Hub Pro no longer required 5 paid seats).
- The new model allowed customers to scale usage gradually rather than forcing big upfront purchases.
Operationally, this was a massive project.
HubSpot’s billing systems and packaging had to be overhauled, sales and partner commissions recalibrated, and all marketing/sales collateral updated to reflect the new pricing. They communicated these changes openly via their blog and offered tools to help existing customers understand how the new pricing would affect them.
So, HubSpot positioned this not as a price hike, but as a “pricing model update” to better align with customer value and make it easier to start and scale with HubSpot. The inclusion of five free users at the Free CRM tier and a single paid seat Starter option were emphasized to show that getting started could be cheaper or more flexible than before.
Impact and Results
Although HubSpot’s seat-based pricing only launched in 2024, but some early indicators showed strong positive effects:
1. Lowered Entry Barriers for New Customers
- Small businesses were able to start with a single paid seat without worrying about contact limits or forced seat minimums.
- The PLG-friendly (Product-Led Growth) model made customer acquisition easier.
2. Stronger Expansion & Net Revenue Retention (NRR)
- By 2021, HubSpot’s NRR surpassed 110%, up from the mid-90s% in prior years.
- Analysts attributed this increase to multi-Hub adoption, which the pricing changes made more natural.
- HubSpot’s CFO expects NRR to remain above 110%, indicating the new model’s potential for long-term upsells.
3. ARR Growth & Retention Strength
- HubSpot’s ARR hit $2B+ in 2023, with gross retention staying high.
- The new model encouraged seamless upsells, allowing customers to expand their user base without sudden pricing spikes.
4. Addressing Downsides: Flexibility for Small Users
- Some small customers who relied on Marketing Hub alone with lots of contacts but no paid seats might face higher costs over time.
- However, HubSpot mitigated this by allowing a mix of free & paid users and letting customers designate which contacts are billable.
5. Market Sentiment: A Proactive, Well-Received Move
- The SaaS industry praised HubSpot’s simplification, with one analyst noting, “110% NRR from SMBs – finally.”
- The shift was seen as a long-overdue move that unlocks more revenue from SMBs without harming retention.
Lessons Learned
HubSpot’s experience provides a blueprint for pricing transformations, especially for multi-product platforms:
1. Standardize Pricing for a Better Customer Experience
- Inconsistent pricing across product lines confuses customers.
- HubSpot’s shift to seat-based pricing created a unified experience and removed friction for multi-Hub adoption.
2. Let Customers Scale Gradually, Not in Jumps
- Removing minimum seat requirements and introducing flexible contact billing lets companies start small and expand easily.
- A “pay as you grow” model works especially well in PLG-driven SaaS businesses.
3. Frame Pricing Changes as Customer-Value Improvements
- HubSpot justified its pricing shift by emphasizing:
- Access to all Hubs via core seats.
- Inclusion of new AI features.
- Lower costs for scaling businesses.
- By openly communicating the rationale, HubSpot avoided backlash and ensured the narrative remained positive.
The transformation directly improves scalability for customers while allowing HubSpot to drive higher NRR and ARR growth.
While HubSpot streamlined pricing across its Hubs, Splunk needed to remove pricing friction altogether. By shifting away from usage-based ingestion pricing, Splunk reduced barriers to data expansion, encouraging customers to extract more value from the platform, without fear of runaway costs. Let’s read that in detail.
5. Splunk
Company Background
Splunk, a leading data analytics and security platform, built its reputation in log management and SIEM. Historically, its pricing model was based on data ingestion volume where customers paid based on how many gigabytes per day they indexed into Splunk.
While ingest-based pricing was directly tied to usage, it soon became notoriously expensive, earning the reputation of a “tax on data”. As machine data volumes grew exponentially, customers found themselves:
- Paying increasingly high bills as they ingested more data.
- Limiting what data they sent to Splunk to control costs, potentially reducing the effectiveness of Splunk’s analytics.
By 2019, Splunk had begun transitioning away from perpetual licenses to a cloud-based subscription model, but its pricing also needed a transformation. The old ingest-based model risked:
- Discouraging data expansion, as customers rationed ingestion.
- Losing customers to alternatives like open-source tools or competitors pricing by host/server instead.
- Impeded cloud adoption, as customers stuck to legacy term-based licenses instead of fully embracing Splunk Cloud.
To ensure predictable revenue growth, improve customer retention, and encourage full data utilization, Splunk needed a more flexible pricing approach.
Why They Changed
Several key factors drove Splunk’s decision to revamp its pricing model between 2019–2020:
1. Customer Pushback & Competitive Threats
- Customers frequently complained about the high cost of ingest-based pricing, which made full data analysis prohibitive.
- Some customers began capping their data ingestion or exploring DIY/open-source alternatives.
- Competitors like Elastic (which had a freemium model) and other observability tools priced per server or per host started gaining traction.
2. The Need to Accelerate Cloud Adoption
- Splunk was shifting to a cloud-first model, where Annual Recurring Revenue (ARR) was the key business metric.
- In cloud-based SaaS, predictable, long-term commitments drive investor confidence and valuation.
- Splunk announced it would cease selling perpetual licenses by 2021, aiming for 100% term/subscription-based revenue.
3. Evolving from a Product to a Broader Platform
- Splunk expanded into AIOps, observability, and security analytics, increasing its value proposition beyond raw data ingestion.
- The old pricing model didn’t reflect this shift—customers paying for ingestion didn’t always see direct value alignment.
- A new model would emphasize business outcomes (e.g., security insights, system uptime) rather than just raw data volume.
4. Market Expectations & Financial Strategy
- Analysts and investors valued SaaS companies based on ARR and net retention rates (NRR), which Splunk’s old pricing model didn’t optimize for.
- Traditional license sales were lumpy and unpredictable, whereas subscriptions and term contracts smoothed revenue and improved NRR.
- To future-proof growth, Splunk needed to modernize its pricing model in tandem with its cloud-first transformation.
The Transformation Process
In September 2019, Splunk announced a menu of new pricing options to complement (and eventually replace) the strict ingest-based model. They rolled out:
1. “Predictive Pricing” Tiers: Customers could now pre-purchase annual volume tiers, including an “unlimited ingest” option for a fixed price. This provided cost predictability and removed concerns about skyrocketing data bills as usage grew.
2. Infrastructure-based Pricing – Instead of paying per GB of data, customers could pay based on compute power/nodes using Splunk. This was ideal for massive datasets where only a portion was queried regularly, decoupling cost from raw ingestion.
3. Rapid Adoption Packages – Pre-packaged security, observability, and analytics bundles were introduced at fixed prices, making it easier for new customers to get started. This streamlined sales negotiations, removing friction from the pricing discussion.
4. Cloud-Specific Discounts & Storage Tiers – Splunk introduced cheaper storage options for long-term archived data, lowering the cost of compliance-driven data retention. Customers could store more data affordably, while still benefiting from Splunk’s analytics capabilities.
On the operations side, Splunk trained its salesforce to sell value:
- Sales teams were trained to offer customers multiple pricing options, helping them select the best model for their use case.
- Investors were informed that short-term GAAP revenue might dip due to the elimination of perpetual licenses, but ARR and customer retention would improve long term.
- Product engineering teams built support for new pricing models, ensuring a seamless billing transition for customers.
By 2020, Splunk had fully transitioned to an ARR-first reporting model, focusing on long-term subscription growth rather than one-time license revenue.
Impact and Results
1. Explosive ARR Growth
- Total ARR hit $2.36 billion by Q4 FY2021, a 41% YoY increase.
- Cloud ARR grew even faster, up 72% YoY, as customers embraced the new pricing flexibility.
- Traditional GAAP revenue dipped slightly in FY2021 due to the end of perpetual licenses, but investors focused on ARR and subscription metrics.
2. Higher Net Revenue Retention (NRR) & Expansion
- Splunk does not publish NRR directly, but its 40%+ ARR growth with flat customer count implies strong expansion within existing accounts.
- Customers on unlimited ingest plans were ingesting 2–3x more data than before.
- Splunk’s leadership noted that new pricing encouraged broader data use, increasing customer value and stickiness.
3. Competitive Positioning & Retention
- Key enterprise customers that previously limited ingestion now felt comfortable sending all their logs, strengthening Splunk’s hold on key accounts.
- Some customers who considered switching to cheaper alternatives stayed with Splunk, thanks to fixed-cost unlimited ingestion plans.
- Gross retention improved, reducing outright customer churn.
4. Improved Sales Efficiency & Deal Velocity
- With pre-packaged bundles and flexible pricing, sales cycles became shorter.
- Splunk’s reps could close deals faster by offering tailored options instead of rigid per-GB negotiations.
5. Stock Market & Investor Confidence
- Splunk’s share price rebounded post-announcement as investors saw its ARR and cloud growth accelerating.
- By 2022, Splunk reported ARR over $3.1 billion (32% YoY growth), proving that its pricing and business model shift was working.
Lessons Learned
Splunk’s pricing transformation is a textbook case of legacy software moving to SaaS:
- Listen and adapt to customer pain points – If pricing is consistently cited as a problem (especially "too expensive" in a specific dimension), explore alternative models. Splunk retained ingest-based pricing for existing customers while introducing infrastructure-based and unlimited tiers, giving customers flexibility and preventing lost deals to rigid competitors.
- Align pricing changes with business transitions – Splunk revamped pricing alongside its shift to cloud subscriptions, using the transition to fix its pricing metric. For SaaS firms, major inflection points like launching a cloud version or entering a new market can be the right time to revisit pricing. Bundling pricing changes with a broader transition helps customers see it as part of an overall evolution rather than isolated price tinkering.
- Sacrifice short-term revenue for long-term value – Splunk warned Wall Street of a temporary revenue dip as it phased out perpetual licenses but educated stakeholders that ARR was the better health metric. Similarly, SaaS companies may face an initial ARR reset or lower billings, but a customer-friendly model can drive higher adoption, expansion, and retention, ultimately increasing lifetime value.
- Educate customers on the new model’s value – Splunk actively marketed benefits like “predictable costs” and “no data left behind” rather than simply announcing a pricing switch. Ensuring customers understand the advantages makes them more likely to embrace the change, strengthening goodwill and trust.
Final Takeaway: Pricing as a Strategic Growth Engine
These five case studies prove one thing: Pricing is a strategic engine for growth, customer success, and market positioning. The right pricing model can unlock adoption, fuel expansion, and create long-term revenue predictability. But misaligned pricing can just as easily become a barrier, limiting product usage, creating customer friction, and capping growth potential. If you're rethinking your SaaS pricing, Monetizely can help you unlock untapped revenue and build a scalable pricing system. Book a free pricing assessment with our experts today to discuss how to optimize your pricing model for long-term growth.