Is a usage-based model suitable for our product at launch, or should we keep pricing simple (like a basic subscription) until we have more usage data and then consider switching to usage-based?

Based on the guidance in our book Price to Scale, the answer depends on the specifics of your product’s value delivery and market dynamics:

• If your product’s value can be directly tied to usage—making it easier for customers to understand what they’re paying for—a usage-based model can be effective even at launch. This approach may lower upfront costs, encourage early adoption, and align pricing with customer success.

• However, if you lack sufficient usage data or find that your primary value metric isn’t clearly tied to consumption, starting with a simple basic subscription model may be more appropriate. This simplicity can help avoid complexity during early market entry and provide a clearer foundation until you can refine usage metrics.

In Price to Scale, we outline a checklist that emphasizes first determining whether to pursue a consumption-based or capability-based model. For instance, for early-stage companies that adopt usage-based models, the focus is on reducing adoption friction with lower upfront costs. As the company grows and more usage data becomes available, you might then consider shifting to or fine-tuning a usage-based approach to better capture value and predict revenue.

To summarize, if the usage metric is clear and aligns with customer value, launching with a usage-based model might be appropriate. Otherwise, starting with simple, subscription-based pricing can allow you time to gather meaningful usage data before transitioning to a usage-based structure. This approach ties into our broader recommendation in Price to Scale about aligning pricing strategy with product value and market evolution.