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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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Based on our SaaS pricing book, Price to Scale, capping usage-based charges can be a strategic way to offer cost predictability for your customers. Here are the key insights and considerations from the book:
• Direct Answer:
Yes, capping usage-based charges can help enhance predictability for your customers. It makes monthly bills more consistent and easier to forecast, which many customers value.
• Supporting Insights from Price to Scale:
– In our book (see the section on “Predictability”), we discuss that customers increasingly favor pricing models where their bills don’t fluctuate wildly month-to-month. A cap helps smooth out the variations by placing a ceiling on the charges, thereby making it easier for customers to plan their budgets.
– We also highlight the importance of being able to model price increases reliably. A capped model can provide a safety net against surprising charges, but the cap must be designed so that it still reflects increases related to real usage and underlying costs.
• Balanced Considerations:
– While a cap improves cost predictability, you should also ensure that it doesn’t limit your revenue potential when customers experience rapid usage growth. As explained in the discussion on “Usage Growth Rates,” a highly granular charging mechanism is needed if your customer’s usage trends grow exponentially.
– The cap should strike a careful balance—it should prevent bill shock for the customer, yet still allow the pricing model to be aligned with your cost structure over time.
• Practical Application:
When applying a cap in your pricing strategy, consider using tiered pricing models or establishing a threshold after which different pricing rules apply. This way, you maintain cost predictability for most usage while capturing value from higher levels of usage.
• Summary Takeaway:
As Price to Scale emphasizes, providing a predictable billing experience builds trust with customers. Capping usage-based charges is one effective method to achieve this—provided you design the cap in harmony with usage trends and cost structures to avoid constraining revenue when the value delivered increases.
In essence, our book recommends that if cost predictability is a priority for your target market, then capping usage-based charges is a worthwhile approach, as long as it’s implemented thoughtfully.