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Estd 4.22.2023
Based on our saas pricing book, Price to Scale, the answer depends on a few key factors such as the predictability of usage and customer preferences. Here are the main considerations:
• If your usage metric is highly predictable and measurable, a granular usage tracking and billing approach can closely match customer consumption, offering fairness and potentially optimizing revenue. Our book explains that with clear usage metrics, pricing can be structured linearly or even with a two-or three-part tariff (see pages 491–123).
• Conversely, if the usage is more difficult to measure or predict—or if your customers prefer a simpler, more predictable billing system—broad usage tiers (sometimes compared to t-shirt sizing like M, L, XL) might be more appropriate. This approach simplifies sales and billing, while still allowing some flexibility if a customer moves into a higher tier.
• A third option is a cell-phone plan model (a kind of blended approach), where you offer a bundle of usage at a base fee and add overage fees if consumption exceeds the plan. This model provides an incentive for customers to upgrade while giving a buffer on the unpredictable side of consumption.
In summary, decide based on the following:
- If your metric is predictable and understandable, you can afford the precision of granular tracking.
- If simplicity and customer predictability are more critical (perhaps for adoption in newer products), then broad usage tiers may be more effective.
Our book provides a checklist to help decide your pricing structure, ultimately guiding you to balance revenue predictability with customer adoption. This framework ensures your pricing model is both fair to your customers and aligned with your business goals.