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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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Implementing usage-based pricing requires specific technical infrastructure to track, meter, bill, and report on customer usage effectively. Based on our experience with companies like Twilio, here are the essential technical requirements:
Core Technical Systems
- Product Metering Infrastructure
- Robust usage tracking mechanisms that accurately capture consumption metrics
- Real-time monitoring capabilities to process usage events
- Ability to define and track multiple usage dimensions (e.g., API calls, storage, processing time)
- Reliable data collection with redundancies to prevent data loss
- Billing System Integration
- Flexible billing system that can handle consumption-based pricing models
- Ability to combine recurring subscription elements with variable usage charges
- Support for tiered pricing structures and volume-based discounts
- Capability to handle different billing cycles and proration
- CPQ (Configure, Price, Quote) System
- Updated quote generation tools that can estimate costs based on projected usage
- Ability to model different usage scenarios for prospects
- Support for hybrid models combining platform fees with usage components
- Sales Compensation Calculations
- Systems to accurately calculate sales commissions based on variable customer usage
- Forecasting tools to project expected usage and revenue
Additional Technical Requirements
- Analytics and Reporting
- Dashboards for customers to monitor their own usage and spending
- Internal reporting tools to analyze usage patterns and pricing effectiveness
- Usage analysis capabilities to validate that selected pricing metrics align with actual product usage
- Customer Communication Systems
- Tools for proactive usage alerts to customers approaching thresholds
- Automated billing communications
- Platform Fee Guard Rails
- Systems to implement minimum commitment levels or platform fees
- Mechanisms to prevent extreme revenue volatility
Implementation Considerations
From our case study with a $3.95B digital communication SaaS leader, successful implementation requires:
- Customer acceptance testing for the new pricing model
- Guard rails (like platform fees) to prevent significant revenue reduction
- Alignment of GTM systems across product metering, billing, CPQ, and sales compensation
- Internal training and enablement with appropriate pricing calculators and sales materials
Implementing usage-based pricing is a significant undertaking that impacts multiple technical systems across your organization, but when done correctly, it can enable new use cases while maintaining revenue stability.