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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, the best way to determine usage limits or quotas for each tier is to follow a structured, criteria-driven process:
• Identify Your Pricing Model:
Decide whether you’re using a consumption-based or capability-based approach. If you’re in a consumption model, you need to choose a key usage metric (such as the number of users, projects, data volume, etc.) that is directly tied to the value that your product delivers.
• Apply a Checklist of Criteria:
In Price to Scale, we recommend evaluating your candidate usage metrics against several factors:
- Predictability: Ensure that the usage metric produces consistent and forecastable consumption patterns over time. This predictability helps both in forecasting revenue and in keeping the customer’s billing steady.
- Acceptability: The metric should make sense to your customers. It should be logical enough that salespeople can effectively explain it, ensuring that customers of varying sizes (from a few users to thousands) see the value without feeling restricted.
- Trackability: Choose a metric that is easy to monitor and measure in your system. Being able to reliably capture usage data (like through Multiple Touch Units or comparable measures) is vital for both billing accuracy and internal cost management.
• Consider Granularity and Growth:
If you’re using a consumption-based model, think about how rapidly your metric might grow over time. For example, if your customers’ usage could expand exponentially (as might be the case with data volume), you’ll need to adopt a more granular approach. This will ensure that you can scale pricing appropriately as usage increases and avoid having cost pressures accumulate too quickly.
• Align with Both Customer Value and Cost Structures:
Ensure that the quota or limit you set per tier reflects both the value the customer gets from your product and the cost implications on your business. This means understanding what customers are likely to use in a typical month while also ensuring you’re not underselling a product whose underlying costs could escalate dramatically.
In summary, by determining usage limits or quotas with a clear focus on whether the metric is predictable, acceptable, and trackable, you can better align your pricing with the actual consumption and value delivered by your product. This methodical approach, as described in Price to Scale, helps you set limits that are fair, sustainable, and scalable.