USAGE-BASED PRICING MODELS
Getting the use out of it
As an increasing number of businesses make the transition from subscription-based pricing into a usage-based pricing model, how do they – and resellers – fully reap its benefits?
In the ever-evolving landscape of channel economics, we are witnessing the rise of a transformative force. Usage-based pricing is emerging as a way of offering small- and medium-sized businesses a pathway to unlock new avenues for customer acquisition, drive revenue growth, and fortify customer retention strategies. While the journey may present its share of challenges, the benefits far outweigh the obstacles, according to Sage. Juha Harkonen, VP Partner Ecosystem, Sage, explains why usage-based models are becoming more popular. “As our world increasingly adopts digitalisation and automation, it becomes more transaction- focused,” he says. “Business models are shifting to reflect value alignment, and when the value is centred around the transaction itself, this leads to the adoption of transactional, usage-based pricing models. This is also a generational trend. Younger people are more likely to pay for what they consume rather than subscribe.” Indeed, pay as you go (PAYG) is typical for usage-based models, adds Juha. “This way a customer only pays for what they use,” he says.
“From a vendor’s point of view the monetisation is directly aligned with the value delivered.”
Advantages of usage based models There are various advantages of using usage- based pricing models over subscription-based pricing, says Juha. “With usage there is more volatility,” he says. “Vendors can de-risk the volatility by selling transactions in bulk with volume discounting. The customer benefits from a lower per transaction cost and the vendor benefits from higher forecast ability of revenue streams. “Usage based pricing also comes with the need to enable metering and variable monthly billing. These can often be transitioning challenges. Billing with less frequency reduces the overall admin burden. With cost plus pricing vendors can spread the overall cost across their customer base translating it into a more traditional fixed subscription. Vendors will still need to deal with super users from an overage point sof view.” But usage-based models aren’t right for every company. “There is no right or wrong pricing model,” says Juha. “There are just
Juha Harkonen VP partner ecosystem
sage.com
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