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Since the beginning of cloud services, one of their strengths has been a flexible pricing policy. The customer subscribes to exactly the service he needs, in the amount he needs, and pays the appropriate fee for it. If operational changes lead to the need to increase or decrease the number of users, storage capacity or other services, this can easily be done by increasing or decreasing the monthly payment accordingly.
Subscription to the service with a fixed monthly fee has existed for more than a decade, and both companies and individuals are used to it. Millions of people subscribe to cloud storage, where they can store photos, maintain a website or pay for the use of office programs or various content creation tools with a regular payment.
However, new winds are blowing into this seemingly stable order. More and more companies prefer the so-called usage-based pricing (UBP). It is a more detailed pricing model where the monthly payment is calculated based on the usage of the service over a period of time. If the volume is variable, the price is also no longer fixed.
Software trading platform Metronome together with an investment management company Greyhound Capital surveyed more than a hundred cloud service providers at the beginning of the year and found that 85% have already switched to the UBP pricing model. In addition, 64% of the start-ups chosen by the magazine chose this path Forbes announced as the next billion dollar companies.
Software monetization platforms are also showing an intensification of the trend Will come back study «2025 Monetization Monitor». It found that 59% of software developers expect an increase in the proportion of companies using the UBP approach this year.
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It should be added here that UBP is not a completely new method. Metronome data shows that about a fifth of the major cloud service providers have already chosen it in the previous decade. However, since 2020, calculating costs according to real consumption has become the dominant trend, and a major breakthrough has been experienced in the last two years. Additionally, 45% of all current users of the UBP approach have opted out of this step in 2023 or later.
Software developer Enough found an answer to the question why it happens. In its study Subscribed Institute revealed that 80% of users consider UBP to be a fairer pricing policy. In addition, this model helps to avoid paying for services that are not actually used. Flip SaaS reports show that about a third of fixed software costs for businesses are redundant – arising from not fully utilizing all features and licenses. There are various reasons for this, for example, the company does not know about these functions or they are not necessary for the business at all.
This is where the benefits of consumption-based pricing become most apparent, encouraging companies to adopt this method. The first, and perhaps most important, is a more accurate price for the service you receive. The customer pays only for what he uses. In the context of accounting programs, this can be the amount of invoices prepared and sent, the number of employees for whom salaries are calculated, and similar parameters. The most significant difference from the subscription model is that the price is calculated exactly by volume, not by a volume threshold. So, if a small business issues 62 invoices in a year, then the fee will be calculated for exactly that amount, and not for the chosen plan up to 100 invoices. This creates more credibility and transparency.
Another important advantage is flexibility and a low starting threshold. It is even easier for the customer to regulate costs by deciding how much to use each service. Startups can start using the service with minimal costs and increase them according to business growth and actual consumption. Seasonal business operators pay more for the service in intensive working months, but significantly reduce costs in quiet ones.
Of course, such an approach complicates the service provider’s work, as it has to perform more complicated calculations and prepare invoices corresponding to consumption every month. Cash flow forecasting is also becoming more challenging, but companies are aware that consumer preferences are a priority and are acting accordingly. Also Jumis Finance and You People in business management systems, we are moving to such an approach, which means that customers can more precisely define the number of program users and the required types of services. As a result, accounting systems become even more accessible to a wider range of clients. Also for start-ups and very small companies.
In order to fully utilize the advantages of the UBP model, companies must make appropriate preparations and be ready to experiment in order to find the most acceptable measurement criteria and price for both the service provider and the customer. This is especially important for companies whose service includes many measurable variables. There are many possibilities, but you should always keep in mind that the calculation model should be as transparent as possible and understandable to the client.
The author is About you manager.
