Executing on Usage-Based Pricing

Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talent.

Usage-Based Pricing is a hot topic. It fits well with Product-Led Growth (PLG) and is a critical step on the way to Outcome-Based Pricing. Ibbaka and OpenView Venture Partners have been documenting what you need to do before, during and after you introduce Usage-Based Pricing.

Part 1: Before You Announce: Planning a Successful Usage-Based Pricing Launch

Part 2: How to Announce: Crafting the Right Message for a Usage-Based Pricing Launch

Part 3: After You Announce: How to Win With Usage-Based Pricing

Usage-Based Pricing and Value-Based Pricing are (or should be) two sides of the same coin. One should be able to draw a direct connection between the value metric and usage metric and then these should inform the choice of a pricing metric.

Usage metrics should capture more than just usage data. It is the usage that correlates with value that matters. The best way to do this is to design your usage-based pricing metric around the completion of value paths.

Value path: A sequence of actions taken by a user that culminates with something of value to the user.

To win with Usage-Based Pricing, it requires careful planning, precise execution and then a commitment to managing value as part of pricing.

Planning

Make sure you have all of your ducks in a row.

1. Systems (especially billing)

2. Messaging (consider all channels)

3. Business function alignment (marketing, sales, customer success — product and finance)

4. Product (usage-based pricing often has implications for the product and packaging, especially for what metrics are tracked and reported by the product and who can see that data)

Introduction

Communicate early and clearly.

1. Communicate the value-based logic of the new pricing

2. Be ready to deflect misrepresentations by customers

3. Have a detailed plan for how to migrate current customers

4. Prepare sales, account reps, customer success and customer support with messages and objection handling

Execution

Pricing is not once and done, especially usage-based pricing.

1. Track usage; learn to predict usage

2. Document value delivered

3. Adjust pricing as necessary

   • To reflect value delivered

   • To achieve revenue and net dollar retention goals

   • To shape competitor responses

Read other posts on pricing design

• Executing on usage based pricing

• What to price? What to optimize? How to optimize? Three key pricing questions

• When and how to change your pricing metric

• How to introduce usage-based pricing

• New skills for usage-based pricing

• Value paths are the key to usage-based pricing

• Pricing under uncertainty and the need for usage-based pricing

• Enabling Usage-Based Pricing - Interview with Adam Howatson of LogiSense

• Usage-based pricing a complement and not a substitute