The future is consumption-based

General
1

With the rise of AI, the number of consumption-based products and companies has exploded.

Of course, there have been pioneers like AWS, Snowflake, or MongoDB, but now that existing SaaS companies are introducing AI capabilities, the topic is becoming more relevant.

In my opinion, this makes perfect sense. Because the revenue from seat-based pricing is always limited by the number of users.

Probably the biggest advantage of seat-based pricing from a software vendor’s perspective compared to usage-based pricing is that customers pay for licenses that are not used, or are used very little.

At this point, however, I would argue that low usage customers are not good customers. They will churn sooner or later.

It’s better to focus on the real power users, scale together and profit. Because the pricing is as fair as it could be - you only pay for what you use.

This is my experience in selling consumption-based products:

  1. It is incredibly important that the customer can plan their costs. Therefore, it can be useful to take certain measures, such as a daily credit limit.

  2. to help customers get a sense of usage and cost, it can be useful to monitor usage and consumption as part of a proof of value and provide real-time information during the POV and afterwards.

  3. it takes time for usage to accelerate.

What do you think and what experiences have you had?

2

I hear that often, but I never sold consumption-based pricing myself.

Focussing on the power users is surely beneficial. But - without having any experience with this - isn’t the ARR significantly lower, especially at the beginning compared to seat-based pricing?

I agree that this will likely be the way for the majority of SaaS companies. But from a sales rep perspective this is not good news or is it?

Would love to hear thoughts on that.

3

ARR is definitely significantly lower at the beginning, but as an AE you are usually compensated on net new ARR. So if you manage to expand your customer base, you will have a continuous increase in revenue over several quarters, which will attribute to your quota.
Many AEs now work in a hybrid role and do both net new business and account management. I can imagine that those who build good customer relationships and don’t just push deals benefit in particular.