This year a big pricing debate broke out around subscriptions versus usage. “Subscription pricing is dead,” said Tech Crunch. “Smart SaaS companies are shifting to usage-based models.”
In the red corner we had subscriptions: fixed monthly prices, stodgy, old school, Rocky Balboa. In the blue corner we had usage: pay only for what you use, flexible, all the cool kids love him, Adonis Creed.
Sorry, I’m not falling for this one. I’m a lover, not a fighter. The best outcomes are often achieved when the two pricing models are combined.
In fact, I recently had dinner with a bunch of CFO’s and asked them what they thought of usage-based pricing models, as buyers of software. Unanimously, they hated it. Why? Because it’s impossible to budget. And therein lies the dilemma.
On the one hand, no one wants to pay for what they don’t use. That’s the attraction of usage-based models. On the other hand, we all hate being on the clock, there’s something nice about a simple, recurring fee. Imagine if you had to count how many minutes you watch Netflix every month, or if you ran out of minutes halfway through a movie!
That’s why the best models combine the two — call it “tiered plus usage.” A predictable fee for some level of service, and then pay-as-you-go if you need more. If you are familiar with AWS’s “reserved pricing,” it’s kind of like that. It’s the best of both worlds, finding the right balance between flexibility and predictability.