Startups Embracing Product-Driven Growth and UBP Outperform Their Peers
Has usage-based pricing (UBP) become mainstream? This is the case of OpenView, a Boston-based venture capital firm, in its annual survey of financial and operational benchmarks. Of the nearly 600 SaaS companies that responded, 45% say they use this flexible pricing model, up from 34% in 2020.
The report, however, is not limited to measuring the number of companies adopting a trend encouraged by OpenView. It also examines the performance of these companies relative to their counterparts and their wider impact. And since he’s not shy about mentioning challenges, we found him particularly relevant to founders who might still be on the fence.
We spoke to the OpenView operating partner Kyle Poyar, who co-authored the 2021 State of Enterprise Usage Based Pricing report with a partner Sanjiv Kalevar. The main information is below, but first and foremost, note that the report definition of usage-based pricing adoption includes companies like Twilio, whose pricing is almost entirely a la carte, as well as those offering a usage-based subscription. levels, like Zapier.
In other words, the report’s co-authors don’t determine whether or not there is a subscription element, but whether or not the pricing is tied to the consumption behavior of the products. And while companies sometimes charge based on company size, features, services, or other factors, this is more blatantly opposed to seat-based pricing.
The momentum behind the change
One of the factors behind this change, according to OpenView, is that “seats” often make less sense than before. Referring to the growing number of startups whose solutions revolve around automation, AI or APIs, Poyar noted that “in none of these cases is the value a customer receiving directly tied to the number of ‘individual humans who connect’.
“In fact,” he added, “it might even be negatively correlated: when AI can automate tasks, the more efficient the solution, the fewer people have to log in. So the seats are just one. outdated way of charging, and don’t allow a business to communicate value or invest in features that would add more value. While Poyar admitted that “it’s not all businesses,” he said. also pointed out that these types of enterprises account for a large part of state-owned enterprises.
This could explain another change described by Poyar: Many companies that go public “call for usage-based models and make them a central part of their S-1s or their documents for investors.” Previously, “we were concerned that investors would penalize them for a usage-based model, because we feared that this was not recurring income, and that it was not predictable. [ … ] Whereas today, a usage-based revenue model is seen as a competitive advantage and a driver of long-term growth.