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Message: [QUOTE="Ram Iyer, post: 3372"] Kyle Poyar Contributor [URL='https://twitter.com/poyark'] [/URL] Kyle Poyar is a partner at [URL='https://openviewpartners.com/people/kyle-poyar/']OpenView[/URL]. More posts by this contributor [LIST] [*][URL='https://techcrunch.com/2021/11/23/inside-the-rapid-rise-of-usage-based-pricing/']Inside the rapid rise of usage-based pricing[/URL] [*][URL='https://techcrunch.com/2021/05/06/freemium-isnt-a-trend-its-the-future-of-saas/']Freemium isn’t a trend — it’s the future of SaaS[/URL] [/LIST] Usage-based pricing (UBP) has quickly gone from [URL='https://openviewpartners.com/blog/2021-state-of-usage-based-pricing/#.YYQ-kmDMI2w']fringe to mainstream in SaaS[/URL]. Converts to UBP are drawn to the promise of accelerated revenue growth and a more efficient land-and-expand business model. But achieving faster revenue growth isn’t as simple as just changing pricing. UBP is a company-wide effort and requires ditching the old SaaS metrics playbook. Consider Snowflake, a data warehousing company that went public in 2020 and now has a $100 billion market cap. While conventional wisdom suggests SaaS companies should aspire for net retention of 100% or greater, Snowflake reports an off-the-charts 169% net retention driven by an effective consumption-based pricing model. The company’s net retention actually rose from 158% in Q2 of fiscal 2021. For Snowflake, $1,000 in initial spend from a new customer would theoretically turn into $13,000+ after five years. So how much should I spend on customer acquisition (CAC) to acquire a new logo? Do I compensate sales for the initial spend, or should reps share in that customer growth? How should I invest in product and engineering to ensure customers see better value as their costs increase? Many usage-based companies ask themselves similar questions. [HEADING=1]Usage-based companies share their customers’ success[/HEADING] Leading usage-based companies have the phenomenal ability to grow with their existing customers at extremely high rates. Top-quartile net retention for those with a largely usage-based pricing model was 122% compared to those with usage-based subscription tiers (110%) or no usage-based pricing (109%), according to OpenView data. [IMG alt="Net dollar retention"]https://techcrunch.com/wp-content/uploads/2021/12/image1-2.png[/IMG] [B]Image Credits:[/B] OpenView Partners But such an expansion isn’t usually a result of selling more products or gating advanced features behind up-sell packages. It comes from customers increasing their consumption as they become more successful and discover new use cases. For example, Twilio boasts a 132% net retention rate across an impressive base of 200,000+ active customers, and about 85% of Twilio’s net expansion comes from usage with only 15% coming from new products, according to the company’s 2020 [URL='https://s21.q4cdn.com/963721274/files/doc_presentations/2020/10/2020-Twilio-Investor-Day-FINAL-WEBSITE.pdf']investor presentation[/URL]. [/QUOTE]

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