Usage-Based Pricing: What Most SaaS Businesses Need to Know with Kyle Poyar

Kyle Poyar is the Vice President for Market Strategy at OpenView since 2016.  He is responsible for helping OpenView’s portfolio companies accelerate top-line growth through deep insights.  He leads segmentation, positioning, channel/partner strategy, new market entry, and packaging/pricing initiatives, partnering closely with portfolio leadership teams. He also covers OpenView’s SaaS metrics and benchmarking research.   Previously, he worked for Simon-Kucher & Partners as a Pricing Consultant for six years.  Kyle earned his AB Economics & Environmental Studies at Brown University.  He graduated Magna cum Laude with departmental honors in Environmental Studies. In this episode, Kyle shares how you have to charge based on a pricing metric that has a lifetime value to your business.   Why you have to check out today’s podcast: Find out the many nuances of usage-based pricing and see where customers are seeing value and provide more of that Understand the nuances between consumers and businesses in terms of how they make purchase decisions so you create a long-term value and availability to expand customers over time Find out what forms part of your ARR (Annual Recurring Revenue) and track them to see the health of your business   “Really do the work to figure out what are the one or two usage-based metrics that correspond with the value your customers see. You might find that, hey, these are things where the customers you keep or that spend more tend to consume more of that, as opposed to the ones who churn tend to, you know, consume less of it. And think about how you could maybe incorporate that as like a limit or a fence from one package to the next.” - Kyle Poyar   Topics Covered: 01:39 - Defining usage-based pricing 02:34 - Usage-based pricing being a customer-friendly model 04:40 - Is buying a hamburger at McDonald’s a usage-based pricing? 05:17 - Pricing metrics as also usage-based pricing 06:47 - The nuances to think about in usage-based companies 08:04 - That rollover minutes that is giving folks that peace of mind 09:10 - Understanding usage-based subscription tiers 10:23 - Kyle’s interpretation of Zuora’s report where it says 25% usage and 75% subscription 11:48 - Why minutes are probably not the best value driver or value metric for phone companies 13:50 - What is part of your annual recurring revenue (ARR) 17:11 - Lifetime value of customer 20:10 - How credits can get in the way of simplifying customers’ buying experience 23:34 - Are credits related to the value the customer gets or to the usage companies are using 25:50 - Credits as used and shown in arcade games 26:48 - Piece of pricing advice that can greatly impact one’s business   Key Takeaways: “You don't necessarily want to price out usage. If your usage metric is declining rather than increasing, you'd rather make a creative move and say, hey, we're going to give you unlimited usage, but we're going to charge you per gigabyte of data.” - Kyle Poyar “While you don't want to have unprofitable customers, you really need to simplify the buying experience for them. And trying to align how you charge with how someone sees value, and how your cost structure is set up is really on you. It's not the customer's responsibility.” - Kyle Poyar “A good way of thinking about credits is building a retainer for a customer and having an agreed upon rate schedule at which they will draw down that retainer.” - Kyle Poyar   People / Resources Mentioned: Twilio: https://www.twilio.com/ Snowflake: https://www.snowflake.com/ SendGrid: https://sendgrid.com/ Zuora: https://www.zuora.com/   Connect with Kyle Poyar: LinkedIn: https://www.linkedin.com/in/kyle-poyar/ Twitter: https://twitter.com/poyark?lang=en   Connect with Mark Stiving:  Email: [email protected] LinkedIn: https://www.linkedin.com/in/stiving/