Nasr Khan

05 Pricing

Usage pricing readiness

How fast can our revenue mix move to usage pricing, and what must be in place first?

For SaaS CEOs and CFOs. Takes about four minutes. Opens with example numbers.

Your numbers

1Revenue today
$

How that revenue is contracted

Multi-year term
When renewals fall

New annual recurring revenue each year, as a share of revenue at the start of that year.

2The switch

Customers can only switch when a contract comes up. Monthly customers can switch any month.

How far usage revenue moves from one month to the next. Seasonal products swing more.

3What's in place today
4Who pays more

Compare each customer segment's bill today with its bill on usage pricing. It shows who pays more, who pays less, and the price that keeps revenue flat.

$
$

The answer

—

Usage pricing becomes the largest source

0%

Share on usage after 12 months

0

Readiness, out of 100

When your contracts come up for renewal

Less revenue renewingMoreOutlined: launch month. Circled: usage takes the lead.
Show the renewal calendar as a table
MonthSeat revenue up for renewalShare on usage pricing

Share of recurring revenue on usage pricing

Fix these before launch

Who pays more on usage pricing

SegmentBill today, per accountOn usageChangeSegment revenue a month

Take the result with you

A PDF report with your inputs, results, charts and method. Or the same as plain text for an email.

How this tool works

What it does

Most customers can only change how they pay when their contract renews. So your revenue mix can only move as fast as your renewal calendar allows. This tool works out that speed month by month for three years after launch.

It also scores whether the systems and incentives that usage pricing needs are in place, and lists the gaps to close first.

What you enter

  • Revenue and contracts. Recurring revenue split by monthly, one-year and multi-year contracts, and whether renewals bunch at year end. The three shares are scaled to add up to 100%.
  • Growth. New recurring revenue each year, as a share of revenue at the start of that year.
  • The switch. Launch month, the share of renewing customers who switch, the share of new customers who start on usage pricing, and what a switched customer pays compared with before.
  • Readiness. Eight things usage pricing depends on. Tick the ones in place.

What you get

  • The month usage pricing becomes your largest source of recurring revenue, if it happens within three years.
  • The renewal calendar. Darker months have more seat revenue up for renewal. Those are your switching windows.
  • The forecast range. How far monthly revenue could move once usage revenue is part of the mix.
  • A readiness score with the biggest gaps first.
  • Who pays more. Each segment's bill today and on usage pricing, and the price that keeps revenue flat.

The maths, assumptions and sources

Each month, one-year contracts renew in proportion to the renewal calendar, and the chosen share of renewing revenue switches. Contracts that don't switch get another chance at their next renewal. Multi-year contracts renew once per term. Monthly customers decide in the launch month, and a twelfth of that share follows each later month. New revenue arrives evenly through each year. The model ignores churn and price changes so the speed of the switch stands out. The forecast range is one month-to-month swing on the usage share of revenue.

Readiness weights: metering, billing, forecasting and sales pay count 15 points each. Customer controls, a tested metric, contract terms and a named owner count 10 each.

See answer