A 2024 RevOps Guide to Usage-Pricing and Billing

Everyone is buzzing about usage-based pricing. It can be a game changer, but switching your pricing model can also be fraught with complications. We invited a panel of experts to discuss the good, the bad, and the untapped potential of usage-based pricing in 2024. Join Kate McCullough, Co-founder at Nue.io, Eric Portugal Welsh, Director of RevOps at Deputy, and Lisa Kelly, RevOps Executive at Proven Revenue to hear their hard-won advice.

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“Executives and boards are curious about usage based pricing, but they don’t know the intricacies of actually getting started from an operational standpoint.” - Kate McCullough 

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Usage-based pricing is a model where a customer’s cost depends on how much of a product or service they consume. Typically, you count usage by tracking metrics like API calls made, storage used, and bandwidth consumed. No matter your business, there are operational upsides and downsides to usage-based pricing.

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Usage-based pricing has revenue potential

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Usage-based pricing aligns price to the value of your product, mitigates issues with high usage using up resources, and is transparent for the customer. While some companies go all in on usage, it’s more common to deploy a hybrid pricing model that pairs subscription and services pricing with one of three types of usage-based models: 

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1. Pay-as-you-go: Allows customers to buy more in busy times
2. Credit burndown: Helps customers establish upfront costs for their contract
3. Usage overages: Generates revenue by invoicing customers that exceed set quantities

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Misconceptions can lead to manual work overload

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“Anything that’s really good and flexible for the customer becomes a bit of a nightmare for the operations team to implement.” - Eric Portugal Welsh 

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In the excitement of launching user-based pricing, companies can have some common misconceptions. They think that usage is just a billing problem, that it’s easy to set up as plug and play, or that it will make it easier for sales teams to sell.  

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In reality, implementing usage-based pricing affects the entire customer lifecycle. Buying a new billing tool won’t help the people that manage every step of your customer journey like sales, product, and especially finance. Without an operational strategy, you’re creating a lot of manual work.

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Considerations for your GTM operations

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“You might end up with an entire team that just explains bills every month.” - Lisa Kelly

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Sales reps are usually the people that answer billing questions from customers. Tracking usage in a system that’s visible to everyone can help reduce the amount of manual calculations. Additionally, you’ll need to be very clear on what levers sales reps can pull to receive compensation and hit their sales targets.

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Your customer success and support teams need to understand the new pricing model very well. If your product is misconfigured at implementation, for example, it can have huge implications. API calls can result in 10X the cost that the customer expected, eroding trust in your company.

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Generating revenue through a consumption model is not guaranteed. Finance teams can't forecast usage for each customer next year or even next month. This makes revenue recognition very challenging. Transparent usage tracking can help them forecast future revenue.

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Get started on the right foot

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“No matter how much you think you’ve thought through adding usage-based pricing into your product, you haven’t thought of everything.” - Lisa Kelly 

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To mitigate the biggest pitfalls of adding usage-based pricing, our panel of experts recommends assigning a singular product manager or owner to oversee the launch from day one. If you don’t have someone looking horizontally across your new processes, you’ll never catch all of the complications that may arise. 

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