Value-based pricing formula explained (with free worksheet)
Alvaro MoralesUsage-based pricing is becoming more popular, and more high-revenue companies are reaping the benefits of implementing this model.
In this quick list of examples, we’ll share how 14 SaaS companies are successfully using this type of pricing strategy.
We’ll go over:
Let’s get started.
Usage-based pricing is a billing model where customers are charged based on how much they actually use a product or service, not a flat monthly fee.
This might seem like common sense, but it's a big deal in the world of SaaS. Traditionally, most companies locked customers into subscriptions, whether they used their software a little or a lot. Usage-based pricing flips that script, making the price match the value customers get.
There are a few reasons why we're seeing this shift toward usage-based pricing:
Usage-based pricing isn't just a trend; it's becoming the norm. A recent report found that nearly half of all SaaS companies (45%) have already switched to usage-based pricing. And it's not slowing down — a whopping 61% of companies are either testing or actively planning to launch their own usage-based pricing models.
Usage-based pricing started with the big players in cloud computing (like Amazon Web Services and Azure), where it made sense to bill for customers' computing power.
But it's now showing up in everything from email marketing platforms like Mailchimp to AI-powered writing tools. It's a versatile model that's finding its place across the entire tech landscape.
A titan in cloud computing, AWS demonstrates the power of usage-based pricing. It offers a wide range of services and charges customers only for the resources they consume.
This model's pricing has some interesting nuances that make it attractive to businesses of all sizes:
This multi-pronged approach is a big part of why AWS has captured such a large chunk of the cloud computing market. It offers options to suit different needs and budgets, and the price is always tied directly to the value customers receive.
This cloud-based data warehouse lets businesses store and analyze massive amounts of data, charging only for what they use.
Snowflake's model is based on:
This allows businesses of any size to scale their usage and costs according to their needs, making it an adaptable solution for data management.
Azure, Microsoft's cloud computing platform, thrives on a consumption-based model, charging customers only for the resources they use. This applies to a wide range of services, including virtual machines (VMs) billed by the minute, backup solutions, and logic apps.
Azure offers flexible pricing options:
Twilio is a cloud communications platform that empowers businesses to add features like phone calls, text messages, and video chats to their applications.
Their pricing model is as adaptable as their services:
This mix of pricing options means businesses can choose the best fit for their communication needs and budget without overpaying for unused services.
Clearbit is an API-based tool that helps businesses gather valuable information about their potential customers. Instead of charging a fixed subscription, Clearbit's pricing is based on the number of API requests a business makes.
Clearbit's appeal goes beyond its pricing model:
Zapier is a leading platform for automating workflows between different applications. Their pricing model reflects their focus on usage, charging based on the number of tasks performed and "zaps" used.
Zaps are pre-built connections between different apps, making it easy to automate tasks without coding.
Zapier's pricing model offers flexibility for businesses of all sizes:
Mailchimp, a popular email marketing platform, understands that not all businesses have the same needs. That's why they offer a usage-based pricing model that caters to a variety of sending patterns:
This combination of options means businesses can choose the pricing that aligns best with their email marketing strategy, whether they're frequent senders or only send occasional campaigns.
Jasper is an AI copywriting tool that's gaining traction by making content creation faster and easier. Its pricing model is simple: Customers pay based on the number of words Jasper generates for them each month.
But there's more to Jasper's pricing than meets the eye:
This approach allows businesses to start small and upgrade as their content needs grow. It also means they're only paying for the amount of content they actually produce rather than a fixed monthly fee that might not match their usage.
Google Cloud Platform (GCP) is a significant player in the cloud computing space, and its usage-based pricing model is a key part of its appeal.
Like AWS and Azure, GCP offers a wide array of services, but customers only pay for the resources they consume, which translates into greater cost control and scalability. GCP charges customers based on the specific resources they use, such as computing power, storage, and network traffic.
This pay-as-you-go approach allows businesses to experiment, start small, and scale up as their needs grow. It's a flexible and cost-effective way to leverage the power of the cloud.
Dropbox is a popular cloud storage service that offers a freemium pricing model. The free plan provides users with limited storage space, while paid plans offer more storage and additional features.
Here's a breakdown of Dropbox's pricing:
Dropbox's usage-based pricing model allows users to choose the plan that best suits their needs and budget. They only pay for the storage space they actually use, making Dropbox a cost-effective solution for both individuals and businesses.
JFrog is a company that specializes in tools that help software teams build and release softwarequickly and reliably. It offers these tools in the cloud and charges based on usage.
JFrog's model is a good fit for companies that want to:
Fastly is a company focused on making websites and apps load faster. They do this by providing a content delivery network (CDN) and other cloud services, all with a usage-based pricing model.
Here's how Fastly's pricing works:
By charging based on usage, Fastly incentivizes customers to optimize their content and reduce unnecessary data transfer, leading to a faster web experience for everyone.
Elastic is an AI-based observability solution known for its powerful search, logging, and data analysis tools. It offers a usage-based pricing model that aligns with how businesses actually use their services.
Here's a quick look at Elastic's approach:
This model provides businesses with a flexible and cost-effective way to leverage Elastic's powerful suite of tools, ensuring they only pay for the resources that directly benefit their operations.
Datadog is an observability and security platform (similar to Elastic)and is a popular choice for businesses that must closely monitor their cloud applications and infrastructure. Their usage-based pricing model makes it easy for companies to get the monitoring they need without paying for more than they use.
Here's what sets Datadog's pricing apart:
This approach provides a few key advantages:
By tying its price to the actual value customers get, Datadog ensures that businesses of all sizes can afford to keep their cloud operations running smoothly.
After reading our full list of usage-based pricing examples, you should have a much clearer picture of why and how high-revenue companies are successfully implementing it.
You can achieve similar results using a billing platform specializing in usage-based billing.
Orb is a done-for-you billing platform that helps companies of all sizes charge customers fairly and transparently, thanks to its complete set of tools.
Here’s how Orb solves billing for you:
Learn how Orb can help you execute a hassle-free usage-based billing strategy.
See how AI companies are removing the friction from invoicing, billing and revenue.