New Resource Designed to Educate SaaS, Cloud, and Fintech Leaders on the Commercial Aspects of Consumption-Based Pricing Models
WASHINGTON, December 14, 2022 – Ordway, the finance platform for innovative business models, today released an online guide for usage-based pricing. The guide was developed over the past year, based upon an exhaustive analysis of real-world pricing strategies at several hundred SaaS and cloud companies. Its content was authored by Ordway executives with several decades of experience working at SaaS, cloud, and fintech companies with consumption-based pricing models.
The seven-chapter guide includes detailed explanations of the key concepts behind usage-based pricing including:
- Value Metrics – Pricing can be based upon almost any unit of measure imaginable. The guide outlines the four most categories of metrics – time-based, transaction-based, volume-based, and count-based.
- Discounting Models – Providers offer discounts that reward customers with lower per-unit prices as their usage grows. The guide explains different models such as volume, tiered, and stair step pricing.
- Contract Structures – As usage grows, most customers switch from pay-as-you-go plans to annual contracts. The guide details arrangements such as prepaid credits, monthly minimums, and spend commits.
- Quantity Calculations – The actual quantity consumed is not necessarily the quantity billed for. The guide explains quantity calculation methodologies such as high water mark and percentile billing.
- Usage-Based Billing – A complex process is required to converted metered consumption data into an invoice. The guide details how billing engines, rate usage and computes the charges owed.
- Investor Reporting – Metrics such as ARR, net dollar retention, and remaining performance obligations create challenges for finance teams. The guide shares examples of public companies report.
“There is a tremendous amount of interest in usage-based pricing, but everyone is using different definitions and terminology to describe how it works,” said Steve Keifer, chief marketing officer at Ordway. “Several good articles have been published, but they are each narrowly focused on the way a single company has implemented usage-based pricing when, in fact, there are trillions of different ways it can be implemented. Our hope with this guide to provide a more comprehensive approach to better educate the market.”
Ordway offers usage-based billing software for rapidly growing SaaS and cloud companies. Using Ordway’s APIs, monetization engineers can stream metered consumption data captured in their products to Ordway for rating and invoicing. Ordway’s usage-based billing application supports a broad set of discounting models including volume and tiered pricing, contract structures such as prepaid and monthly minimums, and billable quantity models including usage pooling and high water mark. Outputs of the billing engine can be fed into the revenue recognition application to generate accounting under ASC 606 as well as into the reporting module to calculate ARR, net retention, and other investor metrics.