Product Management :: Product Marketing

17 May, 2021

The huge challenge of Consumption Pricing

Software Pricing Partners pen some excellent thoughts on the merits of consumption pricing as a charging model: It’s Wise to Question the Big Assumption about Consumption Pricing

The key fact is here: 
Perhaps the most important challenge when considering a consumption pricing model is to align the use metric to the value the customer derives from your solution, which can evolve over time.

This is really, REALLY hard to do: there are inevitable edge cases which destroy the cost of the service or value proposition. For example, number of users vs number of active users vs number of concurrent users when users churn frequently. What happens in cyclical businesses or when there are pulses of demand or inactivity and your pricing is based on transactions per month?

Yes, you can squeeze in acceptable use policies that prevent extreme abuse, but customers get (rightly) irritated at the lack of transparency. 

Alternative billing models (eg flat rate pricing / all you can eat) makes it easier to accommodate some of these challenges, but all models have their strengths and limitations. And that's the key conclusion to draw when building pricing models: it isn't easy and ignore fashion!

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