Implementing Usage-Based Pricing: What Your Financial Teams Need to Know - OpenView
Curated from: openviewpartners.com
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Usage-Based Pricing(UBP)
- When implementing a UBP model, prioritize allowing for maximum usage flexibility and pricing transparency for your customer.
- Create the option for customers to commit to your product for an extended time period for a pricing discount.
- Emphasize the benefits of UBP to your investors and get them excited about usage-based metrics.
- Don’t hesitate to automate financial processes when you are ready to scale.
- Don’t let your financial team exist in a vacuum. Collaborating with outside teams will help your team do their job more accurately and be prepared for change.
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Removing Friction By Being Transparent
Usage-based pricing removed a lot of friction for adoption.
For customers, getting started is easy and with an emphasis on flexible usage, staying with the company becomes a no-brainer.
Pricing transparency is also a huge selling point.
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Manage Expectations for Predictability
Answering questions about what the top line is going to grow to as new logos are added or as existing logos expand can be more challenging with UBP.
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Sell Your Investors on UBP With Redefined Metrics
- Your product and platform's intrinsic virality gives your investors confidence in continual top-line growth.
- ARR is the metric that communicates how Datadog is performing today.
- Usage-based annual recurring revenue (UARR) measures usage growth over time with any vertical customer.
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Automate Financial Processes to Scale
Financial processes need to clearly present different commitment and drawdown plans and track customer-specific contract terms.
Whereas seat-based models can implement a third-party customer billing platform with relative ease, these billing platforms cannot readily account for all the features.
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What The Finance Team Needs To Do
- Pricing will change with a UBP model.
- The finance team has to be able to adapt and move as these new insights arrive.
- Take proactive measures to understand potential changes and prepare your teams for them.
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