As I discussed earlier in this 4 Part Series, implementing consumption pricing can be challenging for SaaS and hybrid cloud organizations. While many companies have shifted to subscription models even for on-premise moving from annual subscription to consumption pricing is still a complex process, and companies may encounter various challenges along the way.
It’s important to be sure as you are developing your strategy you are once again, considering all aspects of the business that are impacted and evaluate your current business maturity in each area to increase your success.
Here are five common mistakes I’ve seen companies make when implementing consumption pricing.
1. Underestimating usage forecasting
One of the biggest challenges in implementing consumption pricing is accurately forecasting usage, as this determines the pricing structure and the costs associated with delivering the service. According to a survey by Flexera, 43% of companies struggle with forecasting usage, leading to revenue leakage and pricing errors.
2. Failing to communicate pricing changes to customers
Companies often make the mistake of not clearly communicating changes in pricing structure to their customers. This can lead to confusion and frustration, and ultimately impact customer loyalty. In fact, a survey by Simon-Kucher & Partners found that 44% of customers were likely to switch to a competitor if pricing was not transparent and fair.
3. Not considering the impact on sales compensation plans
Consumption pricing can significantly impact the way sales teams are compensated, and companies may struggle to align their sales compensation plans with the new pricing model. According to a survey by Openview, 58% of companies cited sales compensation as a major challenge when transitioning to consumption pricing.
4. Overcomplicating the pricing structure
Companies may make the mistake of overcomplicating the pricing structure, leading to confusion and lower adoption rates. In a survey by ProfitWell, 65% of SaaS companies reported that their pricing was too complex.
5. Failing to monitor usage and adjust pricing
Consumption pricing requires ongoing monitoring of usage and adjusting pricing based on customer behavior. Companies may make the mistake of not monitoring usage, leading to inaccurate pricing and lost revenue. In fact, a survey by Zuora found that 36% of companies reported that they were losing more than 5% of revenue due to inaccurate pricing.
To avoid these mistakes, companies should carefully plan their consumption pricing strategy and ensure that they have the necessary processes and tools in place to accurately forecast usage, communicate pricing changes to customers, align sales compensation plans, simplify the pricing structure, and monitor usage.