Consumption-based pricing not only changes how organizations bill and revenue-recognize, but it also changes how they incentivize and build their sales teams and channels. Implementing an in-effective GTM change program can blunt any gains from moving to a consumption pricing strategy.
In a consumption-based pricing model, the focus shifts from selling fixed-term contracts to continuously growing usage, and this requires a different set of skills and incentives for sales teams. Moving to a consumption-based pricing approach can pose significant challenges for sales and customer success teams.
According to a survey by Simon-Kucher & Partners, 57% of companies struggle to set appropriate usage-based pricing levels, while 46% find it difficult to align sales incentives with usage-based pricing models.
To effectively sell a consumption-based pricing model, sales teams need to understand the customer’s usage patterns and needs, and be able to articulate the value of the product or service in relation to those needs. This requires a deep understanding of the customer’s business and the ability to provide data-driven insights on usage and trends. According to a study by SiriusDecisions, only 22% of sales reps feel that they have a deep understanding of the customer’s business, and only 24% feel that they have a good understanding of the customer’s buying process.
It also requires an increased focus on customer success and building long-term relationships, as customers are more likely to renew and increase usage over time if they see clear value in the product or service. For sales teams it is moving from a transactional sales model to a continuous relationship-building model. This requires a shift in focus from selling fixed-term contracts to building long-term customer relationships and growing usage over time. According to a study by CSO Insights, 67% of sales professionals believe that building long-term customer relationships is becoming more important, but only 36% feel confident in their ability to do so.
Data Driven Insights are Fundamental for Sucesss
In addition to providing data-driven insights to sales teams, it is also important to provide automated notifications for sales and customer success teams to drive when to reach out and upsell customers. This includes understanding when customer entitlements expire, when customers may have consumed their prepaid capacity before the entitlements expire, and when customers may be approaching usage thresholds that require upselling or renewal.
According to a survey by Gainsight, only 23% of customer success professionals feel that they have a good understanding of their customer’s usage patterns, while 54% feel that they need more data on usage patterns to be effective. By automating these notifications, sales teams can proactively engage with customers to drive usage and revenue growth.
Don’t Forget The Channel
For most B2B organizations the channel is a key part and extension of their sales organization. While moving to SaaS and consumption pricing can directly impact the role of the channel in your revised sales and go-to-market model, they still remain essential in streamlining customer acquisition and accelerating growth. The channel needs to be factored into your sales and customer success planning, for consumption pricing. I’ll go into the details on the unique challenges and guidelines in a separate blog in this series.
To be successful, organizations need to recognize that significant changes and potential restructuring are required in how they sell and how customer success teams engage with customers. They need to plan for and invest in training and development for sales and customer success teams, as well as providing data-driven insights and reporting tools to support their efforts. This requires a focus on building a customer-centric culture and providing ongoing coaching and support. This may also require additional investment in technology and resources, but it is critical to enabling a successful consumption-based pricing model.