Strategy – Consumption Pricing : Don’t Forget the Channel

Consumption pricing has emerged as a popular pricing model for software-as-a-service (SaaS) organizations, offering several advantages over traditional perpetual licensing or subscription pricing. Consumption pricing enables SaaS providers to charge customers based on their actual usage of the product or service, rather than a fixed price. This can lead to more accurate pricing, increased customer satisfaction, and improved revenue predictability.

So often when I have been part of or work with organizations. The channel and the channel partners are very much an afterthought. With SaaS models and consumption pricing bringing the customer and the vendors closer together the role for the channel partners has changed, but it has not gone away. For many customers they continue to provide mechanisms for purchase consolidation, or channel partners play a role in augmenting offering through customization of SaaS offerings and integration.

They also play a strong role extended a company’s reach into regional markets and access to industry verticals where they may specialize and be trusted advisors. For vendors this also means changes to the way these partners are supported and enabled to achieve the desired business outcomes. In this blog I’ll highlight just a few of the to barriers to success, areas to consider in building out your own programs and some ket metrics to ensure you are able to track success along the way.

Again, creating consumption pricing strategies for channels that both provide incentives and manage customer ownership can be a complex task. Channel partners such as value-added resellers (VARs), system integrators (SIs), or managed service providers (MSPs) play a critical role in customer acquisition and retention. Their incentives and compensation structures can greatly impact the success of a consumption-based pricing model and adoption within your existing or target customer base. 

Top Barriers

According to industry research from Forbes and Channel Futures there the Top barriers to success in a consumption pricing channel program are:

Channel Enablement

A lack of effective enablement for the channel partners is a common barrier to success. It is essential to ensure that the partners have the necessary tools and resources to sell and support the product effectively. Without proper enablement, partners may struggle to deliver the expected results.

Incentive Structure

Incentives provided to channel partners must align with the company’s goals and be attractive enough to drive their behavior. Poorly designed incentive structures can lead to undesirable partner behaviors, such as focusing on short-term gains over long-term success.

Partner Relationship Management

Strong relationships between SaaS organizations and their channel partners are essential to the success of the program. Poor communication and support can lead to mistrust and misalignment, which can harm the program’s performance.

Top Considerations When Defining Your Pricing and Program Strategy

As a result as part of an effective consumption pricing strategies for channels, it’s important to consider within your planning and program development:

Clear and transparent pricing and incentives: 

VARs and MSPs need to be incentivized to drive usage and revenue growth for the product, but the pricing and incentives structure should be transparent and aligned with the overall business objectives. This requires a deep understanding of the channel’s business model and compensation structure, as well as ongoing monitoring and adjustment to ensure that the pricing and incentives are effective.

Flexible and customizable pricing: 

Consumption-based pricing models should be flexible and customizable to meet the unique needs of different customers and use cases. This requires a deep understanding of the customer segments and use cases that the channel serves, as well as ongoing experimentation and iteration to ensure that the pricing and packaging strategy is effective.

Strong channel enablement: 

VARs and MSPs need to be equipped with the tools and resources to effectively sell and support the product. This requires a focus on channel enablement, including training, documentation, and support resources, as well as ongoing engagement and collaboration to ensure that the channel is successful.

Visibility and control: 

Customers need visibility and control over their usage and entitlements, and this information should be easily accessible and transparent. This requires strong back-office integration and reporting tools, as well as ongoing monitoring and communication with the channel to ensure that customers are getting the value they expect.

Defining Success Metrics

As you are putting your program structure in place it is also critical to be sure you have defined a clear set of metrics, specific to the channel partners and their role in the relationship with the customer as part of your consumption pricing strategy and that indicate the program’s effectiveness.

Top three metrics for a successful program are:

Revenue Growth: The primary metric to track the success of the channel program is revenue growth. It is essential to monitor the revenue generated through the channel, as well as how much of that revenue is from new customers and existing customers. This metric provides insight into the channel’s effectiveness in attracting and retaining customers.

Channel Partner Performance: Another key metric is the performance of the channel partners. Tracking metrics such as the number of new customer acquisitions, customer churn rate, and the average revenue per user (ARPU) generated by the partners, will provide valuable insight into the effectiveness of the channel program.

Customer Satisfaction: Customer satisfaction is an important metric that measures the effectiveness of the channel program from the customer’s perspective. Metrics such as Net Promoter Score (NPS), customer retention rate, and customer lifetime value (CLTV) can provide insights into the quality of service provided by the channel.

By considering these factors, and actively identifying barriers to success to course-correct and optimize the program SaaS organizations can create effective consumption pricing strategies for channels that provide incentives and manage customer ownership, and ensure that the pricing model is aligned with the overall business objectives and drives usage and revenue growth.