The Shift to Consumption-Based Models in SaaS: What Leaders Need to Know

The evolution of SaaS pricing models has been fascinating. Back in the day, companies started with enterprise licenses, moved to per-seat pricing, and now we're seeing a growing wave of consumption-based models. Some even predict a shift toward outcome-based models in the future. But in all these models, one thing remains critical—deeply understanding customer goals.

Why Goal Clarity is Essential

In a consumption or outcome-driven contract, goal clarity isn't a "nice to have"—it's fundamental. The conversation around goals should start in the sales process, ensuring that by the time a contract is signed, both the customer and the provider are aligned. Even in more traditional models, knowing what success looks like for the customer is key to long-term retention and growth.

Measuring the Right Kind of Usage

When it comes to consumption-based models, usage metrics can be misleading. A constantly rising usage graph might seem exciting, but a more telling sign of success is an upward trend with fluctuations. Why? Because it signals that the customer is experimenting, learning, and adapting—figuring out which features drive real value. This kind of engagement is healthier than blind, unchecked usage.

Consumption Models Shine in Downturns

One of the biggest advantages of consumption-based models is their flexibility. In economic downturns, customers can scale down spending rather than churn completely. When the market picks up, they can scale back up. This adaptability makes the model attractive for both customers and providers.

The Challenge of Forecasting

That said, one major challenge with consumption models is predictability. Customers want to budget, and businesses want reliable revenue projections. To bridge this gap, leveraging past data and cohort analysis is crucial. Providing customers with estimates based on similar profiles can help them plan better, making the model more approachable.

Doing Right by the Customer

At the core of all go-to-market strategies, one principle holds: doing right by the customer. Consumption-based models align well with this philosophy, ensuring customers pay for what they use and see direct value. As SaaS companies refine these models, keeping customer success at the forefront will be the key to long-term growth.