1. Subscription

• The first is subscription, which I think is pretty obvious for most people because it’s so common. This is charging on a per month basis. If you’re a software company, it might be per user per month.
• One caveat though: don’t rush to a subscription on a per user per month, because that’s the most familiar model for you. Test and learn if that is the right model.
• If you’re on a subscription basis, what is the right metric to align your pricing?
  

2. Dynamic Pricing

• There’s also dynamic pricing, which is becoming increasingly important, especially when the world is moving more digital.
• Dynamic pricing is having the ability to flex your price based on supply and demand. Even in many consumer situations where it was thought not to be possible, it’s actually becoming more and more possible because you can hyper personalize an offer to a customer through a combination of pricing and promotions.
  

3. Market-Based Pricing

• Market-based pricing or auction-based models are also getting to be used more.
• This is when you set prices according to current market prices for similar products.
  

4. Pay As You Go

• The pay as you go metric or aligning more on a per-usage metric is probably one of the hottest trends in SaaS companies.
• People are asking if there is a usage-based metric or a usage-based model that they can come up with because often when you just have a subscription price, you’re capping out on your monetization potential.
• Of course, you’re giving predictability to your customers, but your price is not necessarily aligned with usage or the value that people derive. So if you can unlock pay as you go, like Snowflake, for instance, that could be really meaningful.
  

5. Freemium

• The last one is freemium pricing. To us, it’s more of a model than a strategy because if you really have freemium pricing, the key is to have a proper expansion motion from the land of free to expand to paid offerings.
• Many companies that put out freemiums don’t think about this very strategically and often have given the product away. There’s no room to expand.
• What we find time and again is Pareto’s rule likely applies to customer value and willingness to pay as well. 20% of what you build dictates 80% of the value.
• Most entrepreneurs and startups build 20% of things pretty quickly, and they call it an MVP and throw it out in the market, but they’ve given away 80% of the value.
• They then focus over 80% of their energy on trying to build stuff that’s only worth 20% more and they don’t have any room for expansion.
• Before rushing into freemium, think hard about it. And if you do, do it in such a way that there’s a proper land and expand motion or restrict the freemium usage beyond a certain point so that there’s a natural expansion that happens in your customers.

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