Pricing and Billing Trends & Benchmarks

Live from Schenectady, New York, it's SaaS Talk with the Metrics Brothers, Growth and CAC.

And I'm Growth, better known as Ray Reich, founder and CEO of Benchmarkit.

And I'm CAC, better known as Dave Kellogg, EIR at Balderton Capital, independent consultant, and the author of Kellogg.

And together we are the Metrix Brothers.

And Ray keeps fiddling with something on his desk. And we go together like Ben and Jerry. Yep, Dave.

I actually took us back to food pairings. And this is one I can really appreciate as I just returned from skiing in Vermont this weekend. And I visited the world-famous Ben and Jerry's ice cream.

Well, that's awesome, Growth. You probably know that Cherry Garcia is a Ben and Jerry's flavor.

Well, you know, that is a little too sugary for me, which, as you could probably imagine, is my ode to Jerry Garcia's song Sugary, which is all about counterculture.

My gosh, I had no idea you went that deep. Sugary is not super deep on the Dead, but it's deeper. I thought you were more a Trucking Sugar Magnolia type. So, uh, maybe there's some tie-dye buried down there, Ray. Is, uh, is my metrics brother a secret counterculture figure?

Well, I must admit I'm not, but when speaking of counterculture, I thought we could talk about the counterculture trends in SaaS pricing, which is moving away from subscription and user bases to user-based pricing. So I thought since I just done— did some research with Maxio on this, that we could talk about our findings.

Okay, so usage-based pricing, the new countercultural move. I'm not sure it's quite counterculture, but I think it's kind of becoming prevailing culture, but it's a great topic. And before we do that, Ray, let's hear a word from our sponsor.

The Metrics Brothers is proudly sponsored by Benchmarkit, the B2B AI and software industry's largest, broadest, and most contextualized benchmarking index. Dave Kellogg and Ray Groth Wright have put the Metrics Brothers podcast on hiatus for the remainder of 2026. All episodes we have ever recorded are still available on your favorite podcasting app. You can reach Dave @kellogg and Ray on LinkedIn @rayreich. Thank you so much for listening to the Metrics Brothers podcast. Okay, Dave, now for those loyal listeners to SAS Talk, today's a little bit different than most of our episodes. Often we talk about the metric and we get deep into the definition, how it's used, and the value. Or we talk about benchmark reports. So we can say go to page 3 or page 5. But today we're going to talk about some of—

Do neither.

Pardon me?

We're going to do neither.

We're going to do neither.

It's new.

It's experimental. I'm doing counterculture experiments now. So I thought we'd talk about some of the behind-the-report findings about what's really going on with usage-based billing. And so people don't need to follow to a report, but they can get some of the insights that I got as the data analyst and all the research we did.

Okay. So Ray, basically there is a report produced by this, but we're not going to be looking at it, correct, today? We're going to be looking at kind of the underlying findings. As far as I know, yeah, you at Benchmarket ran a report for Maxio on pricing. And what did you say earlier when we were warming up? You make 60 charts and customers tend to pick 10 or so. for their reports? How does that work?

Yeah, that's a really good question because, you know, some people like to use research to basically back up the messaging, positioning, and narrative they like to espouse to the marketplace. We're very different. We'll pick a topic, like here is the— Maxio wanted to do one on pricing and billing trends. So we wrote the questions of how companies are, what pricing model they're using, et cetera. And then I simply provide the top 40 to 50 charts of the findings segmented by things like company size, ACV, go-to-market motion. And then our partner, in this case Maxio, chooses the top 8 or 10 they put in a report. But I wanted to share the ones they didn't put in a report because I think they may be even more objective and insightful.

Cool, cool. So, so take a look at the Maxio report, people, if you want to. Uh, I can't remember the full name. It's kind of Maxio Pricing Trends 2025, I think.

Yep.

But today, we will not be following along in the hymnbook. We're going to be going off-road with Ray, looking at some of the data he found there. And Ray, this is a sample of 316 companies. How did you find them? Is there any bias there?

No, they are not. So we have about 10,000 people in the Benchmarkit research database. So we pick out the personas, Like the CRO, the CMO. I do have about 800 people who have pricing in their title. So that's who we go out to. And then Maxio goes out to their marketing database of their target buyers, not their customers. Those are the primary sources of the input.

Okay. One last question about the survey process, Ray, since you're an insider here. You kind of talked about this already, that people often ask you to wire these reports. But, but you don't do that. Is that common? When you see these reports produced by vendors, what's your first reaction if you didn't do the research?

That it's biased, that it's going to be geared towards supporting their narrative. I mean, even when you see some of these white papers that are done by Forrester or Gartner, if they're sponsored, you probably can guess that some of the findings were targeted and aligned to the messaging the vendor wanted to Communicate.

Maybe we should do an episode, Ray, on how to read surveys and how to look for signs that a survey is biased. That could be a really fun episode.

I'd love to do that, but let me give you an example here, you know, because Maxio sells billing software, right? And the more complex the billing elements, the more they need automation like Maxio. So I'll give you an example. 67% of the people in this survey said they use usage-based pricing. Now that's up from 52% when we did the same research in 2022. And OpenView also did research, Kyle Poyer, and in 2022 he said it was around 48 to 50% of companies were using usage-based pricing. But we peeled back the onion. So when people said that, we said, what is your primary pricing model. And we ask things such as, is it subscription based upon users? Is it usage with no minimum commitment? Is it usage with a minimum commitment? Or is it hybrid pricing? Do you have some type of subscription access to your platform, or I let 5 users access the platform plus a number of transactions such as 100,000 emails sent? or 20,000 contacts. So we pulled it back, and that's what's really interesting. When you look at 67% said they use usage-based pricing, actually 15% of companies use a subscription plus usage basis, Dave. So that's only 15% have a subscription plus usage base. But then only 8%, only 8% have pure usage-based, and the only commitment is based upon the number of units. An example, 100,000 API calls, I charge $1 apiece, and that would be too expensive. Your annual commitment, not subscription, is $100,000. So we really peeled back the onion here. And one last thing. The other thing that's happening today is not usage, but value-based pricing. Things like percentage of gross merchandise value, Or percentage of payments processed, that's not usage. Most companies are calling that value-based pricing. So you really need to understand these discrete subsectors of usage-based pricing, Dave.

Yeah. Okay. I got it. I agree. I'm glad you peeled the onion back. Yeah, it looks like you got about 8 buckets of things when you talked about. I actually don't get the math though, Ray, because if I look at this chart, which the audience can't see, so I apologize, but I see 46% on subscription. So how, if 46% are doing subscription, are 67% doing some usage? Or is it an overlap? Is that what's going on? It is.

Some people will have a subscription plus usage, and they're like, hey, we have usage, so we're going to say yes to usage.

Got it. Got it.

That's the problem of surveys. You have to, unless you're talking to someone and you force them into only one bucket, sometimes they're going to be saying, well, I'm in this bucket and it's the wrong bucket.

Got it. And just for the sake of ultra clarity, this thing is not wired in any way. When we talk about certain vendors wire these things, you have not wired the survey. Maxio did not ask you to wire it in any way. Yes, they certainly will be happier if pricing turns out to be complex. And I just think in this particular case, trends are blowing. The wind is blowing their way. Because, because I agree with the finding here that pricing is getting more complex.

Much more complex. And even now with outcome-based pricing, we actually did even ask outcome-based pricing, but it's such a small percentage, we just threw it into other for now. But what I'd like to do, Dave, if it's okay, is talk about how— and I'm going to talk about the 4 basic bundles of pricing models that we Then compared to growth rate, if that's okay.

Sure, go for it.

So hybrid— a hybrid pricing model is someone that has a subscription plus some usage-based element, not user, but usage-based element. Then we have pure standalone usage-based where they just get charged for the unit of measure they're using. The third bucket is value-based where they're going to be charged on some Percent of value, such as percent of sales that goes through the platform or percent of payments, and then the traditional subscription, which was user-based. And what's interesting is people who use a hybrid model of a subscription plus usage, 36% of those companies were growing over 30%, and no other segment came even close. So fastest growing companies had a subscription plus usage base. So that was 36% of hybrid pricing models, and only 21% of companies that had hybrid pricing models were growing less than 10%. And that stands in contrast to people who are using usage-based pricing alone, no subscription plus usage. Only 28% of those companies were growing faster than 30%. So that's 28. Versus 38%. And people who just did usage-based with no subscription, 46% of those companies, Dave, were growing less than 10%. So what I really want to highlight here is to the audience is usage-based alone, where you're just getting revenue when somebody makes a trigger tick, uh, email or an API call, they're growing much slower, Dave.

Got it. Slightly confusing, but let me come back to this, Ray, because I think the overall point I have 2 overall points. One, your survey says that the companies who are growing fastest in the majority use hybrid pricing. That is correct. And then of the companies who are growing slowest, the majority are pure usage-based, which is weird, right? And then next to that is pure subscription rates at 32%. Thoughts on that one?

No, it's just, it tells somebody who's thinking about their pricing, don't think just because you're trying to reduce the friction to close things faster, so there's no commitment, that's just pay as you go, that that's going to lead to faster growth. What the data here says is if you do that, you're actually going to have a higher probability of growing less than 10%. And by the way, I saw another research report out there that had the same findings. Usage by itself is not the fastest growing option.

Is that you ringing there, Ray?

I don't know.

Is that 1970 calling? I think they want you, Ray.

It was. It was. So.

Okay. One more question for you on this, Ray. It's just the old correlation versus causation. You cannot definitively state from this data that if you do hybrid pricing, your company will grow faster, correct?

No, definitely cannot say that it's causal in nature. All I can do is look at 300+ people and say, for those who said they were doing hybrid pricing, they had the highest percentage of companies growing faster than 30%.

So what do you think that is? Out of curiosity, is it because they're the most aggressive companies and therefore they're most willing to try the newest pricing model? Or is it because the pricing model, right, just to take 2— there's an infinite number of scenarios, but take one simple one. the kind of chicken egg. Is there, I think it's called a confounding factor, is there an underlying factor like they were aggressive about everything? So they're aggressive about growth and they're aggressive about new pricing models.

Well, I'm gonna tell you my assumption and I have the next data point and I think supports my assumption.

Yep.

Companies that have pricing power, so they have either significant market leadership, category leadership, They can price more so they can ask for more upfront in a form of a minimum commitment, in form of subscription, and charge for the utilization or usage variable above that.

Can they also get longer deals? Ray, I know you— I know this study looked at deal duration. It's a very interesting point. People with pricing power, you're saying, can do 3 things. I think they could do 3 things. One, ask for more money upfront in the form of a minimum commitment. They can ask for a hybrid model where you're paying a base fee plus some overage fee, and I'm betting they can also ask for a longer contract duration. All true or not?

Number 3, I hate to admit it, even though we asked for length of agreement, and what we found in 2024 versus 2022 is 27% of the participants now doing 2 or 3-year agreements, and it was less than 10% 2+ years ago. But what I didn't do was crosstab that to hybrid versus length of agreement. But I'm going to go do that now.

Okay. Got it. Got it. Okay. So, so I can't, because I've reviewed this stuff in advance, as readers will know, we actually prepare for these. I did notice somewhere the contract durations were getting longer, but you didn't cut it by pricing power or growth rate. All right. Let's do your next one.

No, I did not. Now, we also asked about the presence of AI. And the reason we asked about the presence of AI, because we wanted to see how people were charging, pricing their AI. And 70% of the respondents said they have introduced some level of AI in their product. And by the way, I saw another SaaS report a few weeks ago and it said like 67%. So pretty consistent. But we asked, how do you charge for your AI product? What was very interesting was 43% of companies included it for free, no additional charge. 44% of companies had a set price and charged for it. And then 10% of companies said we do a cost-plus model. Now what we don't know, David, in that cost-plus, how does that look in the agreement? Because we didn't do that qualitative. But it was interesting, 43% included for free, 44% have a list price for the AI capability.

But you don't know— the interesting thing is, what's the list price based on? It's not— it's just a priced item. We don't know on what model, right? It could be—

No, only, only 10% said we charge our AI based upon a cost plus. So if they're paying, you know, 25 cents a token to OpenAI, maybe they charge 35 cents a token. But we don't know exactly how they do that, Dave.

Yeah, got it, got it.

But what we do know is that the companies who charge for AI are growing much faster than those who don't. So companies that are charging for AI as an add-on, 28% of those companies were growing faster than 30%, while only 19% of companies who provided it for free were growing faster than 30%. And on the flip side of that, companies who included it for free, 35% of those were growing less than 10%, less than 10%, while the companies who charged for it, only 27% of those companies were growing less than 10%. So those 2 factors combined says pricing power to be able to get paid for your AI add-on is going to lead to higher growth.

Again, I'm slightly worried about the correlation-causation chicken-egg. Am I growing faster because I have AI as a separately priced item, or can I price AI as a separately priced item because I'm growing faster, right? I, I, I'm not sure what's the chicken and what's the egg there, but, but I think you can state that people who charge for AI as a separately priced item are growing faster. You don't know why.

We don't know why. Yes, that's a little bit like— I, I don't want to take this off the rails here, but I just did a marketing benchmark study, and what we found was companies who invested more in marketing were growing faster.

Yay!

I don't know.

Stop there, stop there. I'm kidding, right? You don't know what's chicken and what's egg.

No, but I know if I went to the CFO, I'm like, hey, these companies are growing 5% faster and they spend 2% on marketing. You know what I'm going to be lobbying for? 2% more in my marketing budget.

Yeah, no, I understand. That's why I was cheering for marketing there. But again, it's a hazard of the survey business. And I did notice in some of the reports I've read lately where people, you just get a little bit sloppy with your language and you start implying causation that we don't know about. All we can say for sure is what you observe in the survey. Okay, I think you had a couple more things you want to cover, Ray?

Yeah, just 2 more things because we all hear about these words, the word overreach. And overage is typically if you have some type of minimum commitment for your usage-based pricing. I said $100,000 for 100,000 units. What happens if the company went to 100,001? So that's usually considered how do I deal with overage. So for the companies who are using usage-based pricing in this survey, 39% had a soft cap. Okay, that's a You get 100,000 emails for that, um, price, and they don't charge for overreach. 39% were not charging for overreach. Now, what I do know through some qualitative outreach is a lot of companies use that as a way to go and ask for a higher commitment. Oh, you should commit to 150,000 versus 100,000 units.

Yeah.

But I was really surprised, Dave, that 39% don't charge.

Well, I'm not, Ray. I actually like that model. Look, if I were doing it in most situations, I personally would do a soft cap into a hard cap. So you get $100,000, we'll send you a warning message between $100,000 and $120,000, and plus $120,000, we'll send you a bill, right? So you have both.

Yeah. And on the flip side of this, only 14% of these companies said they had a hard cap. So that $100,000, when you hit $100,000, no overage was allowed, basically system down, which I'm really surprised at that. But that was 14%. And then 26% of the respondents said, yeah, we don't have a cap and we just charge for everything.

So, oh, that's interesting because I took hard cap to mean something different. To me, the notion that hard cap could mean we're going to stop letting you process was incomprehensible. To me, hard cap is when you mailed a bill as opposed to a warning letter. And, but I think you view both a bill and a warning letter as a soft cap, correct?

That is correct, yes.

Okay, okay, interesting, interesting.

Okay, and, and to that point, Dave, actually, what do companies do when they're reaching the cap? They're only 38%, so only a little more than a third actually send an automated usage notification that you need to upgrade to either the next tier, if there's a next tier, Or you got to go and procure another 50,000 units of usage. But only 38%. 26% actually do an automatic upgrade to the next tier. Hey, you were in that 100,000 tier. I'm going to upgrade you to the 200,000 tier, and they do it automatically.

Yeah, the more, to my mind, you're an enterprise, the more you let people overrun. You probably do notify them, but a courtesy notice, you're only supposed to use 100 and using 105. And then you use that at the next renewal. Or if they're seriously overrunning, if they're doing 150 versus 100, then you say, we need to redo your contract, but you don't do it automatically. And conversely, right, to me, the more you're SMB and mid-market, the more it's just like, hey, you're running over and we're going to mail you a bill if you hit this threshold. You hit 100, you get 20 more, and at 120, I'm mailing you a bill. So, so that's the way I would do it.

But, and I'm going to wrap up with one thing because this, you know, I found that when we don't have a specific report that these conversations can take a long But we did want to know, so if you're billing for overage, how frequently do you do that? And in 2022, only about 2% were billing more frequent than monthly for the overage. But in this year's report, actually, and it just blew me away, 43% of companies who do usage-based billing and charge for overage are doing it either weekly, daily, or real time.

Wow.

Only 35% were waiting until the end of the month to bill for that overage. That shocked me, Dave.

Yeah, I'm even more shocked by the kind of the tail of that, which is weekly maybe, but 27% are doing it in real time or daily, which is to me mind-boggling and certainly not good in enterprise. Enterprise people don't like to be billed even weekly or monthly. So it'd be interesting to watch this by segment. But, but very, very interesting data and quite surprising, to be honest. I agree with you. Yeah. Wow.

So, and then I'm going to say one more thing, and I hate this, and we could talk for a whole episode about this, but of the people who have a usage-based element, 75% of those companies are saying any revenue associated with the usage-based element is still being counted as ARR. Which we've talked about recurring versus reoccurring or why we should use trailing 12 months as the truth. But I'm still shocked at that, Dave.

Yeah. And you asked the question, do you call it ARR? You didn't say, do you call it subscription revenue? Right, right. Because these are, these are fine nuances in word choice.

Like we specifically said, do you consider usage-based revenue as ARR?

Wow. Okay. I wonder what they call it. It'd be very— I don't know if you do open any question after that, but I would immediately say I'd have some option where like, what do you call it if not? Or were you accidentally forcing them to say yes when they don't quite call it that? Because it's a super nuanced topic. And by the way, I mean, how nuanced is this? Does ARR mean recurring or reoccurring as you brought up, right? It gets very nuanced very quickly. So, in any case, interesting stuff.

So, here's my summary of what I found out. And that is just because someone says they use usage-based pricing, not all the models are the same. Some is usage, some is value, and a few small percent were outcome-based, but they all put themselves in the usage-based category. Getting to predictability of your revenue with usage-based, both as a vendor and a buyer, it's really hard. And one of the things I found, because I also have done some research with CFOs, CFOs love usage-based pricing early on because they don't have to make the big commitment, but as soon as it gets validated and used, they hate it because they can't budget very accurately in a usage-based pricing model. So those are 2 things I wanted to highlight as my learnings from this.

All right, well, thanks a lot, Ray. Great, great study. Any wrap-up comments you have?

No, I just think everyone should understand that they need to do their pricing based upon the value that their customers perceive and not to get caught up in this, everyone's doing usage-based pricing, so I need to do it without understanding the granularity of what that really means and the ability to actually bill and retain customers in a usage-based pricing model.

All right. Well, super. Well, we'll see you next week, Gray. Okay.

Thank you, Dave.

Thank you. The Metrics Brothers AI, SaaS, and More is a production of The Metrics Brothers Growth and CAC. And a member of the Benchmarket Podcast Network. By accessing this podcast, you acknowledge that the Metrics Brothers make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided or the humor content of the jokes told.

Ahem.

Ray? Information, opinions, and recommendations presented are, according to our spouses, probably wrong and provided for information purposes only. This podcast should not be considered professional or, for that matter, unprofessional advice. We disclaim any and all liability for any direct, indirect, undirect, misdirect, incidental, special, ordinary, consequential, inconsequential, or other damages arising out of any use of, or God help you, reliance upon the information presented here. Ray Grothreich is based in New York City and available on X at Ray Reich. Dave Kellogg is based in Silicon Valley and available on X at Kellogg. Schedectity, which is French for unspellable, is not our actual production location. Thanks for listening.