Pay-Per-Use SaaS: The Future of Software Subscription Models

In the ever-evolving landscape of software as a service (SaaS), the pay-per-use model is making significant waves. We at Plunk have done this from the start. As a young company, it was an easier choice. But recently Zapier made waves as they're taking steps towards this approach.

Zapier's LinkedIn post on January 10th of 2024:

Intercom also started exploring the pay-per-resolution field two weeks earlier.

It's an upcoming big trend.

What is Pay-Per-Use SaaS?

Traditional SaaS models often involve flat-rate subscriptions, where users pay a set amount monthly or annually for access to software, regardless of usage. In contrast, pay-per-use SaaS is akin to a utility model – businesses only pay for what they use. This model offers flexibility and cost-effectiveness, especially for startups and SMEs where every penny counts.

And currently, Plunk is probably your cheapest bet (while not compromising on the features)

Benefits of Pay-Per-Use SaaS

1. Cost-Effective: The primary allure of pay-per-use SaaS is its cost-effectiveness. Businesses only shell out for the resources they use, avoiding the financial strain of unused features that often come with flat-rate models. This approach is especially beneficial for startups and SMEs where budget optimization is crucial.
2. Scalability: Flexibility is at the heart of this model. As a business grows or experiences fluctuations in demand, the pay-per-use structure seamlessly scales to match. This adaptability ensures that businesses are always equipped with the right level of service without the hassle of constantly changing subscription plans.
3. Transparency and Predictability: With pay-per-use, there are no hidden fees or surprise charges. Companies get a clear view of their usage and associated costs, making budgeting more predictable and financial planning more accurate.
4. Alignment with Business Value: This model ensures that the costs incurred are always in direct proportion to the value received. It aligns business expenditure with actual utility, guaranteeing that investment in software yields proportional benefits.
5. Reduced Entry Barriers: Smaller companies or those just starting can access high-quality SaaS solutions without the burden of hefty subscription fees. This democratizes access to advanced tools, fostering innovation and competition.
   And at Plunk, we have a killer free plan to get you started.
6. Optimization of Resources: Pay-per-use SaaS encourages businesses to optimize their use of software, leading to more efficient workflows and resource management. This often makes it faster and more lightweight to run too. It prompts a mindset of strategic utilization rather than the complacency that can come with unlimited access.
7. Faster ROI: Since the investment is usage-based, the return on investment can often be realized quicker. Businesses can directly correlate expenditure on SaaS tools with specific outcomes or revenue streams.
8. Eco-Friendly Option: By encouraging only necessary usage, this model can indirectly support environmental sustainability in the digital space, reducing digital waste and the overall carbon footprint of IT services.
   Plunk is run quite sustainable! Read more about that here.

The Bad

While advantageous in a lot of examples we just mentioned, the pay-per-use model requires careful usage monitoring to avoid unexpected costs.

As mentioned in #6 above, optimization is key.

If your app/program suddenly goes viral, your costs will skyrocket since your usage goes up. Especially if you have a free tier, this can cause some unexpectedly high bills.

In fairness, people who just choose a program for their cheap pay-per-use model can also be left in the dark later on. Sometimes, monthly subscriptions with higher usages then suddenly become more cost-effective.

Why Now?

I'd love to take credit for this part, but I found it on X (Twitter) and it made a ton of sense. Read the full post by @Patticus.

Essentially, the shift to pay-per-use SaaS has been a topic of discussion in the SaaS community for over a decade. Understanding its evolution is key to appreciating its current relevance:

1. Phase 1 - Per User Charging: Initially, SaaS pricing was constrained by rudimentary billing systems, making it difficult to track usage. The solution? Charging per user or license. This approach was a compromise, as customers, accustomed to perpetual licenses, were initially resistant to recurring charges.
2. Phase 2 - Measuring Value: With advancements in software, it became possible to measure specific usage metrics (like emails sent or contacts stored) and link them to billing. This opened the door to value-based pricing, yet customers were hesitant. They wanted predictability in costs, leading to tiered usage pricing, which provided some predictability but also led to inefficiencies and unfairness for some users.
3. Phase 3 - Unpredictable Billing: As customers gradually warmed up to variable billing, companies introduced more nuanced pricing tiers. This phase marked a compromise between purely usage-based pricing and the need for some predictability.
4. Phase 4 - The Pure Value Era: This is where we stand today. With customers more comfortable and billing systems more advanced, we're seeing a shift towards a model that balances value-based pricing with predictable costs. This era is marked by a transition from 'monthly recurring revenue' to 'monthly predictable revenue'.

This evolution reflects a deeper alignment between the SaaS providers' business models and their customers' value perception. It's a culmination of years of adaptation, technological progress, and market shifts.

How To Embrace This New Era

The journey towards the pay-per-use SaaS model has been a transformative one, marked by technological advancements, evolving customer preferences, and a relentless pursuit of aligning value with cost.

The Road Ahead

The adoption of pay-per-use models by young disrupters (like Plunk) and incumbents starting to shit (like Zapier) is not an isolated phenomenon; it's a harbinger of a broader shift towards a more equitable, value-focused approach in the SaaS industry.

This change promises to bring a new level of transparency and fairness to the customer-provider relationship, where value dictates cost and every dollar spent is a dollar worth of utility gained.

This evolution in pricing is not just transforming SaaS businesses; it's reshaping customer expectations and usage patterns across the board. Companies now have a more profound responsibility – not only to provide value but to clearly demonstrate and quantify it. Customers, on the other hand, are becoming more discerning and value-conscious, driving a more efficient and purposeful use of software.

In short, a more informed customer is one that will start to demand more of the software they use.

As we navigate this new landscape, it's essential to remember that the ultimate goal of any business model, especially in the SaaS realm, is to create a win-win scenario.

The pay-per-use model, with its focus on value and adaptability, seems to be a significant step in that direction. That's why chose this path from the start.