Tips for Companies Transitioning to New Pricing Models

The recent interest in hybrid, usage-based and outcome-based pricing is on 🔥. Here's the thing: successfully going usage-based is way more than a pricing change. It's a hard pivot, and you might not be ready for it. What to look out for: 1. Pure usage-based or pay-as-you-go pricing really isn't for every product. The challenge is finding a metric that buyers accept (the feeling of predictability is key) & that makes more $$. Look for metrics that grow quickly within an account, aren't susceptible to huge swings, and that are *outputs* of getting value rather than *inputs*. Or consider a workaround like putting a usage limit on a subscription plan or adding a fair usage policy to protect against heavy users. 2. In a usage-based business, there's no room for shelfware. The hard work *starts* at contract close. Everyday the customer is making a purchase decision about whether to adopt your product. This means everyone plays a role in customer success. 3. Sales incentives need to evolve to embrace land-and-expand. It's better to close deals quickly, then let usage grow over time. Commission structures can't over-index on the initial commitment. 4. Overage isn't a bad thing to penalize. Your customer grew their business and wants to consume more of your product. That's fantastic, celebrate it! 5. There are ways to make usage models more palatable to the enterprise. This usually means getting into the weeds with contract structures like:  - Annual draw-down: Customers flexibly draw down their usage over 12 months like a gift card. If they use the product faster than expected, they have time to plan & budget before renewal.  - Roll-over: Give customers the option of rolling over unused usage credits *if the next commit is larger than the last*. This helps reduce hoarding.  - Grace periods: After the grace period, customers can either re-up their contract at a higher commit or pay for the one-time flex spend. 6. Usage-based revenue isn't necessarily ARR. But that doesn't necessarily mean it's de-valued by investors. Folks want to see that usage revenue *acts* like ARR -- that it's highly re-occurring, grows over time in the average account, isn't project-based, and has high gross margin. 7. Forecasting your business is about to get way more complicated. It becomes a data science exercise more than a pipeline exercise. Finance teams are building models looking at individual customers & cohorts, factoring in criteria like the use case, ramp time, commitment, etc. What could go wrong 🙃 --- Adopting usage-based models isn't easy. But there aren't many better alternatives for AI, automation, API and FinTech products.

The #1 question I get from customers recently: “We know we need to adopt usage-based pricing . . . but how?” When existing customers and revenue are at stake, this shift isn’t just a pricing tweak. It’s a full business transformation. Here’s where companies fail when moving to UBP: →  No executive alignment. Without clear ownership, decisions get siloed and pricing changes lead to endless escalations. → Misaligned value metrics. Companies confuse billing metrics, usage metrics, and value metrics and don’t know which to optimize or prioritize. The result? Pricing that isn’t tied to how customers perceive value. → Rushing the rollout. Pricing is like product development. It needs testing, iteration, and constant feedback. → Customers left in the dark. When the transition isn’t communicated transparently, customers feel exploited and lose trust. Companies that succeed with UBP follow a different playbook: ✅ They appoint a clear sponsor. Whether it’s the CFO, CPO, or a cross-functional lead, a dedicated owner drives the transition and ensures alignment across key stakeholders. ✅ They define the right value metric. They focus their efforts on refining the right value metric first, then test and optimize everything else around it. ✅ They test relentlessly. The best UBP rollouts start small, measure results, and iterate before they scale reducing risk and improving adoption. ✅ They over-communicate with customers. A clear, transparent rollout strategy builds trust, eliminates confusion, and ensures customers see the value in the transition. Shifting to UBP is complex, but when done right, it leads to stronger margins, better retention, and sustainable revenue growth. Get the step-by-step guide for you to get your UBP pricing model set up right: https://hubs.li/Q03bbPf10

When one of our client CFOs tells me they want to switch to a usage-based pricing model, I always ask them one thing. “How critical is your forecasting for the next 4 months?” For most of them, it’s a top priority. So I give it to them straight: if you switch pricing models, you’re not going to be able to get accurate forecasting for the next 3-4 months at minimum. But there’s a catch. That’s in a best-case scenario. The one where you start instrumenting your environment today. If you don’t do that? You’re looking at 8 - 12 months with no accurate, data-informed forecasting capability. That’s not good in any economy, but a lack of predictability is more detrimental to businesses now. Macro uncertainty is the new norm. Which makes internal predictability models even more important. When changes arise, you need to be able to see them — and act on them — very quickly. Losing predictability for 3 or 4 months to make a tactical business decision is fine, so long as you understand what you’re doing. But losing your ability to accurately forecast for 8 months or more? No CFO can afford fly blind for that long. Especially not now. So if you’re thinking about switching to a usage-based pricing model, ask yourself: – What signals tell me a usage-based customer is healthy? What thresholds correlate to churn? To expansion? – Is my new environment instrumented in such a way that it can yield data to measure those thresholds? – What’s my time horizon for a return to predictability? Am I looking at 3 months or 1 year +? – What kind of data will I need in a usage-based model to determine success, and how can I get it? If you can’t answer these questions before you make the switch, take a step back — or you’ll be looking at a year with zero GTM financial forecasting.

Usage-based and outcomes-based pricing aren't just finance topics. They fundamentally require CS to reshape how it operates. Here’s a breakdown of what’s changing and what CS leaders need to do: 1/ Value Must Be Proven Daily, Not Annually 🧠 What’s changing: You don’t earn revenue upfront anymore. You earn it as customers use (or succeed). 📈 How CS leaders respond: • Track adoption in near real-time • Replace QBRs with event-driven nudges • Define and measure success milestones early ⚠️ Watch out for: Assuming usage will "just happen." It won’t. Especially with complex tools. 2/ GTM Alignment Becomes Mission-Critical 🧠 What’s changing: When pricing depends on outcomes, every handoff matters. Sales, Product, CS must stay in sync. 📈 How CS leaders respond: • Align on success definitions before the sale • Build shared playbooks with Product and Engineering • Reinforce usage-focused behavior in comp plans ⚠️ Watch out for: Sales overpromising results that CS can’t deliver. That’s how churn (and resentment) starts. 3/ CS Requires Data + Systems, Not Just People 🧠 What’s changing: You can’t scale personalized guidance for every account without data and systems. 📈 How CS leaders respond: • Use Guided Progress Systems (GPS) to track customer journeys • Build triggers tied to usage signals • Personalize automation where possible, but human-led where it matters ⚠️ Watch out for: Relying on health scores alone. Real insight comes from usage, sentiment, and outcomes (combined). I get it. This can feel overwhelming. New pricing, new expectations, new risks. But here’s how to start: 1/ Audit where your current CS model assumes predictable revenue 2/ Identify where value isn’t being tracked, nudged, or proven 3/ Choose one journey stage (onboarding, adoption, expansion) to improve with real-time signals 4/ Pilot a GPS-style system that tracks and guides progress dynamically Customer Success is no longer just about retention. It’s about driving -- and earning -- revenue every day. What’s the hardest part of this shift for your CS org right now? Interested in this topic? Check out my newsletter - info on my profile. Jan Young, MBA, CSPO, CSM StepUpXchange JanYoungCX #customersuccess #AI #revenuegrowth