Monetizing Usage Model Must #2: Get Seriously Customer-Centric

Designing a go-to-market (GTM) strategy for a usage-based model is about more than just modifying sales tactics; it requires a fundamental rethinking of customer engagement, pricing, and sales compensation.

Embracing a More Customer-Centric Approach

The Subscription Economy and the growth of everything-as-a-service forced a mindset shift for go-to-market teams to be much more customer-centric. As B2B customers become more experienced in buying and using SaaS products, they become more value-conscious, and risk-averse. This, in turn, forces sellers to pivot their business model to include usage based charge models. Because products and services purchased on a usage basis are constantly being evaluated by customers based on their ability to deliver value, go-to-market teams are having to lean even further into the world of the customer to understand their needs and preferences to a much higher degree. 

Twilio is a great example of a company that has mastered deploying and evolving their go-to-market approach for usage-based models. Key to their success is their understanding of two elements of the world of their customers: the needs of the end user, and how those needs change as the business evolves. End users tend to be developers who share the same skills and mindset as Twilio’s product folks. It’s not a big leap for Twilio folks to speak to a cohort of people who are trying to build solutions using a complex combination of platforms, connectors and APIs, (the latter of which, Twilio charges for on a usage basis). 

Not every company with a usage product or service has the same depth of understanding of their end users. This can make it difficult to determine what unit of measure should be used to monetize usage. In addition to traditional R&D and market research, the sales channel can be a source of deeper insight into how to expand a usage business.

Channeling the Channel 

For product-led growth companies in particular, the world of the customer and the experience they are having with your product may feel a bit distant and removed. Surveying or actually talking with customers can get you closer to what they consider worth paying for. Piloting, as we discussed in our previous article, can also reinforce what the optimal charge model is and allow for experimentation and testing. Offering a free trial is another option. A “try-before-you-buy” period is a great way to understand the needs and preferences of a customer segment or just a single prospect. What are they interested in? Which features do they use the most? How price-sensitive are they? As more and more prospects trial a product, their data can be used to refine packaging and pricing (for more information on usage pricing strategy, check out Zuora’s Ultimate Guide to Usage Based Pricing. Not every product can be offered on a trial basis due to implementation requirements and complexity. For companies that can offer trials, Subscribed Institute research suggests that a 14-day evaluation period is optimal. Beyond two weeks, companies rarely see additional conversion. 

Sales-led companies that have a large enterprise-level customer base have the advantage of conducting discovery as part of the process to get closer to the customer’s business and then come back with a “future state” demonstration of how a usage based model will solve their problem in the most efficacious way. However, starting with complex outside sales structures can lead to slower adaptation and higher resistance. Much like the B2B subscription world, a hybrid go-to-market approach that includes a sales team dedicated to serving large complex customers and a self-service channel experience for customers with lower complexity and universal pricing tends to be a winning model. 

Aligning Sales Compensation with Consumption Metrics

Traditional sales compensation models, which reward new sales without considering long-term customer value, must be reimagined in a usage model. Companies like Snowflake have aligned sales incentives with customer usage and retention metrics, which drives behavior toward fostering ongoing customer relationships rather than one-time transactions. For companies that introduce a specialist selling team or overlay focused on usage, a double-compensation strategy model may be necessary to motivate the core sales team to bring those specialists to their deals. Another consideration around comp is the type of usage model being sold. For models that are usage with commitment (fairly standard in the enterprise world), quotas and payouts can be structured similarly to how subscription sales are incentivized. For evergreen, pay-as-you-go models, commissions may need to be held for several months or quarters to give revenue teams time to reconcile billings depending on the sophistication of their metering and mediation technology (more on that in the next article in our series around scaling usage business models). 

Customer Success 

In the enterprise usage-based world, a robust strategy around customer plays a huge role in driving net revenue retention, especially for businesses that sell on a pre-paid drawdown basis. Similar to license-based software, success teams in the usage world need to prioritize adoption but with an additional focus on value. Why? Because the usage customers expect on some level a commensurate rise in value with increased usage. This is not the case with most license-based products. Therefore,  reporting and engagement tools used by success teams need to go deeper than tracking logins, compute times, storage, miles driven, etc. Tracking usage is important but even more important is tying the usage back to the value metrics that the customer defined during the sales process. This also makes it easier to have conversations with customers who are at risk of incurring overages. If the “more usage = more value” equation is being shared regularly and consistently, an imminent overage could be a glide path to a conversation with the customer about increasing their commitment level.

For small and medium-sized B2B businesses where it is not economically feasible to staff up a success team, accurate and timely reporting can help reinforce the value story. Sometimes an invoice may serve as the report. However, companies that create a customer portal for customers to review their usage (and when possible, the business outcomes from that usage) tend to reduce the amount of questions and “tickets” submitted regarding usage. No matter which approach is used to help customers track their usage and tie it to their success, doing so will increase the likelihood of higher usage commitments at the end of the contract term. 

Conclusion

As the landscape of usage-based models continues to evolve, the most successful companies will be  those that deeply understand their customers’ needs, align their sales strategies with usage metrics, and leverage customer success teams to drive adoption and growth. Businesses that can adapt their go-to-market strategies accordingly will be best positioned to thrive in this new era of customer-centric, usage-based commerce.