Usage Based Pricing Adoption Up 32% According to New OpenView Report

BOSTON, Nov. 4, 2021 /PRNewswire/ -- OpenView, a global venture capital firm that coined the term product-led growth (PLG), today released the 2021 Usage-Based Pricing (UBP) Benchmarks Report highlighting an increase 一 up 32% from 2020 一 in startups and established companies transitioning to a usage-based pricing model. This is a result of software buying evolving over the last four decades. The report predicts that by the end of 2022, the majority of software companies will adopt UBP.

Specifically, the report looks at leading SaaS companies – such as New Relic, Twilio, Databricks, Stripe, and Snowflake – to determine whether UBP is being adopted, and how usage-based companies perform relative to their traditional subscription peers. As reflected in the report, UBP has quickly gone from fringe to mainstream with nearly half of SaaS companies (45%) using a UBP model today. Three-in-five (61%) of the holdouts said they expect to test or introduce usage-based pricing in the future.

"In today's digital era, usage-based pricing has become a transformative shift in the way software companies charge for their products," said Sanjiv Kalevar, Partner at OpenView. "Companies that put their customers' needs first and charge only for the value they create are at a competitive advantage and we see them gaining market share across the industry. Its impact can be seen across pivotal metrics such as Ned Dollar Retention (NDR) and coincides with best-in-class CAC payback. Seeing such value from this business model makes investors more excited than ever before to invest in companies that prioritize usage-based pricing."

Additional key takeaways from the report include:

• Usage-based companies can now be found across all layers of the tech stack 一from infrastructure to middleware to application software. Usage-based pricing adoption is happening at nearly 50% of companies surveyed from <$1M ARR to >$20ARR.
• Usage-based companies are steadily outperforming their peers 一 The report shows that there is a steady cadence of continued growth (29.9% vs. 21.7%) for public software companies that leverage a UBP model driven by best-in-class net retention (120% vs 110%).
• UBP is a company-wide effort, not just a pricing strategy 一 The best usage-based companies often treat research and development (R&D), not just sales and marketing, as a revenue-generating expense.

"The data from this year's report proves that there is an appetite for usage-based pricing, and we expect this to continue to accelerate in the coming months," said Kyle Poyar, Operating Partner at OpenView. "Current usage-based companies plan to double down on the model with 90% saying they will increase their product-led growth investment. With investors paying close attention to revenue growth, usage-based companies will have a big leg up on their peers."

The survey included nearly 600 SaaS companies from all over the world with varying annual recurring revenues. Respondents were primarily the CEO/Founder (50%) or CFO/VP Finance (30%).

To learn more, visit the blog and download the report today: https://openviewpartners.com/blog/2021-state-of-usage-based-pricing/ 

About OpenView Venture Partners
Founded in 2006, OpenView Venture Partners is a venture capital firm investing globally in business software companies. With a mission to improve people's working lives, OpenView's focused investment approach across sector and stage enables the firm to identify and partner with category leading business software companies. The firm's focus extends to operational excellence through its dedicated expansion team working with portfolio companies on go-to-market, sales and marketing, product led growth, talent, and corporate development. The firm is based in Boston and has $1.5 billion in total capital under management. For more information, please visit https://openviewpartners.com/.

SOURCE OpenView