Does usage-based pricing really lift expansion, and should we switch?

The net retention numbers by pricing model (122 percent top quartile for usage-based versus 109 percent without) plus the warning that switching is an org change, not a pricing page change.

Usage-based pricing is a company-wide effort

From TechCrunch by Kyle Poyar 10 min read

• Top-quartile net retention was 122 percent with largely usage-based pricing, versus 110 percent for usage tiers and 109 percent for none.
• About 85 percent of Twilio's net expansion comes from more usage, only 15 percent from new products.
• Usage-based companies spend more on R&D than on sales: median ratio 1.5x, against 0.8x for companies without usage pricing.
• Usage pricing shows up most where gross margins are thin (median 72 percent, bottom quartile 51 percent or lower).

The primary-source teardown behind the famous 158 percent net dollar retention, including the detail most people miss: it was above 200 percent a year earlier, and half of revenue growth came from existing customers expanding usage.

Snowflake S-1 and IPO Teardown

From Public Comps by Jon Ma 18 min read

• Snowflake went public with 158 percent net dollar retention, down from above 200 percent a year earlier.
• 3,117 customers as of July 2020 (up 101 percent), of which 56 paid over 1 million dollars a year, up from 22.
• Gross margin was only about 60 percent because of AWS, GCP and Azure costs, though up from 44 to 45 percent two years before.

The cleanest definition of expansion MRR with the formula and the benchmark that matters: top companies get up to 40 percent of new ARR from existing customers.

Expansion MRR: Definition, Formula, and Impact on SaaS Growth

From Chargebee 7 min read

• Established subscription businesses run 10 to 30 percent annual expansion rates.
• Some companies get up to 40 percent of their new ARR from existing customers rather than new logos.
• Expansion MRR rate = (end-of-month expansion MRR minus start) divided by start, times 100.

Accel's argument that expansion revenue is the specific thing that carries a company past $50M ARR, with the Twilio and Shopify revenue-mix numbers to show what it looks like when it works.

How can SaaS startups tackle scaling beyond $50mn in ARR?

From SeedToScale by Accel by Vyushita Sahay 9 min read

• Past 50 million dollars ARR the equation is Revenue = new revenue + expansion revenue minus churn.
• Twilio held a net expansion rate of roughly 135 to 140 percent for four straight years.
• Shopify's transaction-based merchant solutions went from 24 percent of revenue in 2013 to 57 percent in 2018.

An honest look at what usage based pricing does to expansion and to forecasting, including where it backfires. Run by an Indian fund with Indian SaaS operators, so the migration risk is discussed for companies your size.

SaaS Talks #22: Usage Based Pricing

On Stellaris Venture Partners 55 min