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Subscription based vs Consumption based pricing models ?

Subscription based : Pay same price every month based on the tiers of service subscribed. Ex. 'Support', 'Support Plus', 'Support Premier' as 3 tier subscription models. It is a flat fee that customer pay based on the tier subscribed.

Consumption based: Pay price based on the usage but there is a minimum price that you pay to subscribe to the services. Ex. Cloud service - Pay based on resources utilized. In this model, customers always pay flat fee + the additional resources consumers (variable part).

Is the industry heading towards the Consumption model ? Do we have data that supports it ?

Comments

  • PatrickMartin
    PatrickMartin Senior Director, Technical Support Founding Analyst | Expert ✭✭✭

    Hello Suresh,

    I'll try and chime in here from a Support perspective. I believe that the industry is shifting to a consumption based pricing when it comes to the product/platform. Pricing can be built many different ways, having a flat fee for platform access + consumption or consumption only. The challenge that most are faced with is defining consumption. Is it users, transactions, features, etc.? These are things you need to define as you are designing your platform so that you have have the necessary analytics to bill your customer based on their consumption.

    I hope this helps.

  • CarlosAlves
    CarlosAlves Sr. Product Manager TSIA Administrator, Moderator, Founding Member | admin

    To your words @Suresh Kandeeban , Consumption-based relates to pay-per-use: initially, it could be more adequate for the customer.

    Subscription-based is more secure from the provider's point of view, because you may plan for predictable revenue and act based on your customer base's behavior.

    I think there's no single answer because different industries may adapt better to different models.

    @LauraFay , any thoughts regarding data and trends?

  • LauraFay
    LauraFay VP & Managing Director, Research & Advisory Member | Guru ✭✭✭✭✭

    You are right @CarlosAlves. Pricing models are often applied differently across industries and across products and services generally. Directionally we see the industry moving to outcome-aligned pricing model. Consumption models, by definition, are aligned to the customer outcome. There are many considerations to ensuring subscriptions are outcome aligned, however. Advising the pricing model is the core value proposition. This itself must be aligned to the customers' target business outcome and the industry specific dynamics. A suggested read is outcome aligned pricing chapter in Digital Hesitation.