Usage-based pricing (aka consumption-based pricing) is a popular pricing strategy, especially among developer-focused startups. Amazon AWS, Twilio, and Datadog are three great examples of this model.
Usage-based pricing is popular because it is a win-win for both sides: the customer avoids committing to a large purchase that may or may not work, while the product can have quick lands and real expands.
If usage-based pricing is good enough for AWS, Snowflake, and Stripe, should you adopt it as well? It depends. In this post, I share a framework for deciding whether you should use usage-based pricing.
This framework is based…
Net revenue retention (“NRR”) is the most important SaaS metric. It measures the year-over-year growth in ARR from existing customers; after accounting for churn, downgrades, and upgrades.
An NRR of 120% means ARR from existing customers grew by 20%. NRR is a built-in growth engine. For instance, Snowflake IPO’d at $500m in ARR. With an NRR of 158%, Snowflake could double to $1b in ARR in a little over a year, without adding a single new customer! This power of compounding is why NRR is the most important SaaS metric.
Despite its importance, NRR is a difficult metric to improve…
This post is part of a series in which I extract patterns from a data set of thirty-nine SaaS companies that filed for IPO from 2018 to 2020. The previous discussions in this series are:
- Pricing & Packaging and the developer buyer — 4 insights from SaaS IPOs
- Benchmarks for Key SaaS metrics from SaaS IPOs of 2018–2020
Last time, in the pricing & packaging discussion, I discussed the least friction package (“LFP”).
What is the least friction package? Companies offer three archetypes of packages: free, trial, and sales demo. Naturally, a customer experiences the least friction in evaluating the…
In the three years spanning 2018–2020, at least thirty-nine¹ SaaS companies filed for IPO. They form a healthy dataset to create benchmarks for startups that are early on their journey.
I use the average contract value (“ACV”) as the framework for extracting insights from this dataset. The ACV cohorts I use are:
- X-small: ACV < $10k, e.g. Dropbox, Slack, and Zoom. 13 companies
- Small: $10k <= ACV < $50k, e.g. Datadog, PagerDuty, and ZoomInfo. 12 companies.
- Medium: $50k <= ACV < $100k, e.g. Fastly, Sumo Logic, and ZScaler. 6 companies.
- Large: $100k <= ACV < $1m, e.g. Anaplan, Medallia, and…
Alex Clayton assembles end of year reviews for SaaS IPOs of the year. You can read his reviews for 2018, 2019, and 2020 here. I feel grateful to Alex for his efforts; his reviews and S-1 breakdowns provide valuable benchmarks for founders.
In this post, I build on top of Alex’s reviews from 2018–20. He reviews thirty-nine¹ SaaS companies that went public in these years, a healthy dataset to learn from. These companies have a broad spectrum of go-to-market strategies and resulting price points; from the bottom-up and self-serve motion of Dropbox with an average contract value (“ACV”)of $111 to…
I recently got an email from DocuSign with the subject: “How e-signatures are safer than wet signatures”. It made me wonder, why would DocuSign send such an email? E-signatures are ubiquitous; from job offers to house purchases, we e-sign most of our contracts. Doesn’t everyone believe that e-signatures are safer than wet signatures?
For context, DocuSign is the largest company in the e-signature market. It’s so dominant that its name is a verb. Its market cap is in the range of General Motors, the largest car company in America. In other words, DocuSign is winning.
So, why bother sending an…
