June 23, 2022

Usage-Based Pricing Solves SaaS Billing Problems

The global Software as a Service (SaaS) market has exploded in recent years, with forecasts estimating that this segment will reach $716 billion by 2028.

According to Griff Paradeco-founder and CEO of British FinTech company m3termost of these SaaS companies deploy subscription pricing and have an established stack – a customer relationship management (CRM) tool, billing platform, financial system, or some combination thereof – to correctly price their products.

However, when these companies adopt usage-based pricing — a model that is growing in popularity and involves charging customers only when they use a product or service — Parry said they realize there is had a gap in the stack.

“That [subscription pricing] the tooling they committed to and don’t want to remove doesn’t work well in usage-based scenarios,” he told PYMNTS in an interview. It’s a gap he said m3ter fills.

The British company, which recently emerged stealthily with $18 million in seed funding, provides a data infrastructure solution to software vendors that helps them deploy and manage usage-based pricing, optimize their billing processes and to better price and sell their products.

The company also offers data science expertise to its clients, leveraging the data they collect to provide advanced analytics, particularly on sales and finance.

Fill gaps

Parry, however, pointed out that m3ter is not a billing solution.

“I always want to emphasize that we are not a billing solution because billing platforms are our natural partners,” he remarked.

One such partner is London-based FinTech unicorn Paddle, a SaaS enterprise-focused platform that provides a robust billing back-end for more traditional subscription-based SaaS products.

According to Parry, Paddle has feature gaps and struggles to close the gaps when it comes to supporting customers using usage-based pricing, simply because the technology mix is ​​entirely different.

“[Usage-based pricing] requires a totally different technological approach and therefore m3ter helps fill this gap. We are natural partners, we co-sell effectively and it works brilliantly for both of us,” he said, adding that a similar – albeit informal – relationship has been formed with sales CRMs like Salesforce for also help them where they fail. .

As part of the process, m3ter helps these partners easily identify line items on an invoice, which simplifies and makes the invoicing process more transparent for them.

“We’ve set up all the prices, we’re ingesting all the usage data, we’re waving the handle and telling the billing platform what’s happening on the bill – and then they can take it from there” , he explained. .

Payment companies: from partners to customers

In terms of growth plans for the next stage, Parry said m3ter is in a “prime position, there’s no shortage of demand”, especially as more companies recognize the significant need for a solution. which handles usage-based pricing.

As payment companies begin to embrace usage-based pricing “in its purest form” – for the most part they charge a revenue share, but the exact nature of that revenue share depends on the specific terms of their deal and there’s a lot of variation – he said it’s not a matter of if, but when, they go from partners to clients.

He cited US payments giant Stripe as an example of a large company that has a good billing solution but suffers from the same shortcomings of many other billing platforms, one of which is determining the number to be recorded on an invoice.

“This is usually the case for large customers who have bespoke corporate terms [and] it’s a classic problem that m3ter solves,” Parry said.

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