CircleCI is a cloud-based continuous delivery platform that helps software delivery teams build, test, and ship changes to their applications. Offering its services as a freemium-based model, CircleCI recognizes driving trials as the cornerstone of a go-to-market strategy for any developer tool.
Jim Rose, CEO of CircleCI, leverages his experience marketing to software developers to discuss the merits of moving from a subscription-based to a usage-based business model. Developers come to CircleCI to use their services for free but the user needs increase as they build for commercial purposes. That’s when a customer moves to a paid account to access more services and advanced features from the platform.
When CircleCI first went to market, they had a traditional model where they sold one version of the platform—a $50/month container. This model worked early on because every customer purchased the same thing, and if they needed more, they could purchase more containers. But as customers’ usage of the platform grew, their needs got substantially more diverse, forcing CircleCI to evolve and expand its offerings to meet the dynamic needs of its users. Their specific and single pricing and packaging model was no longer supportable or sustainable.
“The transition from a traditional SaaS-based model to a usage-based model fundamentally changes the key processes of your business.”
Five years in, CircleCI implemented a usage-based subscription model. Now, when a customer opens an account, their account gets debited based on how they build on our platform.
The usage-based model works well in software delivery and testing because the demand is often uneven and unpredictable. There are times when customers will need a lot of support because they are trying to get a product to market. Other times, such as the holiday season, there’s little to no demand for support.
Usage-based economics is different from traditional subscription-based economics because of how you generate revenue.
Take the example of a gym. In a traditional subscription-based model, the gym gets paid regardless of how many times its members walk into the gym to work out. The true value of a gym membership ultimately comes down to the customers and members deciding how often they will use the service they bought access to.
In a usage-based model, the responsibility is on the platform to offer value. In the gym scenario, the customer’s payment acts as a deposit rather than a subscription fee. The gym recognizes the revenue when the customer comes in and uses the facilities.
“Over time, usage-based models force you to be aligned with the value the customer wants out of your platform.”
This fundamental difference changes the relationship between you and your customers. As a platform, you need to ensure that you build a platform with the services and pricing model that will entice your customers to keep using it over time.
Let’s look at three instances where this relationship begins to break down and examine some of the lessons and strategies CircleCI has used to break through.
1. Big customer asks.
Here’s a typical scenario: a salesperson says they have a customer interested in buying your service who is ready to spend $1 million. The caveat? They need specific features built into the product in order to close the deal, and they need these features fast.
This situation reflects a customer’s misunderstanding of how a usage-based business operates. Sometimes, the customer is trying to buy what they don’t even need. The traditional subscription model is often good for business, but it’s not ideal from a product perspective because you’ve built features that the customer isn’t even using.
How do you align your business interest with the customers’ needs?
Building in the open puts your customer at the heart of the process. There’s complete transparency on how the product build is going. This might look like publishing a public roadmap on your website or hosting pathways for customers to share inputs.
“The product roadmap is the movie, the film we all agree we are making, and the future we’re building towards. Customers are asked to influence the end of that movie. They can say we need X, Y, and Z because these will be the key to unlocking usage.”
Building in the open can be uncomfortable for most software delivery and product teams. Customers can see which features you’re building versus those you aren’t and get very aggressive about their own hopes for the product. But it’s a trade-off, and what you get is transparency. This means your team reduces hours spent building features that don’t drive usage and revenue for the business.
2. Unreasonable uptime requests.
You’ll often hear customers requesting a laundry list of features and demands, such as 99.99% uptime. The fact is that 99.99% uptime isn’t always implementable and is often unnecessary. Looking at SaaS stat pages, you’ll see that everything is always up and in the green. Yet, if you’re a builder who needs to call on those services and integrate them, you quickly realize that those services go up and down. There often isn’t a way to guarantee 99.99% uptime, but neither the sales rep nor the customer knows this.
Instead of viewing uptime as operational metrics, CircleCI tries to look at it from the lens of what the customer is looking to achieve.
“Get clarity on what uptime means for the jobs that matter, then spend your time and resources to make sure you deliver.”
It is ideal for both platform and consumer when availability is built around specific usage scenarios. Companies should also build SLAs around the availability of those critical metrics.
The customer knows that what they need will get done, while you spend valuable and limited engineering resources to ensure the most important features are bulletproof and available.
3. Responsibility for success.
In a SaaS subscription model, the platform gets the revenue immediately upon purchase. There is no accountability of the service provider to ensure the customer receives actual value from the services. It is the end of the relationship and the measure of success.
From a usage-based perspective, on the other hand, a customer’s payment is a deposit that marks the beginning of the relationship. This model holds the platform accountable to do everything it can to continue ensuring their customer is getting the most value out of the platform.
- Innovation and availability. Driving success and usage of your platform comes down to innovation philosophy. This is the ability to innovate quickly with the features that matter to the customer.
- Commitment and usage. Compensation has to be directly attached to actual usage rather than an intention to use. A $1 million contract with a customer doesn’t automatically translate as revenue. In order to secure revenue from a customer, you need to ensure that you follow through with your commitment to bring them value.
- Partnership and usage. It’s important to align your interests with that of your customers. When customers make feature requests, they need to be sure that it will drive real value for them. Encouraging ongoing conversation ensures that both you and your customer derive the most value from your partnership.
“Who is responsible for success? Who is responsible for taking ownership of usage? Everyone is.”
Ultimately, a usage-based model is the most product-led approach to pricing your SaaS. It is successful if you believe that your product brings real value to the life of your customers.
Usage-based pricing allows you to offer your services to a diverse range of customers and get paid proportionately. It also provides you with better data from the customers. You can focus on a customer-centered building approach by knowing what features the customers actually use, not what they promise to use.
The loss in the instant guarantee of revenue is covered by the trust gained from putting your customer first. It is the way to go if you believe in delivering value to your customers and winning together.
Go to Publisher: SaaStr
Author: Amanda Beaty