Out of 300+ services that Amazon Web Services (AWS) has released over the years, none of them had to be rolled back because of incorrect pricing.
That’s no coincidence.
Usage-based pricing (UBP) drives very high revenue growth and product adoption. Any business operating in the cloud can (and should) adopt a usage-based pricing model powered by best practices and frameworks that optimize customer value.
I spent a few years as a general manager at AWS, personally overseeing Amazon CloudSearch and some of its services as they grew to over a billion dollars in revenue based on a usage-based pricing model. Later, when we launched Amazon OpenSearch, the same model contributed to its huge success and adoption.
The usage-based model is the only thing that makes sense in the cloud. Given the elastic nature of the underlying infrastructure, anything that comes on top of it needs to be just as flexible – and that includes pricing. Below I explain seven steps to get started with a usage-based pricing model for your business.
The number one reason measurement exists, because it’s an artifact of its own, is because of what it was specifically designed for: tracking usage.
Step 1: Implement Usage Measurement
Many companies make the mistake of starting with a pricing model and then pedaling back to measuring usage.
This is the wrong approach. The first step should be measuring all of your technology artifacts. If you are a startup building from scratch, implementing measurement from scratch will give you a huge advantage.
Knowing who uses what, when, where, and how much can unlock valuable insights across functional groups and teams, and make pricing much easier.
Find a purpose-built measurement service
Don’t fall into the trap of measuring (usage instrumentation), only the items that the tariff plans dictate. Measure your technology stack holistically. You need to think about measurement first and then move on to pricing and billing, not back to pricing and billing measurement.
Here’s a good way to internalize this:
Let’s say you know you want to charge for API calls, and you start by considering a tiered pricing model for the API calls per count. If you work back to metering from here, you’ll come to the conclusion that you need to measure the number of API calls.
Compare this to the measurement forward approach. First, you determine that you need to use API calls to instruments, as this is one of the most important features of how your customers interact with your product. Then you ask yourself, what is a holistic way to use an API call?