Daniel Elman, Puneet Gupta
March 9, 2022
As more and more aspects of business become data-driven, relying on concrete analytics over managers’ gut feeling, one area that remains stubbornly in the past is Pricing. Pricing is industry and product-specific, but so much of it seems to be on single-variable calculations or guess-and-check. For instance, the most common approach to pricing is typically to calculate the cost of providing service and then apply some multiple to that cost to yield the margins that the finance department have deemed necessary. If it’s not that, then it’s often some combination of competitive analysis and Product Manager intuition that is then iterated with time. Clearly, these approaches can deliver successful results for monetization, but as more areas of business become optimized and data driven, doesn’t it make sense to also optimize the area of your business that is directly responsible for driving revenue?
Traditional pricing and billing solutions allow a business to create pricing rules or contracts and apply these to customers. The best of these solutions will even build some analytics on this invoice data, allowing for revenue forecasting, customer segmentation, and some other value-add use cases. What these solutions lack, however, is the ability to deliver legitimate Pricing Intelligence that can be used to quickly iterate and optimize pricing plans and support multiple types of monetization strategies spanning standard subscription, hybrid, and usage-based pricing models.
To create Pricing Intelligence, you need a real-time usage data pipeline, regardless of the monetization strategy being used. Pricing Intelligence involves more than simply calculating margins and forecasting next quarter’s revenue. The solution must provide granular insight to how and where customers are using the solution to identify the most optimal pricing vectors. Rather than forecasting on topline invoice amounts, the more granular approach to tracking usage allows vendors to understand how and why customers are using their solutions. A Cloud Metering Service is purpose built to capture and deliver insights on usage.
By understanding how, where, and why the solution is being used with the help of a cloud metering service, vendors can identify the Pricing Vectors that make most sense and correspond to the value customers realize. By understanding the use cases and problems being solved, vendors can garner more relevant data to help forecast customer usage more accurately. Since the data is tracked at the customer and event level, this approach allows teams to have much deeper visibility into each customer’s usage and billing information; with more granular segmentation and awareness, teams can create pricing plans and solutions that are proven to align with customer segments to drive optimal revenue and customer satisfaction. All of this is fueled by a modern Metering pipeline that captures, tracks, and aggregates usage, all of which is then integrated with the Billing application to calculate revenue, invoice amounts, and other pricing data points.
As we’ve written before, you cannot back into this level of insight and intelligence from invoice and billing data. You must proactively capture customer usage at the event level with a modern Metering pipeline to generate Pricing Intelligence, regardless of your pricing plan or monetization strategy. Even if you price on a per-user basis, the most common type of subscription plan, by implementing a metering pipeline that informs what each customer is doing can allow for more targeted development of new products and features, improve support outcomes, and create a system of record for usage that can be used to backtest and inform future pricing decisions.
The most common means of understanding one’s usage with a cloud provider like AWS is with a solution from that vendor like AWS Cost Explorer (other cloud providers offer analogous services). However, AWS Cost Explorer will not have the granular data nor the insights to surface your customer level details. A Metering tool owned and operated by you puts you in control of this data and insights. (Hidden fact: AWS internally uses a metering service to feed data into the AWS Cost Explorer). The usage and costs cannot be tracked in real time via Cost Explorer, and cannot be segmented on a per-customer or per-feature basis. Without a current, in-depth understanding of costs, creating successful pricing strategies becomes a matter of guesswork.
A modern approach to Pricing and Billing would also enable a much deeper understanding of the costs of providing your solution to customers - in real time, and on a per-customer, or even per-feature (per meter) level of granularity. By deploying a modern metering solution that tracks and aggregates usage, as well as internal-facing meters that track corresponding resource consumption as a result of usage, customers can associate customer usage to the cost of providing those services. This provides the deepest and most current understanding of costs that can then be further leveraged for Pricing Intelligence. By understanding what each feature (metered capability) costs to deliver and how that cost scales, you can intelligently create a product item rate and pricing strategy that delivers the required margins, and then track how this live plan is performing against your backend costs.
Amberflo was built from day one with this concept in mind – with a fully-managed, developer friendly Amberflo Metering Cloud that captures, tracks, and aggregates usage and consumption data that is decoupled, yet integrated with, Amberflo Billing Cloud to create modern, custom usage-based pricing plans. We have built our platform to be cost-effective and scalable for customers to meter their solutions liberally and holistically, capturing the full spectrum of valuable customer usage and internal cost data at scale. We recommend our customers then take this data and backtest different pricing models with it to identify the best-performing aspects and create a profitable pricing strategy that is aligned with customer value and drives sufficient appropriate revenue. With time, the system is built to be iterated, leveraging new usage data from Metering Cloud to continually inform new pricing optimizations.
Without first creating a viable system of record for customer usage and consumption, you can never generate true, real-time Pricing Intelligence. Amberflo’s differentiated approach tackles this challenge from a unique perspective, first treating it as a data and infrastructure problem to be solved. Once a robust and complete infrastructure is created to capture and aggregate usage via Metering Cloud, customers can intelligently define their pricing strategies with relevant data from their own business. On an ongoing basis, benefit from more accurate forecasts and more personalized, informed interactions with customers by moving beyond static invoices and backward-facing analysis and generating true Pricing Intelligence.