THE STATE OF USAGE- BASED PRICING KYLE POYAR Operating PartnerSANJIV KALEVAR PartnerCURT TOWNSHEND VP, Growth January 2023Second EditionWE INVESTIGATED HOW LEADING SAAS COMPANIES PRICE THEIR PRODUCTS Last year we wrote that software buying had evolved —and that SaaS companies were increasingly moving to a usage -based pricing (UBP) model to stay ahead of the curve. Much has changed in the last year across the macroeconomic environment and capital markets. Companies are balancing growth with profitability, extending their runway, and prioritizing predictable cash generation.About the survey • Data comes from OpenView’s 2022 Financial & Operating Benchmarks survey, conducted in July –August 2022. • Nearly 3,000 private SaaS companies have participated in the survey across the last six years. • Respondents were primarily the CEO/Founder (43%) or CFO/VP Finance (21%).All that left of us wondering: is usage -based pricing still the next evolution in software pricing ? Now we’re investigating whether usage -based pricing is being adopted across the broader SaaS market, as well as how usage -based companies perform relative to their traditional subscription peers. Proprietary and Confidential ©2023 OpenView Advisors, LLC. All Rights Reserved2THE REPORT ENCOMPASSES MULTIPLE FLAVORS OF USAGE- BASED PRICING Largely usage -based pricing model Revenue is mostly generated based on a customer’s product consumption or active usage. Customers usually have the choice between a pay -as-you-go option, committed volume plan, or a hybrid of the two.Usage -Based Pricing Models Usage -based subscriptions Revenue is mostly generated on a subscription basis. Subscriptions include some combination of product consumption, functionality, and services. This is often an entry point into usage -based pricing. No usage -based pricing Revenue is almost exclusively generated on a subscription basis. Pricing is tied to user seats, company size, functionality, services, or other factors as opposed to product consumption behavior. Proprietary and Confidential ©2023 OpenView Advisors, LLC. All Rights Reserved3THIS YEAR’S SURVEY INCLUDED A DIVERSE CROSS -SECTION OF PRIVATE SAAS COMPANIES DISTRIBUTION OF RESPONDENTS BY ARR DISTRIBUTION OF RESPONDENTS BY REGION 19% 14%34%13%20% <$1M ARR $1-2.5M ARR $2.5-10M ARR $10-20M ARR >$20M ARR51% 27%8%7%7% US Europe APAC Canada Other Source: OpenView 2022 Financial & Operating SaaS Benchmarks Survey Proprietary and Confidential ©2023 OpenView Advisors, LLC. All Rights Reserved4ADOPTION Hybrid models are the future of SaaS pricing. TAKEAWAYS: USAGE -BASED PRICING IN 2022 PROFILE Usage -based and hybrid models are springing up in different software industries.GROWTH Monetizing based on usage is part of a broader shift towards PLG. Proprietary and Confidential ©2023 OpenView Advisors, LLC. All Rights Reserved5•While usage -based models have become the norm in infrastructure (ex: AWS, Azure, GCP), they’re now found in horizontal and vertical application software as well. •49% of vertical apps have no usage -based pricing while only 10% have a largely usage -based pricing model.•Usage -based pricing is inherently PLG; you get paid as customers use your product. •Despite market uncertainty, usage- based companies are heavily investing in PLG. 87% of those with a largely usage -based pricing model expect to increase their PLG investments next year compared to 69% of more traditional software companies. •Usage -based companies are focusing their PLG investments in two big areas: (1) building for openness, allowing users to easily connect their products; (2) providing value to end users, not only executive buyers.•61% of SaaS companies say they either have usage -based pricing or are actively testing it. •It’s not usage -based orsubscription pricing. Today SaaS companies are turning to more complex, hybrid models. •As pricing gets more complex, we’re seeing the rise of the modern pricing