Congrats! We built a usage-based telephony (voice & sms) billing system for our customers and …

We 100% agree with you. Actually the first tagline of Lago was "billing for product led SaaS", the wording was a bit confusing, but our thoughts were: (i) "pure usage based pricing" models (like Snowflake's) aren't going to be the main standard for SaaS, for the reasons you mentioned, the main being predictability (for the merchant and the end-user). Cash collection is also a big pain: if you collect cash after the consumption, the dispute rate can be high. (ii) However pricings will increasingly incorporate "usage dimensions" (monthly active rows, number of emails, GB used, etc) and this trend is spreading very fast (3 out of 5 SaaS according to the latest OpenView report). It can take many forms: Annual subscriptions including a monthly base usage and/or prepaid credits based on consumption, and/or an amount of payments processed, etc This is what we lived at Qonto.com and solved for…

> It's easier to show "up and to the right" I think it's funny how MBA's at the end of the day base their decisions on glancing at a chart. So now, the engineers are catching on to optimizing for that pretty chart. I made a mistake by spitballing sales figures for a product and someone incorporated it into an ROI calc that was being judged to the decimal place.

I'm interested how you handle suppliers that have usage-based pricing (which I imagine are the norm in the telephony space) if you can't pass this on to the customer. Do you offer your customers an unlimited plan, price it high and just hope they don't use so much that you go backwards?

Good insight. Providing "unlimited" anything is a major competitive advantage. It makes customers at ease. It's all about predicting the average cost per customer, and pricing your product/service accordingly (profit + padding for outliers). Finding the average cost can be difficult, but it is possible with some metrics + good prediction skills.

I work at an IT service provider that also offers some cloud products. Customers start out by wanting all the flexibility (for their devs, usually) to spin up their owner servers, and want used-based billing. It would be a waste to pay more, no? Then their own book keeping department yells at them, because they use SAP, and every bill that differs from the contract or the previous month is sheer hell and requires 5 levels of approval / justification / whatever. So the next iteration is that they buy a fixed contingent of "cloud points" per month so that the invoice remains constant, and there's reporting and/or a firm (but often unwritten) promise from the account manager that they'll notify the customer if/when they ever run the risk of exceeding their contingent. In really big / inflexible companies, it really seems to be easier for the purchasing managers to justify higher but constan…

I run a SAAS and whenever we try to implement usage based billing, it is a lot of work to educate the customer on how it will work. I think this is more of a business than technical problem. Like you said, usage based billing has its places (perhaps if you sell to technical/dev focussed products. e.g. Metered API) but if you work with customers that are more B2B and have to answer to their procurement/finance/accounting departments, fixed cost is always easier to sell. Even if that means they end up paying more overall.