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More companies are adopting product-led growth (PLG), in which the product itself does most of the selling, and usage-based pricing (UBP) — meaning users are charged based on consumption, not seats — than ever before. A new wave of startups is helping them succeed at it. Let’s explore. — Anna
Enabling product-led growth
SaaS companies that adopt product-led growth — as more and more do — often have a problem: They know that droves of people are signing up for their product, but they don’t know which of these users their customer success team should reach out to in order to pitch a paid tier or upsell features.
Uncovering the right leads is one of the key challenges of freemium models: Some customers will never convert out of the free tier, while others could bring very valuable revenue into the fold, as long as they get pitched the right offer at the right time. But knowing who’s who requires connecting the dots between product usage and the tools that marketing and sales teams use in their day-to-day.
Several startups are hoping to help product-led newcomers solve this challenge without having to build internal dashboards and connectors. In Europe, there’s a new entrant, Ripe, which is backed by Earlybird, Alliance Venture and several SaaS executives. And in the U.S., there’s Endgame, which raised $47.5 million in total funding; Correlated, whose investors include Cockroach Labs’ co-founder; and Pocus, whose Series A was led by Coatue.
In order to aid sales teams in figuring out which users to focus on, Ripe CEO and co-founder Elin Lütz told TechCrunch that her company’s dashboard helps find and query product usage data.
“Our customers can segment their users in different buckets. So for example, they can say: ‘I want to see a user that has done this event the last month and who’s also on the pro plan. They can also […] get triggers when a person qualifies for that segment, and instantly, we give them the option to connect with that user, via phone or email or Slack when they are online and actively engaging with the product.”
Stockholm-based Ripe helps product-led B2B companies find the ripest leads in their customer base
Companies like Ripe aside, there is a whole stack of startups forming to help others on their product-led journey. For instance, some tools help companies simplify their onboarding and activation — from product tours to in-product prompts. Others help them segment and nurture leads. But there’s a corollary to product-led growth that has given rise to perhaps the largest cohort of tools: usage-based pricing.
Making usage-based billing possible
Product-led growth and usage-based pricing don’t necessarily have to go hand in hand — but in practice, they often do. That’s for two reasons: For one, they both require outstanding products. And two, they’re driven by the same shift in user behavior — the desire to avoid getting locked into a contract.
Mighty Capital’s thesis is that the best product wins — even more so in a downturn
Just like product-led growth, usage-based pricing is increasingly being adopted by companies — and not just cloud-based entities. But it isn’t easy to implement, which is why several startups have emerged to help others do it without spending internal resources on this matter.
For instance, you may have noticed Paigo in Y Combinator’s latest batch, with its promise to “[make] Saas usage-based billing extremely easy.” And YC had previously invested in similar companies, such as Corrily, Kable, Lago and Lotus.
It’s not just YC: There are many startups that fall under the category of “enabling PLG and UBP.” VC firm Scale Venture Partners even drew a market map of what it describes as “the opportunity in usage-based billing infrastructure.” From pricing (Wingback) to sales compensation (Palette) to metrics (Subscript), there seems to be a startup for each pain point of UBP.
Subscript wants to rid the world of subscription revenue metric spreadsheets
Of course, there’s some overlap between some of these tools. The most common subcategory seems to be metering — helping companies measure usage so they know what to bill. This is the focus of the aforementioned Kable, but also of several startups that TechCrunch covered recently, from m3ter and Metronome to Octane. And there’s also Amberflo.io, whose CEO wrote an advice post for those wondering how to adopt a usage-based business model.
How your company can adopt a usage-based business model like AWS
This space may sound crowded, but if PLG and UBP are part of the new wave of SaaS, it makes sense for new infrastructure tools to emerge — just like subscription management solutions in their time. Still, we wouldn’t be surprised to see some concentration happen — which makes us even more curious to track this trend and find out who the buyers might be.
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