Usage-Based Pricing Solves Billing Pains, Streamlines Payments for SaaS Firms

The global market for Software-as-a-Service (SaaS) has exploded in recent years, with forecasts estimating that this segment will reach $716 billion by 2028.

According to Griff Parry, co-founder and CEO at U.K. FinTech firm m3ter, most of these SaaS businesses are deploying subscription-based pricing and have an established stack — a sales customer relationship management (CRM) tool, invoicing billing platform, finance system or a combination of those — to correctly price their goods.

However, when these firms move to adopt usage-based pricing — a model which is gaining increasing traction and involves charging customers only when they use a product or service — Parry said they realize they’ve got a gap in the stack.

“That [subscription pricing] tooling they’re committed to and don’t want to rip it out, doesn’t work well in usage-based scenarios,” he told PYMNTS in an interview. That’s a gap he said m3ter fills.

The U.K. company, which recently emerged from stealth with $18 million in seed funding, provides a data infrastructure solution to software companies that helps them deploy and manage usage-based pricing, optimize their billing processes and better price and sell their products.

The firm also offers data science expertise for clients, leveraging the data that they gather to deliver advanced analytics, particularly on sales and finance.

Filling the Gaps

Parry stressed, however, that m3ter is not a billing solution.

“I’m always at pains to emphasize we’re not a billing solution because billing platforms are our natural partners,” he remarked.

One of those partners is London-based FinTech unicorn Paddle, a platform focused on SaaS businesses that provides a strong billing back end for more traditional subscription-based SaaS products.

According to Parry, Paddle has feature gaps and struggles to plug the holes when it comes to supporting customers using usage-based pricing, simply because the technology make up is entirely different.

“[Usage-based pricing] requires a totally different technological approach and so m3ter helps to fill that gap. We’re natural partners, we are co-selling effectively and it’s working brilliantly for both of us,” he said, adding that further partnership opportunities exist with Sales CRMs like Salesforce.

As part of the process, m3ter helps these partners easily identify the line items on an invoice, which in turn simplifies and makes the billing process more seamless for them.

“We’ve configured all the pricing, we’re ingesting all the usage data, we’re cranking the handle and we’re telling the billing platform what goes on the invoice — and then they can take it from there,” he explained.

Payment Firms: From Partners to Clients

In terms of next stage growth plans, Parry said that m3ter is in a “privileged position, there’s no shortage of demand,” especially as more firms recognize the important need for a solution that manages usage-based pricing.

As payments companies start to adopt usage-based pricing “in the purest forms of it” — for the most part, they’re charging a revenue share, but the exact nature of that revenue share depends on the specific terms of their deal and there’s quite a lot of variation — he said it’s not a matter of if, but when, they move from partners to clients.

He pointed to U.S. payments giant Stripe as an example of a large company that has a good solution for invoicing and billing but has the same gaps as a lot of other billing platforms, one of which is determining what number to put on a bill.

“It’s typically the case for bigger customers that have bespoke enterprise terms [and] that’s a classic problem that m3ter solves,” Parry said.

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