How far ahead usage-based pricing can take your NRR?

Unlock the Power of Usage-Based Pricing for Enhanced NRR

In the ever-evolving world of SaaS, usage-based pricing has emerged as a powerful strategy for driving revenue growth and customer satisfaction. In this insightful discussion, we’re joined by Steven Forth, CEO and Cofounder at Ibbaka, to explore the intricate relationship between usage-based pricing and net revenue retention (NRR) in B2B SaaS businesses.
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As businesses strive to maximize revenue from their existing customer base, it’s vital to understand how pricing can either propel growth or hinder it. With NRR being a key indicator of customer value, Steven will dive into the strategies that can help companies retain customers and grow revenue effectively. He will also discuss the increasing adoption of usage-based pricing and its impact on NRR.

What you'll learn from the webinar

Pricing for Growth: Design pricing strategies that not only retain customers but also drive continuous revenue growth by aligning with the ongoing value your product delivers.

NRR as a Health Indicator: High NRR is a clear sign of strong customer relationships—when customers spend more over time, it's a direct reflection of the value they perceive.

Maximizing Usage-Based Pricing: Implement usage-based pricing models that scale with customer success, ensuring that as your customers win, so do you.

Smart Churn Reduction: Address churn strategically—focus on reaching the industry’s natural churn rate, then shift to maximizing revenue growth within your existing customer base.

Value-Tied Pricing: Align your pricing with how value is delivered across the customer journey to maintain customer loyalty and reduce churn.

Speakers:

Steven Forth, CEO and Cofounder at Ibbaka

Saurabh Agrawal, CPTO and Cofounder at Zenskar

Webinar Summary

1. Why is Net Revenue Retention a critical metric for finance leaders to monitor?

Net Revenue Retention reflects how much revenue you are growing from existing customers. In my experience, the biggest driver of NRR is the ability to expand revenue from your current customer base. Without this, your NRR and Gross Revenue Retention (GRR) will be the same, and typically smaller than 100%. When I’ve worked with clients, I’ve seen how aligning pricing with the value customers derive from your product can significantly improve NRR. For instance, one of our clients saw a dramatic increase in NRR after shifting their pricing to reflect revenue growth for customers, rather than focusing solely on churn.

2. How do you define “value” versus “price” in B2B SaaS?

Value is the economic benefit your customer derives from using your solution, while price is what you capture in exchange. Over my years of advising companies, I’ve seen businesses try to price at the full value they create, but that often leads to losing customers. In B2B SaaS, I recommend capturing somewhere between 5% and 30% of the value created. For example, if your product creates $1 million in value, pricing at $600,000 or less keeps you aligned with customer expectations. I always advise aligning your pricing below the perceived value to avoid pushing customers away, but it should still capture enough to sustain your business.

3. What role should a value model play in building a pricing strategy?

A value model is essential when building a pricing strategy. I always start by helping companies define a model that quantifies their product’s impact on the customer’s profit and loss statement. I believe that when you link usage directly to value—such as reducing operational costs or increasing revenue—you can then set a price that mirrors the customer’s experience. At Ibbaka, we test how an increase in usage impacts value and adjust our pricing accordingly. It’s a process of refining, validating, and adapting the value model based on what your customers are truly experiencing.

4. Why do many companies fail to implement usage-based pricing correctly?

Many companies fall into the trap of pricing based on what they can easily track, such as clicks or tokens. But that doesn’t always align with how customers derive value from the product. From my perspective, usage-based billing should be tied to outcomes—such as the number of issues resolved or tasks completed. If you simply price based on the input (e.g., how much data is used), you risk having unpredictable revenue that isn’t connected to customer success. The best usage-based billing tools price according to customer outcomes, ensuring that the more they use the product, the more value they see and the more they are willing to pay.

5. What are the key components of Net Revenue Retention that finance must track separately?

When evaluating Net Revenue Retention, I always recommend breaking it down into the positive factors (growth in package, upsell, cross-sell) and the negative factors (churn, shrinkage, down-sell). This distinction is crucial because it allows you to focus efforts on specific areas. I’ve seen clients misinterpret the top-line NRR number by not digging deeper. For example, we worked with a client who saw great top-line NRR but discovered that most of their growth came from only 10% of their accounts. We were able to target shrinking accounts with specialized interventions, which boosted their overall NRR.

6. Why is understanding your company’s “natural churn rate” important?

It’s important to understand your natural churn rate because trying to eliminate churn completely is a fruitless effort. I often advise companies to identify their sector’s typical churn rate and use that as a baseline. I once worked with a company that spent excessive resources trying to lower churn below its natural rate, which led to diminishing returns. Once they accepted that a churn rate of around 9% was normal, we focused on enhancing revenue expansion strategies, and that shift dramatically improved their NRR. For finance teams, this means investing in growth once churn is at an acceptable level.

7. What is the risk of relying too much on Good-Better-Best pricing tiers?

Relying too heavily on Good-Better-Best pricing tiers is a mistake if the tier differences don’t align with how customers perceive value. I’ve seen companies try to upsell using GBB, but customers resisted because the value between tiers wasn’t clear. In one instance, we worked with a client to create a pricing model that aligned with business outcomes rather than just packaging features into a tiered structure. This strategy led to more customers upgrading their plans because they saw tangible, measurable benefits. I always recommend ensuring that each tier reflects significant value differentiation, not just more features.

8. How does Steven advise aligning usage to pricing in generative AI products?

Generative AI products should have pricing aligned with outcomes, not just usage. Many generative AI companies price based on tokens, but that pricing often reflects cost-plus pricing, not value. I’ve seen the best success when companies price based on how their AI impacts the customer—such as pricing per resolved issue, or per generated insight. For example, Intercom’s chatbot solution is priced based on the number of issues resolved, which better reflects the value customers are gaining. In generative AI, ensuring pricing is tied to the value delivered is key to success.

9. Can usage-based pricing backfire? What should finance watch for?

Yes, usage-based pricing can backfire if it’s not tied to value. In my experience, companies often fail when their pricing structure tracks usage that doesn’t actually benefit the customer. I worked with a company whose pricing was based on the number of clicks in their software, but more clicks often meant inefficiency, not value. When we realigned the pricing to be based on the business outcome—like reduced operational costs—the revenue was more predictable, and customers saw better alignment with their success. Finance should always verify that usage correlates directly with value delivered to avoid unanticipated revenue volatility.

10. What kinds of billing system limitations block modern pricing models?

I frequently encounter two main issues: in-house billing systems that require engineering resources to change pricing logic and CRM/finance systems that are too rigid for complex pricing. I’ve seen companies with outdated billing systems struggle to support the flexibility needed for usage-based pricing, leading to delays of months or even years to make adjustments. Choosing a flexible, API-first billing system is essential to accommodate evolving pricing models. Without this, you’re pricing on assumptions that may not align with what’s happening in the market.

11. Who should own pricing and value modeling inside a growing company?

Early on, pricing should be owned by the product team because they understand how value is created and delivered. However, as the company scales, ownership often transitions to the Chief Financial Officer or Chief Revenue Officer. I’ve found that Customer Success should also be heavily involved, especially when it comes to renewals and customer retention. The best companies I’ve worked with have a cross-functional team that includes product, finance, sales, and customer success to ensure pricing reflects both value and customer needs.

12. How can a company price for value when customer segments receive different outcomes?

To price for value when customer outcomes vary, you need to segment customers by how they derive value. I’ve seen this approach work well when a company segmented its customers based on their use case. For instance, a SaaS product for chemical plants had different values for 24/7 operations compared to seasonal operations. The finance team must ensure that pricing reflects the specific value created for each segment. For me, the key is defining “value paths” and ensuring each customer pays for the value they specifically receive.