How to handle customer objections to usage-based pricing

Whether you’re an existing business making a change in pricing or a new company deciding on which pricing model to use, you’re likely facing one key question: how are the customers going to take it?

Will they find the pricing model fair? Will they buy (or continue to buy)? Or will you face massive price objections that your sales team can’t talk its way out of?

These questions are valid, and many businesses implementing a usage-based pricing (UBP) model worry about customer pricing objections and how to overcome them. But the good news is that the core value proposition for UBP is compelling. If you pay for only what you consume, you don’t waste money on unused capacity, and the overall costs will be lower in the long term in both upside and downside scenarios. (We’ve included some helpful tips on how to communicate pricing changes to customers at the end!)

Knowing this, companies just need to be prepared for the types of objections they’ll encounter and have strategies ready to deal with them.

Types of customer objections to usage-based pricing

Even with a solid value proposition, UBP can still be a challenging concept to some buyers, with objections typically breaking down into two broad categories:

1. Control and predictability – UBP is more uncertain than other pricing models. That can feel challenging for some buyers, particularly where cost overruns would generate uncomfortable scrutiny.
2. Incompatibility with organizational models and budgeting approaches – Some customers are not properly set up to buy on a UBP basis.

But there are mitigations you can use to handle these price objections to UBP. Let’s talk through some of them.

Objection 1: Control and predictability

Other models of pricing offer quite a lot of certainty around what costs will be. For example:

• With licensed software, you know the upfront cost of the license and hardware, and also the ongoing labor cost to manage and maintain the capability.
• With subscription models, you establish what functionality and/or capacity you require, and commit to a recurring subscription fee that delivers it.

The core appeal of UBP is that cost flexes with usage, so you can pay a lot less than you would with other models. But you are also on a “meter”, meaning you don’t know with confidence what your bill will be – and that is challenging for some customers.

Ways to handle these objections

Make your pricing simple. 

If your pricing is complex and has lots of usage categories driving different fees, it becomes opaque. Customers will have difficulty working out what the cost would be in given circumstances. If it’s simple, with only one (or a few) pricing metrics, it’s much easier to predict, giving customers some semblance of control so they can do scenario analysis with confidence.  

Choose a pricing metric with a strong link to value. 

Linking the cost of your service to successful outcomes for the customer (e.g. payment providers charging on a per-transaction basis) helps them stop worrying about getting a big bill. In fact, a big bill would be the consequence of success, and actively a good thing! Essentially, the costs of your service have become COGS – not only are they predictable, they are no longer something that needs to be contained.

Be transparent. 

If you only told your customers how much they were using (and therefore spending) once per month at bill time, they would open that bill with some trepidation and would worry through the month about getting a nasty surprise. So, provide them with that information at any time. Put them in control by letting them know how much they are using (and spending) on a daily basis.

Be proactive to earn trust. 

Even if you’re providing that daily information about usage and spend, you can’t be sure your customers are looking at or absorbing it. So, you should monitor it on their behalf, and your Sales or Success teams should reach out to them if it’s spiking upwards or is approaching a threshold above which new charges will be generated. Explaining to the customer that your teams are set up to do this – and they can trust you to – will help assuage their concerns.

Give customers certainty.

Even if you do all the above, many customers will still want more certainty. So give it to them! If they’re prepared to commit to a minimum level of spend, you can offer them significant discounts – these will make it unlikely that they’ll spend more than this level, or if they do, the costs will not run away quickly.

Objection 2: Organizational incompatibility

The second type of objection is more around how the customer’s business is actually set up and how to support them so that UBP is compatible with their organization.

Roles

If a customer is accustomed to buying licensed software or traditional subscription-based SaaS, they are likely to have a strong “Procurement” mindset – and probably also an influential Procurement team. 

The role of this team is to forecast need and negotiate terms that deliver low costs. UBP approaches undermine the role of Procurement, because the end user has more control over consumption and there is less requirement to forecast capacity requirements. But they can still have gatekeeper status and put a brake on adoption

Ways to handle this objection

One mitigation for any concerns here is to create a role for Procurement – and thereby secure their endorsement – by negotiating custom deal terms. For example, this could involve additional discounts in return for commitments to a greater level of spend (as discussed above).

Capex vs. Opex

This objection is particularly applicable when the customer is moving from traditional licensed software models to UBP. In their current setup, software is largely capital expenditure (capex), with some operational costs for management and maintenance. In a UBP world, the spend is all operational expenditure (opex). 

In these cases, customers may have budget in the wrong places – perhaps too much in capex and not enough in opex. They may also worry (with reason) about UBP impacting short-term profitability. . 

Ways to handle this objection

These are genuine obstacles to adoption. The best response here is to shift customer focus to the positives and greater efficiencies of UBP. These will vary business to business and will need personalised insight related to the customer, however some of the more widely applicable benefits of UBP are:

• Greater Cost Efficiency: Users only pay for the resources they actually consume. This can be more cost-effective for customers who have fluctuating usage patterns as users can adjust their usage and expenses based on their actual needs.
• Scalability: UBP allows clients to scale their usage as their needs change. For businesses experiencing growth or seasonal fluctuations, this flexibility can be invaluable. 
• Transparency: Helping customers make informed decisions on their resource allocation and budgeting, UBP provides greater transparency into how resources are being used and what costs are associated with that usage

Tips to effectively communicate pricing changes to customers

Know your ‘why?’

Being able to clearly communicate why your business has chosen to adopt UBP is vital when communicating the change to customers. For a definitive UBP adoption, read our Ultimate Guide to Usage-Based Pricing.  

Give plenty of notice 

Announce any pricing changes well in advance to allow customers to adjust budgets where needed. Using neutral terms when communicating these changes such as "adjust" or "update," instead of "raise" and "increase," can help mitigate negative connotations.

Focus on the benefits of UBP for your customers 

Clearly outline the benefits of the pricing changes, focusing on how they will positively impact the customer experience.

Segment Your Audience

Tailor your communication based on customer segments. Different groups may have varying reactions and concerns, so address them accordingly.

Offer Options

Present different pricing plans or options to accommodate various budgets, where possible. This gives customers a sense of control and flexibility.

Provide FAQs

Anticipate common questions and address them in an FAQ section to alleviate concerns and provide clarity.

Listen and Respond

Be prepared for feedback and have a plan in place to address concerns promptly.

Maintain Accessibility

Ensure there are channels available for customers to reach out with questions or concerns, enabling responsive and supportive client management throughout the transition period.

To learn more about how other businesses have successfully adopted UBP models and overcome objections, read some of our case studies: here.