The Shift From Subscription to Consumption-Based Pricing With Fivetran's VP of Finance, Kalor Lewis
Nov 10, 2021
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Kalor Lewis, Fivetran's VP of Finance, discusses the challenges and advantages of transitioning from subscription-based to consumption-based pricing. They explore aligning pricing with customer value, collaboration between teams, and the process of transitioning to the new model.
Transitioning to a consumption-based pricing model helped Fivetran align pricing with customer value and accurately measure utility.
The switch to consumption-based pricing required adjustments in billing systems, salesforce implementations, and collaboration between finance, engineering, and product teams.
Deep dives
Transition from Subscription to Consumption-Based Pricing
The podcast episode discusses the transition of 5Tram from a subscription-based pricing model to a consumption-based pricing model. The switch was driven by the need to align the pricing with the value customers were receiving. The new model measured the volume of data moved, which was a better measure of the utility customers got. While the consumption-based model had advantages, such as aligning with market standards and measuring customer benefits accurately, it came with operational challenges and unpredictability for customers. The finance team played a crucial role in the decision-making and understanding the financial impact, collaborating closely with product and engineering teams.
Challenges and Adaptation to Consumption-Based Pricing
The switch to consumption-based pricing brought about operational hurdles, such as the need to adjust billing systems, salesforce and CPQ implementations, and payment infrastructure. The finance team had to study data and make aggressive assumptions to estimate pricing in the new model. Segmentation of data based on customer size, region, and industry helped understand customer behavior and future revenue. The collaboration between finance, engineering, and product teams was essential to ensure transparency, visibility, and sync in reporting, planning, and modeling. The finance team had to adjust and account for the loss of predictability that comes with consumption-based pricing.
Lessons Learned and Advice for Transitioning
The experience of transitioning from subscription to consumption-based pricing highlighted the importance of seeking external advice and scoping infrastructure changes properly. The finance team recommended seeking input from consultants or advisors who have gone through similar pricing changes. They acknowledged the necessity of collaboration among all teams involved, including product, engineering, marketing, sales, and finance, to drive the success of the model. The team also emphasized the significance of understanding customer behavior, managing the renewal process, and continuously iterating the model to maximize the benefits and revenue uplift. They acknowledged the challenges but deemed the shift worthwhile.
In the cloud data space, people almost exclusively charge on the basis of data volume. Many companies switch to a consumption-based model to align their pricing with the value their customers are getting. But moving from a subscription-based to a consumption-based pricing model comes with many challenges.
Despite the industry they are operating in, when it comes to pricing, a responsible business must ensure a seamless customer experience, a certain level of predictability, and transparency.
In this episode of The Role Forward, we get to hear from Kalor Lewis, Vice President of Finance at Fivetran. Kalor and our host, Joe Garafalo, discuss why Fivetran moved to a consumption-based pricing model, the challenges and advantages of such a model, and the tools and processes they used to implement it.
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