Consumption vs Invoice Business Model

Coffee vs a Gym Membership Model?

Insight from Maxio

How do you get the most bang for your buck while ensuring your customers leave satisfied?

We have consumption-based pricing in one corner, the "pay-as-you-go" model. It's like buying coffee; you pay for what you consume. Simple, right?

But then, there's the other corner: subscription invoicing or the "all-you-can-eat" model. This is your gym membership, where you pay a flat rate regardless of usage.

Now, some brainy folks have tried to combine these models, aiming for a pricing Frankenstein that captures the best of both worlds.

Imagine a coffee shop subscription where your first ten coffees are covered in your monthly fee, but the 11th latte costs extra.

Tempting, but tricky to pull off without giving your customers a headache.

Based on a report by Maxio, breaking through the $1MM Annual Recurring Revenue (ARR) is a big barrier for most businesses.

The data suggested that subscription models might give you an edge, outpacing pure-play consumption models with a dazzling 33% growth.

But once you've crossed the $1MM ARR bridge, it's time to reassess. That same research shows that your pricing model should flip.

When the market's booming, consumption models soar, immediately capitalizing on the upswing. But when the tides turn, subscription models, with their predictable revenue cushion the blow of economic downturns up to a year later.

Choosing between consumption and subscription (or some alchemical mix of the two) isn't just about flipping a coin. So, what's it going to be?

The flexibility of consumption, the predictability of subscription, or the daring dance of hybrid pricing?