Author: Eric Cohan

At Mereo, we are proud to share insights from distinguished voices across the B2B ecosystem. In this guest article, we welcome Eric Cohan, founder of Shoal Creek Solutions and a seasoned procurement expert. With decades of hands-on experience leading enterprise sourcing strategies and navigating complex vendor negotiations, Eric brings a pragmatic, buyer-centric lens to today’s evolving pricing models. His perspectives challenge conventional thinking and empower leaders to drive greater alignment between value creation and spend.

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In part one, “Is Your Pricing Model Holding You Back? 4 Appealing Benefits Consumption-Based Models Offer B2B Buyers,” we explored the rising appeal of consumption-based pricing from a buyer’s perspective.

This is a model where buyers pay only for what they use, offering increased flexibility, lower entry costs and simplified procurement. While this approach can better align spend with value, it also introduces budgeting unpredictability and governance challenges for your buyers. Understanding both sides of the equation can help you position offerings more strategically and support smarter buyer decisions.

But how could consumption-based pricing affect your business? As more selling organizations explore this dynamic model, it is important to also understand what this model means for sellers. Read more for the pros and cons of this pricing model.

PROS OF CONSUMPTION-BASED PRICING FOR YOUR ORGANIZATION

1. Easier Buyer Onboarding
   The lower financial commitment of consumption-based pricing often enables selling organizations to secure new buyers more easily. Reduced buyer resistance leads to faster acquisition and broader reach. It is a win-win.
2. Revenue Growth Tied to Buyer Success
   This model creates alignment between buyer usage and seller revenues. As buyers realize value and expand usage, revenues grow accordingly — making it another win-win for both parties.
3. Simplified Product Mix Management
   When buyers pay based on usage rather than selecting fixed packages, sellers avoid the inefficiencies and inaccuracies of predefining complex product mixes. Buyers naturally gravitate toward the capabilities that create value, and the billing aligns with real usage.

SELLER CONS OF CONSUMPTION-BASED PRICING

1. Sales Compensation Challenges
   Traditional sales compensation structures are tied to upfront commitments. Under a consumption-based model, sales teams may struggle to receive timely commissions if revenues accrue slowly over time. This shift may require redefining incentive structures — potentially on a monthly or quarterly basis — and resolving territory ownership for ongoing consumption.
2. Dependence on Implementation and Customer Success
   Revenue realization now depends heavily on the speed and success of implementation. Sales teams may find their earnings dependent on customer success teams’ performance — an interdependency that introduces new organizational tension and requires tighter alignment across departments.
3. Reduced Buyer Commitment and Engagement
   Without a significant upfront investment, buyers may be less motivated to ensure successful implementation. If internal challenges arise, there is less financial impetus for buyers to push through adoption hurdles, increasing the risk of churn or stagnation.
4. Surprise Costs Can Erode Trust
   When buyers exceed their expected usage, they may react negatively to higher-than-anticipated bills. This can damage the vendor relationship, provoke renegotiation requests, or lead to delayed payments—undermining forecast reliability and long-term satisfaction.

MAKE A SMOOTH TRANSITION FOR SKYROCKETING PERFORMANCE

A successful transition to consumption-based pricing hinges on evolving compensation models, fostering strong post-sale implementation, and supporting buyers through proactive usage analytics and engagement.

As this model becomes more mainstream, B2B leaders who embrace the nuances — and proactively adapt their internal strategies — will be best positioned to thrive.

Are you ready to navigate consumption-based pricing and overcome the top seller pitfalls? Let’s talk.

At Mereo, we are proud to share insights from distinguished voices across the B2B ecosystem. In this guest article, we welcome Eric Cohan, founder of Shoal Creek Solutions and a seasoned procurement expert. With decades of hands-on experience leading enterprise sourcing strategies and navigating complex vendor negotiations, Eric brings a pragmatic, buyer-centric lens to today’s evolving pricing models. His perspectives challenge conventional thinking and empower leaders to drive greater alignment between value creation and spend.

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An increasingly popular pricing and licensing model is gaining momentum among software organizations — and even some hardware providers: consumption-based pricing.

At its core, the concept is straightforward. Buyers pay for what they use. This stands in contrast to legacy pricing models such as perpetual licenses, which buyers pay upfront for long-term ownership, or traditional subscriptions, which typically involve committing to one- or multi-year agreements with fixed terms.

As more companies explore this dynamic pricing model, it is important for B2B leaders to understand both its potential benefits and pitfalls for their buyers. These points can help your salespeople build compelling business cases and prepare objection-reframes. Read more to learn how this pricing approach can serve your buyers and what might hold them back from making a deal.

PROS OF CONSUMPTION-BASED PRICING FOR YOUR BUYERS

1. Lower Barriers to Entry
   Consumption-based pricing significantly reduces the upfront investment required to begin using a product. Instead of committing to a large annual or multi-year contract, buyers can start with minimal financial exposure — purchasing only what they need and scaling usage over time based on where they realize value.
2. Flexibility and Financial Efficiency
   This model enables companies to pay as they go, allowing real-time alignment between usage and value received. It minimizes the risk of overcommitting to software or hardware resources that go underutilized, an issue prevalent in traditional models.
   
   For example: A few years ago, a large IT organization opted to pre-purchase “tokens” under a consumption-based structure. These tokens granted access to the full suite of capabilities from day one, but the company only began expensing them as they were used. Even better, the payment schedule included a six-month deferral, allowing the organization to delay cash outflows while starting to derive value. This arrangement provided both operational agility and financial efficiency — akin to purchasing Chuck E. Cheese tokens. The asset was owned, but cost was only incurred upon use.
   Organizations can structure deals that blend pre-commitment with usage-based activation — delivering control, flexibility and better alignment between procurement and ROI.

3. Simplified Governance and Procurement
   With a lower initial spend, fewer internal approvals may be needed. For example, rather than undergoing rigorous oversight for a $500,000 annual purchase, an organization may initially commit only $50,000. This reduces administrative friction and accelerates deployment.
4. Value-Driven Scaling
   If the solution generates value quickly, it can effectively fund itself over time. Early success can lead to increased adoption and incremental budget allocation, making the investment sustainable and measurable from the outset.

CONS OF CONSUMPTION-BASED PRICING FOR YOUR BUYERS

1. Budgeting Complexity and Overspend Risk
   One major challenge is the unpredictability of usage. For example, an organization may estimate a need for 120 units annually, only to reach that number by month eight — without additional budget allocated. This can lead to financial surprises, strained budgets and last-minute internal scrambling for approvals.
2. Diluted Purchasing Power
   When companies avoid upfront commitments, they may lose the ability to negotiate volume discounts. Instead of leveraging a $500,000 forecasted spend for better rates, they may end up paying closer to retail pricing throughout the year.
3. Insufficient Governance for Large-Scale Spend
   Organizations may find themselves inadvertently bypassing procurement standards and internal controls. The flipside to pro No. 3, a project that begins as a $50,000 initiative could evolve into a $500,000 investment, without having received the proper scrutiny that such a spend typically demands.

WIN WITH BUYERS WITH CONSUMPTION-BASED PRICING

Consumption-based pricing is not merely a trend. This model reflects a broader shift toward flexibility, agility and value-based purchasing in enterprise technology.

While this pricing approach presents meaningful advantages for buyers, it also introduces operational and financial complexities that must be carefully managed. As this model becomes more mainstream, B2B leaders who embrace the nuances — and proactively adapt their selling messaging and strategies — will be best positioned to thrive.

Are you ready to navigate consumption-based pricing and overcome buyer roadblocks and hesitancy? Let’s talk.

And stay tuned next month for part two, where we will dive into the pros and cons of this pricing approach from a seller’s perspective.