---
title: "How to Measure New Business With Usage-Based Pricing"
episode: 2
podcast: "The LeanScale Podcast"
publisher: "LeanScale"
guest: "Bernardo Alves"
guest_title: "Engagement Manager, LeanScale"
date_published: 2023-04-18
date_modified: 2026-07-22
duration: 00:10:01
word_count: 1664
topics: ["consumption-revenue", "pricing-packaging", "forecasting", "revenue-operations", "sales-compensation"]
canonical_url: https://leanscale-knowledge-hub.netlify.app/podcast/bernardo-alves-usage-based-pricing/
source: "LeanScale Podcast Knowledge Hub — https://leanscale-knowledge-hub.netlify.app"
license: "Free to quote and cite with attribution to The LeanScale Podcast."
---

# How to Measure New Business With Usage-Based Pricing — Full Transcript

> Episode 2 of The LeanScale Podcast, with Bernardo Alves.
> Published April 18, 2023 · 00:10:01 · 1,664 words.
> Machine-transcribed and **not diarized** — speaker attribution is inferred, so verify
> attribution against the audio before quoting a specific person.
> Structured breakdown: https://leanscale-knowledge-hub.netlify.app/podcast/bernardo-alves-usage-based-pricing/

## 00:00 — Cold open

**[0:00]** Hi, I'm Anthony. Welcome to The LeanScale Podcast, where we talk about everything RevOps. Thanks for listening.

## 00:20 — Meet Bernardo Alves + why usage-based pricing is winning

**[0:20]** All right. Welcome, everybody. I'm really excited to go into today's topic. We're going to be talking about usage-based pricing and what to do about it to measure your new business. With me today is Bernardo Alves, and he's one of the top consultants with The LeanScale team. Bernardo, why don't you give yourself an introduction? Yeah, absolutely. I'm Bernardo, engagement manager here at LeanScale. It feels like this topic is pretty close to home. I used to work at a solely usage-based company, and we attempted a transition to more sustainable revenue in terms

**[0:54]** of contracted rates, and there's some pitfalls there, so excited to cover those and talk a little bit more about the experience. Absolutely. I think what would be a good way to ground this topic is to talk about why is usage-based pricing becoming so popular, and why do we see so many companies leveraging it? Yeah, absolutely. I think the biggest thing is just how flexible it is, right? It's a very easy buying experience from the consumer, right? You don't have a commitment. You can use as you go whatever feels right, and if you need to stop, you can do so at any time.

**[1:28]** What more can you ask as a customer? You're not locked into a raid or anything like that. It offers tremendous flexibility, and then on the business side, there's always the upside, right? Your contracts that have usage-based agreements usually have the potential to overperform. Somebody might use more than they expected, so you reap the benefits there as well, so despite its volatility, it offers certain benefits to both parties as well as just being easy to get into. Yeah, and there's a lot of data that shows that companies that implement the usage-based pricing model actually experience more growth than strictly committed contract

## 02:05 — What makes usage-based revenue hard to measure

**[2:05]** models, and I think it makes sense because you completely match what the consumer is extracting value out of your service or product from and the credit that the business gets for delivering that service or product. Absolutely. So it's a model that makes sense for the business. It's a model that makes sense for the consumer. What's difficult about it? Yeah, so the biggest thing is communicating that data, right? I think most of us are coming from an environment in which predictability is usually appreciated by the business, whether you have a board of investors

**[2:48]** that you're reporting to or if you're a public company in which people expect to see results, having it all be flexible and up in the air. Not exactly something that people are very comfortable with, so that's challenge number one from a business perspective. It's unpredictable. There's ways of forecasting it, but it's not always the easiest. The second one is communicating new business acquisitions, right? You don't know what that potential could be. You might have an intrinsic sense, but you're not sure when the customer is going to realize it, how long it

**[3:22]** will take for them to ramp. They could shut off at any moment. So communicating what the future value is of something that came into the door today is significantly trickier than something that's committed and coming in with a booking that you have a contract for, where you can just say, yeah, over the course of this 12-month period, we're going to realize at least as much out of this customer. I think that's the biggest thing, measuring new business and two aspects of new business. One, measuring how much you've closed one and then measuring what your pipeline is,

## 03:54 — The $0 deal: a seven-figure land that scored as nothing

**[3:54]** I think is just extremely difficult. And I can give a good example of this. So when I was working in Bernardo, for those listening, Bernardo and I worked at the same company, so went through some of the same, we'll call them opportunities of learning with usage-based companies. But one example that really sticks out to me is we were celebrating a massive deal. We just closed a major financial institution. We knew that the upside on this deal could be massive. It could be a potential seven-figure deal for the company. And when we went to go report our new business

**[4:33]** performance the next quarter, it showed up as a zero dollar deal because none of it was committed. And I think we got completely reamed for having that result and got no credit for closing major financial institutions, something that was going to add extreme levels of valuation to the company.

## 04:57 — The commitment-for-discount trap

**[4:57]** That sucks. It absolutely blows, doesn't it? And I think one of the unintended consequences that you should stay away from, don't be the person that does it unless it's absolutely necessary, is feeling the need to lock some of that into a committed contract while sacrificing your per unit price. That was a big push that stemmed from that horrible experience, which was, okay, we know that they're going to use this much. Let's lock them in for 25 percent of what we expect and give them a discount of 10 percent on the price. We just lost 10 percent. We didn't gain

**[5:35]** anything from it outside of a security blanket that no one on the internal side thought was going to matter anyway. We knew what they were going to use. That's right. That's right. Because the customer is going to use as much as they're going to use anyway. Right. So whether you commit it or not, there's very few times where you significantly protected any downside of it. You just discount it upside. Okay. So what do we do about it? Yeah, I think that there's kind of three things that you can do. The first one is for usage base, you're probably going to want to

## 06:09 — Fix \#1: assign an expected value (EACV / EARR)

**[6:09]** assign an expected future value. We've seen it called EACV in the past. That just means expected annual contract value or EAR or something like that. But some kind of informed decision of what do you think this will be worth over the first 12 months or whatever period you're looking at? Got it. So even if you have zero committed. Yeah, absolutely. Yeah. Otherwise, it's hard to communicate the value of that deal. And you run into those situations where it's, hey, we just close the big one. Okay. What's it worth? We'll see. Right. You don't want to be the guy in that position. So the next thing is EACVs are nice, right? You should have an expected

## 06:50 — Fix \#2: track actuals against expectations

**[6:50]** future value, but it's very important to track how that is actually turning out in reality. And depending on your business and your needs, you might need to do it on a monthly basis, a daily, whatever it may be. But at least at the very least within the first year, track actuals against that, right? I think it's really important from the business, from commission's perspective and understanding where you sit based on those original expectations to see, did we overperform on that expectation? Are we way off on the low side? They use only 5% of what we thought they would be. Because those are learning opportunities and they will

**[7:29]** inform how you do this better in the future and build you that trust to communicate that data with whoever might need it further down the pipeline, investors, company stakeholders, anything like that in the future. Yeah, I think that makes a lot of sense. And something we talk about a lot is data is not going to give you the perfect answer, but it does get you one step closer to the truth. So if you can start to value some of those companies and start to get a closer idea for what they're worth to the business, I think that's really important. And something something that we recommend to our customers when you're building this concept of expected

## 08:07 — Fix \#3: data baselines + trusting your reps

**[8:07]** annual contract value or expected annual recurring revenue from an account. The first thing that we recommend is start with the baseline of data. So go look at the usage trends from similar companies, go look at the usage trends from the first three, six, nine months of a customer, and then bake that into your methodology of estimating the value of that account. So look at your past data, get some data throughout the sales process. It should absolutely be a discussion. I'm sure it is, but if it's not, implement that immediately. And then put in the right level of safeguards and

**[8:48]** discounts to make it as accurate as possible, which is the best you can do. Yeah, absolutely. And you know, empower and trust your reps too, right? If you have faith in your discovery process, and you're adequately scoping things, they are going to be the best resources in terms of the customers talking about. So when you marry those two kind of ideologies, and you have a data backed and a subjective basis, you're usually going to fall somewhere in the ballpark. Obviously, it's not going to be perfect. Hopefully, it's on the positive side. And they unlock new opportunities

## 09:21 — What's next: commissions for usage-based companies

**[9:21]** that you know, weren't scoped out at the beginning. But as long as you have a consistent way of tackling this, you're usually in a pretty good spot. Yeah, and something we're not going to talk about today, but we will in the future is commission plans for usage based companies. So you want to get the accuracy from the reps, they're the best people who know it. But do you want to put dollars to it? Maybe not. Yeah, that gets a little bit tricky real quick, doesn't it? Awesome. Well, Bernardo, thank you so much. I think this is really valuable information. Appreciate you spending time on it. And we'll catch you on the next one.

**[9:54]** Awesome. Thank you so much, Anthony.