Todd Gardner - The rise of Usage-Based Pricing in B2B SaaS

**Ray Rike** (0:00)
Hello, I'm Ray Reich, founder and CEO of RevOp Squared, and your host of the Metrics that Measure Up podcast. We talked to a wide variety of B2B, SaaS and Cloud thought leaders, executives, investors, and people just like you to discuss the metrics and benchmarks they use to make metrics-informed decisions. Now on to today's show.
Welcome to today's episode of the Metrics That Measure Up Podcast. Today, we are joined by Todd Gardner, the founder and principal of SaaS Advisors, and formerly the founder of SaaS Capital. Today, we will be covering four main areas with Todd. First, usage-based pricing, the definition. Second, some of the trends in usage-based pricing utilization. Third, the benefits of usage-based pricing for both the vendor and the customer. Lastly, the product and the product attributes that are best positioned to take full advantage of the usage-based pricing model. Todd, can you please take a moment and give a brief background overview of your journey to becoming a guest on the Metrics Measure Up podcast.

**Todd Gardner** (1:20)
Hey Ray. First off, thanks so much for having me. It's great to be on and you've had such amazing guests. I'm really humbled to be here. I spent 20 years really in directly in the SaaS space. My most relevant background here is obviously SaaS Capital where we ended up, we didn't know it at the time, but we launched what's now a little mini industry of debt providers serving the SaaS industry, which is great. I'm super excited that a lot of lower price capital is helping founders grow their business in a less diluted way.
In that journey, got to meet with and review the financial statements of thousands of SaaS companies. I was in venture before that and was there in a really interesting time where software was progressing from the perpetual stage through application service providers. Do you remember those guys, the ASPs?

**Ray Rike** (2:17)
ASPs, just a bit price piece of software and put it on servers and call it a subscription business model.

**Todd Gardner** (2:23)
That's exactly right. Yeah, it was fake SaaS, but it's nice to talk to somebody who remembers that. My firm ended up being an investor in the very first ASP. But I got to see that transition, so worked with my portfolio companies when they were literally transitioning from the perpetual model to the SaaS model, and got to see upfront all the implications of that. And then, of course, they were making up metrics and cash flow models and everything like that. And then obviously, I've just seen that pattern repeat over years and years at SaaS Capital.

**Ray Rike** (2:57)
Well, an amazing background, kind of seeing the evolution of the B2B SaaS industry and from a debt lending side, which by the way, I'm amazed. There's so many new kind of credit facility debt lenders based upon ARR cropping up, and really trying to help founders go from getting significant dilution early in the company's journey to using debt as a growth lever. I really love it. Do you see debt becoming more and more popular in the industry as we continue to mature?

**Todd Gardner** (3:26)
Oh, absolutely. I mean, it's frankly one of the reasons I got out. I was operating great as a monopoly. I really enjoyed that. My negotiating skills were better. My jokes were funnier. And yeah, now there's a lot of folks in it. I think you need to be careful with it, but I'm literally working with a SaaS company today. There are 2 million in ARR and collectively, the founders own 20 percent of the business. And that's the problem that debt is trying to solve. And at SaaS Capital, it's interesting not to go too far afield, but we had a lot of second time founders. They're like, yeah, I did that before and I used venture the whole way and we had a great outcome. But this time I want to do it and I want to, I own two-thirds of the business when I sell it, if not 10%.

**Ray Rike** (4:16)
We could do a whole episode here in the Metrics and Measure Up podcast on financing options. But the reason you're on today is I just, I've loved some of the posts you've been making on LinkedIn recently around the topic of usage-based pricing and how it's evolving in the B2B SaaS industry. So let's start at the beginning, Todd, can you define for our listening audience, what usage-based pricing is in context of the SaaS industry?

**Todd Gardner** (4:44)
Yeah, it's not overly complicated. I mean, it is what it sounds like, right? It's tying your pricing to some sort of value metric, and then it's highest and best form.